10-12B

UNITED STATESSECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10

GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934

Biotech Spinco, Inc.

(Exact name of registrant as specified in its charter)

Delaware	26-2940575
(State or other jurisdiction ofincorporation or organization)	(I.R.S. Employer Identification No.)
1400 Seaport Boulevard, Redwood City, CA	94063
(Address of principal executive offices)	(Zip Code)

(650) 454-1000

 (Registrant’s telephone number, including area code)

Securities to be registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which
to be so Registered	Each Class is to be Registered
Common Stock, par value $0.01 per share	NASDAQ Global Market

Securities to be registered pursuant to Section 12(g) of the Act

None

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer x
Non-accelerated filer o  (Do not check if a smaller reporting company)	Smaller reporting company o

INFORMATION REQUIRED IN REGISTRATION STATEMENT

CROSS REFERENCE SHEET BETWEEN INFORMATION STATEMENT AND ITEMS OF FORM 10

Our information statement is filed as Exhibit 99.1 to this Form 10. For your convenience, we have provided below a cross-reference sheet identifying where the items required by Form 10 can be found in the information statement.

Item No.	Caption	Location in Information Statement
1.	Business	“Summary”, “Risk Factors”, “The Spin-Off”, “Our Business”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Where to Obtain More Information”
1A.	Risk Factors	“Risk Factors”
2.	Financial Information	“Historical Selected Financial Data”, “Unaudited Pro Forma Condensed Combined Balance Sheet”, “Capitalization”, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
3.	Properties	“Our Business”, and “Our Relationship with PDL after the Spin-Off”,
4.	Security Ownership of Certain Beneficial Owners and Management	“Security Ownership of Certain Beneficial Owners and Management”
5.	Directors and Executive Officers	“Management”, and “Board of Directors”
6.	Executive Compensation	“Compensation Discussion and Analysis”
7.	Certain Relationships and Related Transactions and Director Independence	“Security Ownership of Certain Beneficial Owners and Management”, “Related Person Transactions”, and “Our Relationship with PDL after the Spin-Off”, “Board of Directors”
8.	Legal Proceedings	“Our Business”
9.	Market Price of Dividends on Registrant’s Common Equity and Related Stockholder Matters	“The Spin-Off,” “Dividend Policy”, “Description of Capital Stock”, and “Compensation Discussion and Analysis”
10.	Recent Sales of Unregistered Securities	Not Applicable
11.	Description of Registrant’s Securities to be Registered	“The Spin-Off”, “Dividend Policy” and “Description of Capital Stock”
12.	Indemnification of Directors and Officers	“Indemnification of Directors and Officers”

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Item No.	Caption	Location in Information Statement
13.	Financial Statements and Supplementary Data	“Historical Selected Financial Data”, and “Unaudited Pro Forma Condensed Combined Balance Sheet”
14.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	Not Applicable
15.	Financial Statements and Exhibits

(a)  Financial Statements

The information required by this item is contained in the “Unaudited Pro Forma Financial Statements” and “Index to Financial Statements” and the statements referenced therein and is incorporated herein by reference.

(b)  Exhibits

The following documents are filed as exhibits hereto:

Exhibit No.	Exhibit
2.1	Form of Separation and Distribution Agreement by and between Biotech Spinco, Inc. and PDL BioPharma, Inc.**
3.1	Form of Amended and Restated Certificate of Incorporation of Biotech Spinco, Inc.
3.2	Form of Bylaws of Biotech Spinco, Inc.
4.1	Specimen Stock Certificate of Biotech Spinco, Inc.**
10.1	Form of Transition Services Agreement by and between Biotech Spinco, Inc. and PDL BioPharma, Inc.**
10.2	Form of Tax Sharing and Indemnification Agreement by and between Biotech Spinco, Inc. and PDL BioPharma, Inc.**
*10.3	2008 Equity Incentive Plan**
*10.4	Form of Notice of Grant of Stock Option under the 2008 Equity Incentive Plan**
*10.5	Form of Stock Option Agreement under the 2008 Equity Incentive Plan**
*10.6	Forms of Notice of Grant of Restricted Stock Award under the 2008 Equity Incentive Plan**
*10.7	Form of Restricted Stock Agreement under the 2008 Equity Incentive Plan**
*10.8	Form of Retention and Severance Plan**
*10.9	Form of Director and Officer Indemnification Agreement**
10.10	Triple Net Space Lease, effective July 6, 2006, between Pacific Shores Investors, LLC and PDL BioPharma, Inc. (for building located at 1400 Seaport Boulevard, Redwood City, California)
10.11	Triple Net Space Lease, effective July 6, 2006, between the Pacific Shores Investors, LLC and PDL BioPharma, Inc. (for building located at 1500 Seaport Boulevard, Redwood City,

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	California)
10.12	Sublease, effective July 6, 2006, between Openwave Systems, Inc. and PDL BioPharma, Inc. (for building located at 1400 Seaport Boulevard, Redwood City, California)
10.13	Collaboration Agreement between PDL BioPharma, Inc. and Biogen Idec MA Inc., dated September 12, 2005†
10.14	License Agreement dated as of December 15, 2005 by and between PDL BioPharma, Inc. and Human Genome Sciences, Inc.**
10.15	Asset Purchase Agreement between PDL BioPharma, Inc. and EKR Therapeutics, Inc. dated February 4, 2008†
10.16	Clinical Drug Substance Supply Agreement between PDL BioPharma, Inc. and GMN, Inc. effective March 13, 2008**
21.1	Subsidiaries of Biotech Spinco, Inc.
99.1	Preliminary Information Statement of Biotech Spinco, Inc., dated August 13, 2008

*	Management contract or compensatory plan or arrangement
**	To be filed by amendment
†	Certain information in this exhibit has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request under 17 C.F.R. Sections 200.80(b)(4) and 24b-2.

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SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.

	BIOTECH SPINCO, INC.
Date: August 13, 2008	By:	/s/ Andrew Guggenhime
		Andrew Guggenhime
		Chief Executive Officer and President

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INDEX TO EXHIBITS

Exhibit No.	Exhibit
2.1	Form of Separation and Distribution Agreement by and between Biotech Spinco, Inc. and PDL BioPharma, Inc.**
3.1	Form of Amended and Restated Certificate of Incorporation of Biotech Spinco, Inc.
3.2	Form of Bylaws of Biotech Spinco, Inc.
4.1	Specimen Stock Certificate of Biotech Spinco, Inc.**
10.1	Form of Transition Services Agreement by and between Biotech Spinco, Inc. and PDL BioPharma, Inc.**
10.2	Form of Tax Sharing and Indemnification Agreement by and between Biotech Spinco, Inc. and PDL BioPharma, Inc.**
*10.3	2008 Equity Incentive Plan**
*10.4	Form of Notice of Grant of Stock Option under the 2008 Equity Incentive Plan**
*10.5	Form of Stock Option Agreement under the 2008 Equity Incentive Plan**
*10.6	Forms of Notice of Grant of Restricted Stock Award under the 2008 Equity Incentive Plan**
*10.7	Form of Restricted Stock Agreement under the 2008 Equity Incentive Plan**
*10.8	Executive Retention and Severance Plan**
*10.9	Form of Director and Officer Indemnification Agreement**
10.10	Triple Net Space Lease, effective July 6, 2006, between Pacific Shores Investors, LLC and PDL BioPharma, Inc. (for building located at 1400 Seaport Boulevard, Redwood City, California)
10.11	Triple Net Space Lease, effective July 6, 2006, between the Pacific Shores Investors, LLC and PDL BioPharma, Inc. (for building located at 1500 Seaport Boulevard, Redwood City, California)
10.12	Sublease, effective July 6, 2006, between Openwave Systems, Inc. and PDL BioPharma, Inc. (for building located at 1400 Seaport Boulevard, Redwood City, California)
10.13	Collaboration Agreement between PDL BioPharma, Inc. and Biogen Idec MA Inc., dated September 12, 2005†
10.14	License Agreement dated as of December 15, 2005 by and between PDL BioPharma, Inc. and Human Genome Sciences, Inc.**
10.15	Asset Purchase Agreement between PDL BioPharma, Inc. and EKR Therapeutics, Inc. dated February 4, 2008†
10.16	Clinical Drug Substance Supply Agreement between PDL BioPharma, Inc. and GMN, Inc. effective March 13, 2008**
21.1	Subsidiaries of Biotech Spinco, Inc.

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99.1 Preliminary Information Statement of Biotech Spinco, Inc., dated August 13, 2008

*	Management contract or compensatory plan or arrangement
**	To be filed by amendment
†	Certain information in this exhibit has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request under 17 C.F.R. Sections 200.80(b)(4) and 24b-2.

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EX-3.1

Exhibit 3.1

Amended and Restated Certificate of Incorporation

of Biotech Spinco, Inc.

Biotech Spinco, Inc., a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows:

	1.The name of the corporation is Biotech Spinco, Inc.
	2.The date of filing of its original Certificate of Incorporation with the Secretary of State of the State of
Delaware was June 27, 2008.  The corporation was originally incorporated under the name of Dolphin Biotech Corp.
	3.This Amended and Restated Certificate of Incorporation restates and integrates and further amends
the Certificate of Incorporation of the corporation as herein set forth in full:
Article I:	The name of the corporation is Biotech Spinco, Inc. (hereinafter sometimes referred to as the “Corporation”).
Article II:	The address of the registered office of the Corporation in the State of Delaware is Incorporating Services, Ltd., 15 East North Street, in the City of Dover, County of Kent.  The name of the registered agent at that address is Incorporating Services, Ltd.
Article III:	The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of the State of Delaware.
Article IV:	A.The total number of shares of all classes of stock which the Corporation shall have authority to issue is One Hundred Fifty Million (150,000,000) shares, consisting of:
	1.One Hundred Forty Million (140,000,000) shares of Common Stock, par value $0.01 per share (“Common Stock”); and
	2.Ten Million (10,000,000) shares of Preferred Stock, par value $0.01 per share (“Preferred Stock”).
	B.The Board of Directors is authorized, subject to any limitations prescribed by law, to provide for the issuance of shares of Preferred Stock in series and, by filing a certificate pursuant to the applicable law of the State of Delaware, to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences and rights of the

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	shares of each such series and any qualifications, limitations or restrictions thereon.  The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then-outstanding) by the affirmative vote of the holders of a majority of the then-outstanding shares of Common Stock without a vote of the holders of outstanding shares of Preferred Stock, or of any series thereof, unless a vote of any such holders is required pursuant to the certificate or certificates establishing the series of Preferred Stock.
Article V:	The following provisions are inserted for the management of the business and the conduct of the affairs of the Corporation, and for further definition, limitation and regulation of the powers of the Corporation and of its directors and stockholders:
	A.The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors.  In addition to the powers and authority expressly conferred upon them by statute or by this Certificate of Incorporation or the Bylaws of the Corporation, the directors are hereby empowered to exercise all such powers and do all such acts and things as the Corporation may exercise or do.
	B.The directors of the Corporation need not be elected by written ballot unless the Bylaws so provide.
	C.Effective as of the time at which PDL BioPharma, Inc. (“PDL”), a Delaware corporation, shall cease to be the beneficial owner of an aggregate of at least a majority of the then-outstanding shares of Common Stock of the Corporation as a result of a distribution of such shares to PDL’s stockholders (the “Spin-Off”), any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders of the Corporation and may not be effected by any consent in writing by such stockholders.  At all times prior to the Spin-Off, any action which may be taken at any annual or special meeting of stockholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the actions so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes which would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.  All such consents shall be filed with the Secretary of the Corporation and shall be maintained in the corporate records.  Prompt notice of the taking of a corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing.
	D.Special meetings of stockholders of the Corporation may be called only by either the Board of Directors, the Chairperson of the Board or the President.

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Article VI:	A.The number of directors shall initially be one and, thereafter, shall be fixed from time to time exclusively by the Board of Directors.  All directors shall hold office until their respective successors are elected, except in the case of the death, resignation, or removal of any director.
	B.Subject to the rights of the holders of any series of Preferred Stock then outstanding, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation or other cause (including removal from office by a vote of the stockholders) may be filled only by a majority vote of the directors then in office, though less than a quorum, or by the sole remaining director and directors so chosen shall hold office for a term expiring at the next annual meeting of stockholders, and until their respective successors are elected, except in the case of the death, resignation, or removal of any director.  No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.
	C.Subject to the rights of the holders of any series of Preferred Stock then outstanding, any directors, or the entire Board of Directors, may be removed from office at any time, with or without cause, but only by the affirmative vote of the holders of at least a majority of the voting power of all of the then-outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class.
Article VII:	The Board of Directors is expressly empowered to adopt, amend or repeal Bylaws of the Corporation.  The stockholders shall also have power to adopt, amend or repeal the Bylaws of the Corporation.  Any adoption, amendment or repeal of Bylaws of the Corporation by the stockholders shall require, in addition to any vote of the holders of any class or series of stock of the Corporation required by law or by this Certificate of Incorporation, the affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then-outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class.
Article VIII:	A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director’s duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involved intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit.
	If the Delaware General Corporation Law is hereafter amended to authorize the

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	further elimination or limitation of the liability of a director, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended.
	Any repeal or modification of the foregoing provisions of this Article Eighth by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification.
Article IX:	The Corporation reserves the right to amend or repeal any provision contained in this Amended and Restated Certificate of Incorporation in the manner prescribed by the laws of the State of Delaware and all rights conferred upon stockholders are granted subject to this reservation; provided, however, that, notwithstanding any other provision of this Certificate of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any vote of the holders of any class or series of the stock of this Corporation required by law or by this Amended and Restated Certificate of Incorporation, the affirmative vote of the holders of at least 66-2/3% of the voting power of all of the then outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend or repeal this Article Ninth, Article Fifth, Article Sixth, Article Seventh or Article Eighth.

*      *      *

4.This Amended and Restated Certificate of Incorporation has been duly adopted by the board of directors and stockholders of the Corporation in accordance with the applicable provisions of Sections 242 and 245 of the General Corporation Law of the State of Delaware.

IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation has been executed by the President and Chief Executive Officer of the Corporation this            day of [                ], 2008.

[                   ]
By:
Name:	[                       ]
Title:	President and Chief Executive Officer

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EX-3.2

Exhibit 3.2

Bylaws

of

Biotech Spinco, Inc.

TABLE OF CONTENTS

		Page
Article I	Stockholders	1
1.1	Place of Meetings	1
1.2	Annual Meeting	1
1.3	Special Meetings	1
1.4	Notice of Meetings	1
1.5	Voting List	2
1.6	Quorum	2
1.7	Adjournments	2
1.8	Voting and Proxies	3
1.9	Action at Meeting	3
1.10	Notice of Stockholder Business	3
1.11	Conduct of Business	4
1.12	Stockholder Action Without Meeting	5
1.13	Meetings by Remote Communication	6
Article II	Board of Directors	6
2.1	General Powers	6
2.2	Number and Term of Office	6
2.3	Vacancies and Newly Created Directorships	7
2.4	Resignation	7
2.5	Removal	7
2.6	Regular Meetings	7
2.7	Special Meetings	7
2.8	Notice of Special Meetings	7
2.9	Participation in Meetings by Telephone Conference Calls or Other Methods of Communication	8
2.10	Quorum	8
2.11	Action at Meeting	8
2.12	Action by Written Consent	8
2.13	Committees	8
2.14	Compensation of Directors	9
2.15	Nomination of Director Candidates	9

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		Page
Article III	Officers	11
3.1	Enumeration	11
3.2	Election	11
3.3	Qualification	11
3.4	Tenure	11
3.5	Resignation and Removal	11
3.6	Chairperson of the Board	11
3.7	Chief Executive Officer	12
3.8	President	12
3.9	Vice Presidents	12
3.10	Secretary and Assistant Secretaries	12
3.11	Treasurer	13
3.12	Chief Financial Officer	13
3.13	Salaries	13
3.14	Delegation of Authority	13
Article IV	Capital Stock	13
4.1	Issuance of Stock	13
4.2	Certificates of Stock	13
4.3	Transfers	14
4.4	Lost, Stolen or Destroyed Certificates	14
4.5	Record Date	14
Article V	General Provisions	15
5.1	Fiscal Year	15
5.2	Corporate Seal	15
5.3	Waiver of Notice	15
5.4	Actions with Respect to Securities of Other Corporations	15
5.5	Evidence of Authority	15
5.6	Certificate of Incorporation	15
5.7	Severability	15
5.8	Pronouns	16
5.9	Notices	16

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		Page
5.10	Reliance Upon Books, Reports and Records	16
5.11	Time Periods	16
5.12	Facsimile Signatures	16
Article VI	Amendments	17
6.1	By the Board of Directors	17
6.2	By the Stockholders	17
Article VII	Indemnification of Directors and Officers	17
7.1	Right to Indemnification	17
7.2	Right of Claimant to Bring Suit	18
7.3	Indemnification of Employees and Agents	18
7.4	Non-Exclusivity of Rights	18
7.5	Indemnification Contracts	18
7.6	Insurance	19
7.7	Effect of Amendment	19

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Bylaws

of
Biotech Spinco, Inc.

Article I
Stockholders

1.1   Place of Meetings.  Biotech Spinco, Inc. (the “Corporation”) shall hold all meetings of stockholders at such place (if any) within or without the State of Delaware as the Board of Directors, the President or the Chief Executive Officer may designate from time to time.

1.2   Annual Meeting.  The Corporation shall hold the annual meeting of stockholders for the election of directors and for the transaction of such other business as may properly be brought before the meeting on a date and at a time and place fixed by the Board of Directors and stated in the notice of the meeting.  In lieu of holding an annual meeting of stockholders at a designated place, the Board of Directors may, in its sole discretion, determine that any annual meeting of stockholders may be held solely by means of remote communication.

1.3   Special Meetings.  Special meetings of stockholders may be called at any time by the Board of Directors, the Chairperson of the Board or the President, for any purpose or purposes prescribed in the notice of the meeting and shall be held at such place (if any), on such date and at such time as the Board may fix.  In lieu of holding a special meeting of stockholders at a designated place, the Board of Directors may, in its sole discretion, determine that any special meeting of stockholders may be held solely by means of remote communication.  Business transacted at any special meeting of stockholders shall be confined to the purpose or purposes stated in the notice of meeting.

1.4   Notice of Meetings.

(a)   Written notice of each meeting of stockholders, whether annual or special, shall be given not less than 10 nor more than 60 days before the date on which the meeting is to be held, to each stockholder entitled to vote at such meeting, except as otherwise provided in these Bylaws or as required by law (meaning here and hereafter, as required from time to time by the Delaware General Corporation Law or the Certificate of Incorporation).  The notice of any meeting shall state the place, if any, date and hour of the meeting, and the means of remote communication, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such meeting.  The notice of a special meeting shall state, in addition, the purpose or purposes for which the meeting is called.  If mailed, notice is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the corporation.

(b)   Notice to stockholders may be given by personal delivery, mail, or, with the consent of the stockholder entitled to receive notice, by facsimile or other means of electronic transmission.  If mailed, such notice shall be delivered by postage prepaid envelope directed to each stockholder at such stockholder’s address as it appears in the records of the corporation and shall be deemed given when deposited in the United States mail.  Notice given

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by electronic transmission pursuant to this subsection shall be deemed given: (1) if by facsimile telecommunication, when directed to a facsimile telecommunication number at which the stockholder has consented to receive notice; (2) if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice; (3) if by posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of (A) such posting and (B) the giving of such separate notice; and (4) if by any other form of electronic transmission, when directed to the stockholder.  An affidavit of the Secretary or an Assistant Secretary or of the transfer agent or other agent of the corporation that the notice has been given by personal delivery, by mail, or by a form of electronic transmission shall, in the absence of fraud, be prima facie evidence of the facts stated therein.

(c)   Notice of any meeting of stockholders need not be given to any stockholder if waived by such stockholder either in a writing signed by such stockholder or by electronic transmission, whether such waiver is given before or after such meeting is held.  If such a waiver is given by electronic transmission, the electronic transmission must either set forth or be submitted with information from which it can be determined that the electronic transmission was authorized by the stockholder.

1.5   Voting List.  The officer who has charge of the stock ledger of the corporation shall prepare, at least 10 days before each meeting of stockholders, a complete list of the stockholders of record entitled to vote at the meeting, arranged in alphabetical order for each class of stock and showing the address of each stockholder and the number of shares registered in the name of each stockholder.  Such list shall be open to the examination of any such stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting, in the manner provided by law.  The list shall also be produced and kept at the time and place of the meeting during the whole time of the meeting, and may be inspected by any stockholder who is present.  This list shall determine the identity of the stockholders of record entitled to vote at the meeting and the number of shares held by each of them.

1.6   Quorum.  Except as otherwise provided by law or these Bylaws, the holders of a majority of the shares of the capital stock of the corporation entitled to vote at the meeting, present in person or represented by proxy, shall constitute a quorum for the transaction of business.  Where a separate class vote by a class or classes or series is required, a majority of the shares of such class or classes or series present in person or represented by proxy shall constitute a quorum entitled to take action with respect to that vote on that matter.

1.7   Adjournments.  Any meeting of stockholders may be adjourned to any other time and to any other place at which a meeting of stockholders may be held under these Bylaws by the chairperson of the meeting or, in the absence of such person, by any officer entitled to preside at or to act as secretary of such meeting, or by the holders of a majority of the shares of stock present or represented at the meeting and entitled to vote, although less than a quorum.  When a meeting is adjourned to another place, date or time, written notice need not be given of the adjourned meeting if the date, time, and place, if any, thereof, and the means of remote communication, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting, are announced at the meeting at which the adjournment is taken; provided, however, that if the date of any adjourned meeting is more than 30 days after the date for which the meeting was originally noticed, or if a new record date is

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fixed for the adjourned meeting, written notice of the place, if any, date, and time of the adjourned meeting and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting, shall be given in conformity herewith.  At the adjourned meeting, the corporation may transact any business that might have been transacted at the original meeting.

1.8   Voting and Proxies.  Each stockholder shall have one vote for each share of stock entitled to vote held of record by such stockholder and a proportionate vote for each fractional share so held, unless otherwise provided by law or in the Certificate of Incorporation.  Each stockholder of record entitled to vote at a meeting of stockholders may vote in person or may authorize any other person or persons to vote or act for him by written proxy executed by the stockholder or his authorized agent or by a transmission permitted by law and delivered to the Secretary of the corporation.  Any copy, facsimile transmission or other reliable reproduction of the writing or transmission created pursuant to this section may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile transmission or other reproduction shall be a complete reproduction of the entire original writing or transmission.

1.9   Action at Meeting.  When a quorum is present at any meeting, any election of directors shall be determined by a plurality of the votes cast by the stockholders entitled to vote at the election, and any other matter shall be determined by a majority in voting power of the shares present in person or represented by proxy and entitled to vote on the matter (or if there are two or more classes of stock entitled to vote as separate classes, then in the case of each such class, a majority of the shares of each such class present in person or represented by proxy and entitled to vote on the matter shall decide such matter), except when a different vote is required by express provision of law, the Certificate of Incorporation or these Bylaws.

All voting, including on the election of directors, shall be taken by ballot.  Each ballot shall state the name of the stockholder or proxy voting and such other information as may be required under the procedure established for the meeting.  The corporation may, and to the extent required by law, shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and make a written report thereof.  The corporation may designate one or more persons as an alternate inspector to replace any inspector who fails to act.  If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting may, and to the extent required by law, shall, appoint one or more inspectors to act at the meeting.  Each inspector, before entering upon the discharge of his duties, shall take and sign an oath to faithfully execute the duties of inspector with strict impartiality and according to the best of his or her ability.

1.10    Notice of Stockholder Business.

(a)   At an annual or special meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting.  To be properly brought before an annual meeting, business must be (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (ii) properly brought before the meeting by or at the direction of the Board of Directors, or (iii) properly brought before the meeting by a stockholder of record.  For business to be properly

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brought before an annual meeting by a stockholder, it must be a proper matter for stockholder action under the Delaware General Corporation Law, and the stockholder must have given timely notice thereof in writing to the Secretary of the corporation.  To be timely, a stockholder proposal to be presented at an annual meeting shall be received at the corporation’s principal executive offices not less than 120 days prior to the first anniversary of the date that the corporation’s (or its predecessor’s) proxy statement was released to stockholders in connection with the previous year’s annual meeting of stockholders, except that if no annual meeting was held in the previous year or the date of the annual meeting is more than 30 days earlier than the date contemplated at the time of the previous year’s proxy statement, notice by the stockholders to be timely must be received not later than the close of business on the 10th day following the day on which the date of the annual meeting is publicly announced.  “Public announcement” for purposes hereof shall have the meaning set forth in Section 2.15(c).  In no event shall the public announcement of an adjournment or postponement of an annual meeting commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above.  For business to be properly brought before a special meeting by a stockholder, the business must be limited to the purpose or purposes set forth in a request under Section 1.3.

(b)   A stockholder’s notice to the Secretary of the corporation shall set forth as to each matter the stockholder proposes to bring before the meeting (i) a brief description of the business desired to be brought before the meeting, (ii) the name and address, as they appear on the corporation’s books, of the stockholder proposing such business and the name and address of the beneficial owner, if any, on whose behalf the business is being brought, (iii) the class and number of shares of the corporation which are owned beneficially and of record by the stockholder and such other beneficial owner and any derivative positions held or beneficially held by the stockholder and such other beneficial owner and whether and the extent to which any hedging or other transaction or series of transactions has been entered into by or on behalf of, or any other agreement, arrangement or understanding has been made, the effect or intent of which is to increase or decrease the voting power of, such stockholder or other beneficial owner with respect to the corporation’s securities, and (iv) any material interest of the stockholder and such other beneficial owner in such business.

(c)   Notwithstanding the foregoing provisions of this Section 1.10, a stockholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934 (the “Exchange Act”) and the rules and regulations thereunder with respect to the matters set forth in this Section 1.10.  Nothing in this Section 1.10 shall be deemed to affect any rights of stockholders to request inclusion of proposals in the corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act.

1.11    Conduct of Business.  At every meeting of the stockholders, the Chairperson of the Board, or, in his or her absence, the President, or, in his or her absence, such other person as may be appointed by the Board of Directors, shall act as chairperson of such meeting.  The Secretary of the corporation or a person designated by the chairperson of the meeting shall act as secretary of the meeting.  Unless otherwise approved by the chairperson of the meeting, attendance at the stockholders’ meeting is restricted to stockholders of record, persons authorized in accordance with Section 1.8 to act by proxy, and officers of the corporation.

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The chairperson of the meeting shall call the meeting to order, establish the agenda, and conduct the business of the meeting in accordance therewith or, at the chairperson’s discretion, it may be conducted otherwise in accordance with the wishes of the stockholders in attendance.  The date and time of the opening and closing of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at the meeting.

The chairperson of the meeting shall also conduct the meeting in an orderly manner, rule on the precedence of, and procedure on, motions and other procedural matters, and exercise discretion with respect to such procedural matters with fairness and good faith toward all those entitled to take part.  Without limiting the foregoing, the chairperson may (a) restrict attendance at any time to bona fide stockholders of record and their proxies and other persons in attendance at the invitation of the presiding officer or Board of Directors, (b) restrict use of audio or video recording devices at the meeting, and (c) impose reasonable limits on the amount of time taken up at the meeting on discussion in general or on remarks by any one stockholder.  Should any person in attendance become unruly or obstruct the meeting proceedings, the chairperson shall have the power to have such person removed from the meeting.  Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at a meeting except in accordance with the procedures set forth in this Section 1.11 and Section 1.10.  The chairperson of a meeting may determine and declare to the meeting that any proposed item of business was not brought before the meeting in accordance with the provisions of this Section 1.11 and Section 1.10, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted.

1.12    Stockholder Action Without Meeting.  Effective as of the time at which PDL BioPharma, Inc., a Delaware corporation (“PDL”), shall cease to be the beneficial owner of an aggregate of at least a majority of the then outstanding shares of Common Stock of the corporation as a result of a distribution of such shares to PDL’s stockholders (the “Spin-Off”), any action required or permitted to be taken by the stockholders of the corporation must be effected at a duly called annual or special meeting of stockholders of the corporation and may not be effected by any consent in writing by such stockholders.  At all times prior to the Spin-Off, any action which may be taken at any annual or special meeting of stockholders may be taken without a meeting and without prior notice, if a consent in writing, setting forth the actions so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes which would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.  All such consents shall be filed with the Secretary of the corporation and shall be maintained in the corporate records.  Prompt notice of the taking of a corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing.

An electronic transmission consenting to an action to be taken and transmitted by a stockholder, or by a proxy holder or other person authorized to act for a stockholder, shall be deemed to be written, signed and dated for the purpose of this Section 1.12, provided that such electronic transmission sets forth or is delivered with information from which the corporation can determine (i) that the electronic transmission was transmitted by the stockholder or by a person authorized to act for the stockholder and (ii) the date on which such stockholder or authorized person transmitted such electronic transmission.  The date on which such electronic transmission is transmitted shall be deemed to be the date on which such consent was signed.  No consent given by

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electronic transmission shall be deemed to have been delivered until such consent is reproduced in paper form and until such paper form shall be delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the corporation having custody of the books in which proceedings of meetings of stockholders are recorded.

1.13    Meetings by Remote Communication.  If authorized by the Board of Directors, and subject to such guidelines and procedures as the Board of Directors may adopt, stockholders and proxy holders not physically present at a meeting of stockholders may, by means of remote communication, participate in the meeting and be deemed present in person and vote at the meeting, whether such meeting is to be held at a designated place or solely by means of remote communication, provided that (i) the corporation shall implement reasonable measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a stockholder or proxy holder, (ii) the corporation shall implement reasonable measures to provide such stockholders and proxy holders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with such proceedings, and (iii) if any stockholder or proxy holder votes or takes other action at the meeting by means of remote communication, a record of such vote or other action shall be maintained by the corporation.

Article II
Board of Directors

2.1   General Powers.  The business and affairs of the corporation shall be managed by or under the direction of a Board of Directors, who may exercise all of the powers of the corporation except as otherwise provided by law or the Certificate of Incorporation.  In the event of a vacancy in the Board of Directors, the remaining directors, except as otherwise provided by law, may exercise the powers of the full Board until the vacancy is filled.

2.2   Number and Term of Office.  Subject to the rights of the holders of any series of preferred stock to elect directors under specified circumstances, the number of directors shall initially be one and, thereafter, shall be fixed from time to time exclusively by the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board of Directors for adoption).  All directors shall hold office until the next annual meeting of stockholders and until their respective successors are elected, except in the case of the death, resignation or removal of any director.

2.3   Vacancies and Newly Created Directorships.  Subject to the rights of the holders of any series of Preferred Stock then outstanding, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification or other cause (including removal from office by a vote of the stockholders) may be filled only by a majority vote of the directors then in office, though less than a quorum (and not by stockholders), or by the sole remaining director, and directors so chosen shall hold office for a term expiring at the next annual meeting of stockholders and until such director’s successor shall have been duly elected and qualified. 

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No decrease in the number of authorized directors shall shorten the term of any incumbent director.

2.4   Resignation.  Any director may resign by delivering notice in writing or by electronic transmission to the President, Chairperson of the Board or Secretary.  Such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event.

2.5   Removal.  Subject to the rights of the holders of any series of Preferred Stock then outstanding, any directors, or the entire Board of Directors, may be removed from office at any time, with or without cause, by the affirmative vote of the holders of a majority of the voting power of all of the outstanding shares of capital stock entitled to vote generally in the election of directors, voting together as a single class.  Vacancies in the Board of Directors resulting from such removal may be filled by a majority of the directors then in office, though less than a quorum, or by the sole remaining director.  Directors so chosen shall hold office until the next annual meeting of stockholders.

2.6   Regular Meetings.  Regular meetings of the Board of Directors may be held without notice at such time and place, either within or without the State of Delaware, as shall be determined from time to time by the Board of Directors; provided that any director who is absent when such a determination is made shall be given notice of the determination.  A regular meeting of the Board of Directors may be held without notice immediately after and at the same place as the annual meeting of stockholders.

2.7   Special Meetings.  Special meetings of the Board of Directors may be called by the Chairperson of the Board, the President or two or more directors and may be held at any time and place, within or without the State of Delaware.

2.8   Notice of Special Meetings.  Notice of any special meeting of directors shall be given to each director by whom it is not waived by the Secretary or by the officer or one of the directors calling the meeting.  Notice shall be duly given to each director by (i) giving notice to such director in person or by telephone, electronic transmission or voice message system at least 24 hours in advance of the meeting, (ii) sending a facsimile to his last known facsimile number, or delivering written notice by hand to his last known business or home address, at least 24 hours in advance of the meeting, or (iii) mailing written notice to his last known business or home address at least three days in advance of the meeting.  A notice or waiver of notice of a meeting of the Board of Directors need not specify the purposes of the meeting.  Unless otherwise indicated in the notice thereof, any and all business may be transacted at a special meeting.

2.9   Participation in Meetings by Telephone Conference Calls or Other Methods of Communication.  Directors or any members of any committee designated by the directors may participate in a meeting of the Board of Directors or such committee by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation by such means shall constitute presence in person at such meeting.

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2.10    Quorum.  A majority of the total number of authorized directors shall constitute a quorum at any meeting of the Board of Directors.  In the absence of a quorum at any such meeting, a majority of the directors present may adjourn the meeting from time to time without further notice other than announcement at the meeting, until a quorum shall be present.  Interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or at a meeting of a committee which authorizes a particular contract or transaction.

2.11    Action at Meeting.  At any meeting of the Board of Directors at which a quorum is present, the vote of a majority of those present shall be sufficient to take any action, unless a different vote is specified by law, the Certificate of Incorporation or these Bylaws.

2.12    Action by Written Consent.  Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee of the Board of Directors may be taken without a meeting if all members of the Board of Directors or committee, as the case may be, consent to the action in writing or by electronic transmission, and the writings or electronic transmissions are filed with the minutes of proceedings of the Board or committee.  Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.

2.13    Committees.  The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the corporation, with such lawfully delegated powers and duties as it therefor confers, to serve at the pleasure of the Board of Directors.  The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee.  In the absence or disqualification of a member of a committee, the member or members of the committee 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 any such absent or disqualified member.  Any such committee, to the extent provided in the resolution of the Board of Directors and subject to the provisions of the Delaware General Corporation Law, shall have and may exercise all the powers 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.  Each such committee shall keep minutes and make such reports as the Board of Directors may from time to time request.  Except as the Board of Directors may otherwise determine, any committee may make rules for the conduct of its business, but unless otherwise provided by such rules, its business shall be conducted as nearly as possible in the same manner as is provided in these Bylaws for the Board of Directors.

2.14    Compensation of Directors.  Directors may be paid such compensation for their services and such reimbursement for expenses of attendance at meetings as the Board of Directors may from time to time determine.  No such payment shall preclude any director from serving the corporation or any of its parent or subsidiary corporations in any other capacity and receiving compensation for such service.

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2.15    Nomination of Director Candidates.

(a)  Subject to the rights of holders of any class or series of Preferred Stock then outstanding, nominations for the election of Directors at an annual meeting may be made by (i) the Board of Directors or a duly authorized committee thereof or (ii) any stockholder entitled to vote in the election of Directors generally who complies with the procedures set forth in this Section 2.15 and who is a stockholder of record at the time notice is delivered to the Secretary of the corporation.  Any stockholder entitled to vote in the election of Directors generally may nominate one or more persons for election as Directors at an annual meeting only if timely notice of such stockholder’s intent to make such nomination or nominations has been given in writing to the Secretary of the corporation.  To be timely, a stockholder nomination for a director to be elected at an annual meeting shall be received at the corporation’s principal executive offices not less than 120 calendar days in advance of the first anniversary of the date that the corporation’s (or the corporation’s predecessor’s) proxy statement was released to stockholders in connection with the previous year’s annual meeting of stockholders, except that if no annual meeting was held in the previous year or the date of the annual meeting has been advanced by more than 30 calendar days from the date contemplated at the time of the previous year’s proxy statement, notice by the stockholders to be timely must be received not later than the close of business on the tenth day following the day on which public announcement of the date of such meeting is first made.  Each such notice shall set forth:  (i) the name and address of the stockholder who intends to make the nomination, of the beneficial owner, if any, on whose behalf the nomination is being made and of the person or persons to be nominated; (ii) a representation that the stockholder is a holder of record of stock of the corporation entitled to vote for the election of Directors on the date of such notice and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (iii) a description of all arrangements or understandings between the stockholder or such beneficial owner and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the stockholder; (iv) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission, had the nominee been nominated, or intended to be nominated, by the Board of Directors; (v) the consent of each nominee to serve as a director of the corporation if so elected; and (vi) the class and number of shares of the corporation that are owned beneficially and of record by such stockholder and such beneficial owner and any derivative positions held or beneficially held by the stockholder and such other beneficial owner and whether and the extent to which any hedging or other transaction or series of transactions has been entered into by or on behalf of, or any other agreement, arrangement or understanding has been made, the effect or intent of which is to increase or decrease the voting power of, such stockholder or other beneficial owner with respect to the corporation’s securities.  In no event shall the public announcement of an adjournment or postponement of an annual meeting commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above.  Notwithstanding the third sentence of this Section 2.15(a), in the event that the number of Directors to be elected at an annual meeting is increased and there is no public announcement by the corporation naming the nominees for the additional directorships at least 130 days prior to the first anniversary of the date that the corporation’s (or its predecessor’s) proxy statement was released to stockholders in connection with the previous year’s annual meeting, a stockholder’s notice required by this Section 2.15(a) shall also be considered timely, but only with respect to nominees for the additional directorships, if it shall be delivered to the Secretary at the principal executive offices of the

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corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the corporation.

(b)   Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the corporation’s notice of meeting by (i) or at the direction of the Board of Directors or a committee thereof or (ii) any stockholder of the corporation who is entitled to vote at the meeting, who complies with the notice procedures set forth in this Section 2.15(b) and who is a stockholder of record at the time such notice is delivered to the Secretary of the corporation.  In the event the corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any such stockholder may nominate a person or persons (as the case may be), for election to such position(s) as are specified in the corporation’s notice of meeting, if the stockholder’s notice as required by Section 2.15(a) shall be delivered to the Secretary at the principal executive offices of the corporation not earlier than the 90th day prior to such special meeting and not later than the close of business on the later of the 70th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting.  In no event shall the public announcement of an adjournment or postponement of a special meeting commence a new time period (or extend any time period) for the giving of a stockholder’s notice as described above.

(c)   For purposes of these Bylaws, “public announcement” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.

(d)   Notwithstanding the foregoing provisions, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 2.15.  Nothing in this Section 2.15 shall be deemed to affect any rights of stockholders to request inclusion of proposals in the corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act.

(e)   Only persons nominated in accordance with the procedures set forth in this Section 2.15 shall be eligible to serve as directors.  To be eligible, persons nominated will also be subject to the corporation’s evaluation process, which includes the requirement that the nominee complete a director’s questionnaire and may also include interviews and additional background and reference checks.  Except as otherwise provided by law, the chairperson of the meeting shall have the power and duty (a) to determine whether a nomination was made in accordance with the procedures set forth in this Section 2.15 and (b) if any proposed nomination was not made in compliance with this Section 2.15, to declare that such nomination shall be disregarded.

(f)    If the chairperson of the meeting for the election of Directors determines that a nomination of any candidate for election as a Director at such meeting was not made in accordance with the applicable provisions of this Section 2.15, such nomination shall be void; provided, however, that nothing in this Section 2.15 shall be deemed to limit any voting

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rights upon the occurrence of dividend arrearages provided to holders of Preferred Stock pursuant to the Preferred Stock designation for any series of Preferred Stock.

Article III
Officers

3.1   Enumeration.  The officers of the corporation may include a Chief Executive Officer, a President, a Secretary, a Treasurer, a Chief Financial Officer and such other officers with such other titles as the Board of Directors shall determine, including, at the discretion of the Board of Directors, a Chairperson of the Board and one or more Vice Presidents and Assistant Secretaries.  The Board of Directors may appoint such other officers as it may deem appropriate.

3.2   Election.  Officers shall be appointed annually by the Board of Directors at its first meeting following the annual meeting of stockholders.  Officers may be appointed by the Board of Directors at any other meeting.

3.3   Qualification.  No officer need be a stockholder.  Any two or more offices may be held by the same person.

3.4   Tenure.  Except as otherwise provided by law, by the Certificate of Incorporation or by these Bylaws, each officer shall hold office until his successor is elected and qualified, unless a different term is specified in the vote appointing him, or until his earlier death, resignation or removal.

3.5   Resignation and Removal.  Any officer may resign by delivering his written resignation to the corporation at its principal office or to the President or Secretary.  Such resignation shall be effective upon receipt unless it is specified to be effective at some other time or upon the happening of some other event.  Any officer elected by the Board of Directors may be removed at any time, with or without cause, by the Board of Directors.

3.6   Chairperson of the Board.  The Board of Directors may appoint a Chairperson of the Board.  If the Board of Directors appoints a Chairperson of the Board, he or she shall perform such duties and possess such powers as are assigned to him by the Board of Directors.  Unless otherwise provided by the Board of Directors, he shall preside at all meetings of the Board of Directors.

3.7   Chief Executive Officer.  The Chief Executive Officer of the corporation shall, subject to the direction of the Board of Directors, have general supervision, direction and control of the business and the officers of the corporation.  He shall preside at all meetings of the stockholders and, in the absence or nonexistence of a Chairperson of the Board, at all meetings of the Board of Directors.  He shall have the general powers and duties of management usually vested in the chief executive officer of a corporation, including general supervision, direction and control of the business and supervision of other officers of the corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors or these Bylaws.

3.8   President.  Subject to the direction of the Board of Directors and such supervisory powers as may be given by these Bylaws or the Board of Directors to the Chairperson of the Board or the Chief Executive Officer, if such titles be held by other officers, the President shall

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have general supervision, direction and control of the business and supervision of other officers of the corporation.  Unless otherwise designated by the Board of Directors, the President shall be the Chief Executive Officer of the corporation.  The President shall have such other powers and duties as may be prescribed by the Board of Directors or these Bylaws.  He or she shall have power to sign stock certificates, contracts and other instruments of the corporation which are authorized and shall have general supervision and direction of all of the other officers, employees and agents of the corporation, other than the Chairperson of the Board and the Chief Executive Officer.

3.9    Vice Presidents.  Any Vice President shall perform such duties and possess such powers as the Board of Directors or the President may from time to time prescribe.  In the event of the absence, inability or refusal to act of the President, the Vice President (or if there shall be more than one, the Vice Presidents in the order determined by the Board of Directors) shall perform the duties of the President and when so performing shall have at the powers of and be subject to all the restrictions upon the President.  The Board of Directors may assign to any Vice President the title of Executive Vice President, Senior Vice President or any other title selected by the Board of Directors.

3.10  Secretary and Assistant Secretaries.  The Secretary shall perform such duties and shall have such powers as the Board of Directors or the President may from time to time prescribe.  In addition, the Secretary shall perform such duties and have such powers as are incident to the office of the Secretary, including, without limitation, the duty and power to give notices of all meetings of stockholders and special meetings of the Board of Directors, to keep a record of the proceedings of all meetings of stockholders and the Board of Directors, to maintain a stock ledger and prepare lists of stockholders and their addresses as required, to be custodian of corporate records and the corporate seal and to affix and attest to the same on documents.

Any Assistant Secretary shall perform such duties and possess such powers as the Board of Directors, the Chief Executive Officer, the President or the Secretary may from time to time prescribe.  In the event of the absence, inability or refusal to act of the Secretary, the Assistant Secretary (or if there shall be more than one, the Assistant Secretaries in the order determined by the Board of Directors) shall perform the duties and exercise the powers of the Secretary.

In the absence of the Secretary or any Assistant Secretary at any meeting of stockholders or directors, the person presiding at the meeting shall designate a temporary secretary to keep a record of the meeting.

3.11  Treasurer.  The Treasurer shall perform such duties and have such powers as are incident to the office of treasurer, including without limitation, the duty and power to keep and be responsible for all funds and securities of the corporation, to maintain the financial records of the corporation, to deposit funds of the corporation in depositories as authorized, to disburse such funds as authorized, to make proper accounts of such funds, and to render as required by the Board of Directors accounts of all such transactions and of the financial condition of the corporation.

3.12  Chief Financial Officer.  The Chief Financial Officer shall perform such duties and shall have such powers as may from time to time be assigned to him by the Board of

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Directors, the Chief Executive Officer or the President.  Unless otherwise designated by the Board of Directors, the Chief Financial Officer shall be the Treasurer of the corporation.

3.13  Salaries.  Officers of the corporation shall be entitled to such salaries, compensation or reimbursement as shall be fixed or allowed from time to time by the Board of Directors.

3.14  Delegation of Authority.  The Board of Directors may from time to time delegate the powers or duties of any officer to any other officers or agents, notwithstanding any provision hereof.

Article IV
Capital Stock

4.1   Issuance of Stock.  Subject to the provisions of the Certificate of Incorporation, the whole or any part of any unissued balance of the authorized capital stock of the corporation or the whole or any part of any unissued balance of the authorized capital stock of the corporation held in its treasury may be issued, sold, transferred or otherwise disposed of by vote of the Board of Directors in such manner, for such consideration and on such terms as the Board of Directors may determine.

4.2   Certificates of Stock.  The shares of the corporation shall be represented by certificates, provided that the Board of Directors may provide by resolution or resolutions that some or all of any class or series of its stock shall be uncertificated shares; provided, however, that no such resolution shall apply to shares represented by a certificate until such certificate is surrendered to the corporation. Every holder of stock of the corporation represented by certificates, and, upon written request to the corporation’s transfer agent or registrar, any holder of uncertificated shares, shall be entitled to have a certificate, in such form as may be prescribed by law and by the Board of Directors, certifying the number and class of shares owned by him in the corporation.  Each such certificate shall be signed by, or in the name of the corporation by, the Chairperson or Vice Chairperson, if any, of the Board of Directors, or the President or a Vice President, and the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the corporation.  Any or all of the signatures on the certificate may be a facsimile.

Each certificate for shares of stock which are subject to any restriction on transfer pursuant to the Certificate of Incorporation, the Bylaws, applicable securities laws or any agreement among any number of shareholders or among such holders and the corporation shall have conspicuously noted on the face or back of the certificate either the full text of the restriction or a statement of the existence of such restriction.

4.3   Transfers.  Except as otherwise established by rules and regulations adopted by the Board of Directors, and subject to applicable law, shares of stock may be transferred on the books of the corporation: (i) in the case of shares represented by a certificate, by the surrender to the corporation or its transfer agent of the certificate representing such shares properly endorsed or accompanied by a written assignment or power of attorney properly executed, and with such proof of authority or authenticity of signature as the corporation or its transfer agent may reasonably require; and (ii) in the case of uncertificated shares, upon the receipt of proper

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transfer instructions from the registered owner thereof.  Except as may be otherwise required by law, the Certificate of Incorporation or these Bylaws, the corporation shall be entitled to treat the record holder of stock as shown on its books as the owner of such stock for all purposes, including the payment of dividends and the right to vote with respect to such stock, regardless of any transfer, pledge or other disposition of such stock until the shares have been transferred on the books of the corporation in accordance with the requirements of these Bylaws.

4.4   Lost, Stolen or Destroyed Certificates.  The corporation may issue a new certificate of stock in place of any previously issued certificate alleged to have been lost, stolen, or destroyed, or it may issue uncertificated shares if the shares represented by such certificate have been designated as uncertificated shares in accordance with Section 4.2, upon such terms and conditions as the Board of Directors may prescribe, including the presentation of reasonable evidence of such loss, theft or destruction and the giving of such indemnity as the Board of Directors may require for the protection of the corporation or any transfer agent or registrar.

4.5   Record Date.  The Board of Directors may fix in advance a record date for the determination of the stockholders entitled to notice of or to vote at any meeting of stockholders or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights in respect of any change, concession or exchange of stock, or for the purpose of any other lawful action.  Such record date shall not precede the date on which the resolution fixing the record date is adopted and shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action to which such record date relates.

If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day before the day on which notice is given, or, if notice is waived, at the close of business on the day before the day on which the meeting is held.  If no record date is fixed by the Board of Directors, 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 necessary shall be the day on which the first written consent is expressed.  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 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.

Article V
General Provisions

5.1   Fiscal Year.  The fiscal year of the corporation shall be as fixed by the Board of Directors.

5.2   Corporate Seal.  The corporate seal shall be in such form as shall be approved by the Board of Directors.

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5.3   Waiver of Notice.  Whenever any notice whatsoever is required to be given by law, by the Certificate of Incorporation or by these Bylaws, a waiver of such notice either in writing signed by the person entitled to such notice or such person’s duly authorized attorney, or by electronic transmission or any other method permitted under the Delaware General Corporation Law, whether before, at or after the time stated in such waiver, or the appearance of such person or persons at such meeting in person or by proxy, shall be deemed equivalent to such notice.  Neither the business nor the purpose of any meeting need be specified in such a waiver.  Attendance at any meeting shall constitute waiver of notice except attendance for the sole purpose of objecting to the timeliness of notice.

5.4   Actions with Respect to Securities of Other Corporations.  Except as the Board of Directors may otherwise designate, the Chief Executive Officer or President or any officer of the corporation authorized by the Chief Executive Officer or President shall have the power to vote and otherwise act on behalf of the corporation, in person or proxy, and may waive notice of, and act as, or appoint any person or persons to act as, proxy or attorney-in-fact to this corporation (with or without power of substitution) at any meeting of stockholders or shareholders (or with respect to any action of stockholders) of any other corporation or organization, the securities of which may be held by this corporation and otherwise to exercise any and all rights and powers which this corporation may possess by reason of this corporation’s ownership of securities in such other corporation or other organization.

5.5   Evidence of Authority.  A certificate by the Secretary, or an Assistant Secretary, or a temporary Secretary, as to any action taken by the stockholders, directors, a committee or any officer or representative of the corporation shall as to all persons who rely on the certificate in good faith be conclusive evidence of such action.

5.6   References.  All references to Bylaws shall be deemed to refer to these Bylaws, and all references in these Bylaws to sections shall be deemed to refer to sections in these Bylaws.

5.7   Certificate of Incorporation.  All references in these Bylaws to the Certificate of Incorporation shall be deemed to refer to the Amended and Restated Certificate of Incorporation of the corporation, as amended and in effect from time to time.

5.8   Severability.  Any determination that any provision of these Bylaws is for any reason inapplicable, illegal or ineffective shall not affect or invalidate any other provision of these Bylaws.

5.9   Pronouns.  All pronouns used in these Bylaws shall be deemed to refer to the masculine, feminine or neuter, singular or plural, as the identity of the person or persons may require.

5.10    Notices.  Except as otherwise specifically provided herein or required by law, all notices required to be given to any stockholder, director, officer, employee or agent shall be in writing and may in every instance be effectively given by hand delivery to the recipient thereof, by depositing such notice in the mails, postage paid, or by sending such notice by commercial courier service, or by facsimile or other electronic transmission, provided that notice to stockholders by electronic transmission shall be given in the manner provided in Section 232 of

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the Delaware General Corporation Law.  Any such notice shall be addressed to such stockholder, director, officer, employee or agent at his or her last known address as the same appears on the books of the corporation.  The time when such notice shall be deemed to be given shall be the time such notice is received by such stockholder, director, officer, employee or agent, or by any person accepting such notice on behalf of such person, if delivered by hand, facsimile, other electronic transmission or commercial courier service, or the time such notice is dispatched, if delivered through the mails.  Without limiting the manner by which notice otherwise may be given effectively, notice to any stockholder shall be deemed given: (1) if by facsimile, when directed to a number at which the stockholder has consented to receive notice; (2) if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice; (3) if by a posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of (A) such posting and (B) the giving of such separate notice; (4) if by any other form of electronic transmission, when directed to the stockholder; and (5) if by mail, when deposited in the mail, postage prepaid, directed to the stockholder at such stockholder’s address as it appears on the records of the corporation.

5.11  Reliance Upon Books, Reports and Records.  Each director, each member of any committee designated by the Board of Directors, and each officer of the corporation shall, in the performance of his duties, be fully protected in relying in good faith upon the books of account or other records of the corporation as provided by law, including reports made to the corporation by any of its officers, by an independent certified public accountant, or by an appraiser selected with reasonable care.

5.12  Time Periods.  In applying any provision of these Bylaws which require that an act be done or not done a specified number of days prior to an event or that an act be done during a period of a specified number of days prior to an event, calendar days shall be used, the day of the doing of the act shall be excluded, and the day of the event shall be included.

5.13  Facsimile Signatures.  In addition to the provisions for use of facsimile signatures elsewhere specifically authorized in these Bylaws, facsimile signatures of any officer or officers of the corporation may be used whenever and as authorized by the Board of Directors or a committee thereof.

Article VI
Amendments

6.1   By the Board of Directors.  Except as otherwise set forth in these Bylaws, these Bylaws may be altered, amended or repealed or new Bylaws may be adopted by the affirmative vote of a majority of the directors present at any regular or special meeting of the Board of Directors at which a quorum is present.

6.2   By the Stockholders.  Except as otherwise set forth in these Bylaws, these Bylaws may be altered, amended or repealed or new Bylaws may be adopted by the affirmative vote of the holders of at least a 66-2/3% of the voting power of all of the shares of capital stock of the corporation issued and outstanding and entitled to vote generally in any election of directors, voting together as a single class.  Such vote may be held at any annual meeting of stockholders,

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or at any special meeting of stockholders provided that notice of such alteration, amendment, repeal or adoption of new Bylaws shall have been stated in the notice of such special meeting.

Article VII
Indemnification of Directors and Officers

7.1   Right to Indemnification.  Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (“proceeding”), by reason of the fact that he or she or a person of whom he or she is the legal representative, is or was a director or officer of the corporation or is or was serving at the request of the corporation as a director or officer of another corporation, or as a controlling person of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director or officer, or in any other capacity while serving as a director or officer, shall be indemnified and held harmless by the corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the corporation to provide broader indemnification rights than said Law permitted the corporation to provide prior to such amendment) against all expenses, liability and loss reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that except as provided in Section 7.2 of this Article VII, the corporation shall indemnify any such person seeking indemnity in connection with a proceeding (or part thereof) initiated by such person only if (a) such indemnification is expressly required to be made by law, (b) the proceeding (or part thereof) was authorized by the Board of Directors of the corporation, (c) such indemnification is provided by the corporation, in its sole discretion, pursuant to the powers vested in the corporation under the Delaware General Corporation Law, or (d) the proceeding (or part thereof) is brought to establish or enforce a right to indemnification or advancement under an indemnity agreement or any other statute or law or otherwise as required under Section 145 of the Delaware General Corporation Law.  The rights hereunder shall be contract rights and shall include the right to be paid expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that the payment of such expenses incurred by a director or officer of the corporation in his or her capacity as a director or officer (and not in any other capacity in which service was or is tendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of such proceeding, shall be made only upon delivery to the corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it should be determined ultimately by final judicial decision from which there is no further right to appeal that such director or officer is not entitled to be indemnified under this section or otherwise.

7.2   Right of Claimant to Bring Suit.  If a claim under Section 7.1 is not paid in full by the corporation within 60 days after a written claim has been received by the corporation, or 20 days in the case of a claim for advancement of expenses, the claimant may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and, if such suit is not frivolous or brought in bad faith, the claimant shall be entitled to be paid also the expense of prosecuting such claim.  It shall be a defense to any such action (other than an action brought to

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enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any, has been tendered to this corporation) that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation Law for the corporation to indemnify the claimant for the amount claimed.  Neither the failure of the corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct.  In any suit brought by the corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the corporation shall be entitled to recover such expenses upon a final judicial decision from which there is no further right to appeal that the indemnitee has not met any applicable standard for indemnification set forth in the Delaware General Corporation Law.  In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or brought by the corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, shall be on the corporation.

7.3   Indemnification of Employees and Agents.  The corporation may, to the extent authorized from time to time by the Board of Directors, grant rights to indemnification, and to the advancement of related expenses, to any employee or agent of the corporation to the fullest extent of the provisions of this Article with respect to the indemnification of and advancement of expenses to directors and officers of the corporation.

7.4   Non-Exclusivity of Rights.  The rights conferred on any person in this Article VII shall not be exclusive of any other right which such persons may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, bylaw, agreement, vote of stockholders or disinterested directors or otherwise.

7.5   Indemnification Contracts.  The Board of Directors is authorized to enter into a contract with any director, officer, employee or agent of the corporation, or any person serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including employee benefit plans, providing for indemnification rights equivalent to or, if the Board of Directors so determines, greater than, those provided for in this Article VII.

7.6   Insurance.  The corporation may maintain insurance to the extent reasonably available, at its expense, to protect itself and any such director, officer, employee or agent of the corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law.

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7.7   Effect of Amendment.  Any amendment, repeal or modification of any provision of this Article VII shall not adversely affect any right or protection of an indemnitee or his successor existing at the time of such amendment, repeal or modification.

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EX-10.10

Exhibit 10.10

TRIPLE NET SPACE LEASE

between

PACIFIC SHORES INVESTORS LLC,

as

LESSOR

and

PDL BIOPHARMA, INC.,

a Delaware corporation

as

LESSEE

for

PREMISES

at

Pacific Shores Center

BUILDING 9

1400 SEAPORT BOULEVARD

REDWOOD CITY, CALIFORNIA 94063

TABLE OF CONTENTS

ARTICLE I PARTIES 1
	Section 1.01 Parties	1
ARTICLE II PREMISES		1
	Section 2.01 Demise of Premises	1
	Section 2.02 Common Area	1
	Section 2.03 Parking	2
	Section 2.04 Athletic Facility	2
ARTICLE III TERM		3
	Section 3.01 Lease Term	3
	Section 3.02 Acceleration of Commencement Date	3
	Section 3.03 Option to Extend	3
ARTICLE IV RENT: TRIPLE NET LEASE		5
	Section 4.01 Base Rent	5
	Section 4.02 Rent Adjustment	5
	Section 4.03 [Intentionally Deleted]	6
	Section 4.04 Absolute Triple Net Lease	6
	Section 4.05 Additional Rent	6
	Section 4.06 Letter of Credit	6
	Section 4.07 Operating Expenses	10
	Section 4.08 Lessee’s Right to Review Supporting Data	13

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ARTICLE V USE		14
	Section 5.01 Permitted Use and Limitations on Use	14
	Section 5.02 Compliance with Laws	15
	Section 5.03 Condition of Premises at Commencement Date	16
	Section 5.04 [Intentionally Deleted]	16
	Section 5.05 Building Security	16
	Section 5.06 Rules and Regulations	16
ARTICLE VI MAINTENANCE, REPAIRS AND ALTERATIONS		17
	Section 6.01 Maintenance of Premises and Building	17
	Section 6.02 Maintenance of Project Common Areas	18
	Section 6.03 Alterations, Additions and Improvements	19
	Section 6.04 Covenant Against Liens	20
ARTICLE VII INSURANCE		21
	Section 7.01 Property/Rental Insurance for Premises	21
	Section 7.02 Property Insurance for Fixtures and Inventory	21
	Section 7.03 Lessor’s Liability Insurance	21
	Section 7.04 Liability Insurance Carried by Lessee	22
	Section 7.05 Proof of Insurance	22
	Section 7.06 Mutual Waiver of Claims and Subrogation Rights	22
	Section 7.07 Indemnification and Exculpation	23
	Section 7.08 Lessor as Party Defendant	23

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ARTICLE VIII DAMAGE OR DESTRUCTION		24
	Section 8.01 Destruction of the Premises	24
	Section 8.02 Waiver of Civil Code Remedies	25
	Section 8.03 Damages Incurred during Repair	25
	Section 8.04 No Liability for Lessee’s Alterations or Personal Property	25
ARTICLE IX REAL PROPERTY TAXES		25
	Section 9.01 Payment of Taxes	25
	Section 9.02 Pro Ration for Partial Years	27
	Section 9.03 Personal Property Taxes	27
	Section 9.04 Right to Contest Real Property Taxes	27
ARTICLE X UTILITIES		27
	Section 10.01 Lessee to Pay	27
ARTICLE XI ASSIGNMENT AND SUBLETTING		28
	Section 11.01 Lessor’s Consent Required	28
	Section 11.02 Lessee Affiliates	28
	Section 11.03 No Release of Lessee	29
	Section 11.04 Excess Rent	29
	Section 11.05 Information to be Provided	29
	Section 11.06 Lessor’s Recapture Rights	29
ARTICLE XII DEFAULTS; REMEDIES		31
	Section 12.01 Defaults	31
	Section 12.02 Remedies	32

iii

	Section 12.03 Default by Lessor	33
	Section 12.04 Late Charges	33
	Section 12.05 Lessor’s Right to Perform Lessee’s Obligations	34
ARTICLE XIII CONDEMNATION OF PREMISES		34
	Section 13.01 Total Condemnation	34
	Section 13.02 Partial Condemnation	34
	Section 13.03 Award to Lessee	35
ARTICLE XIV ENTRY BY LESSOR		35
	Section 14.01 Entry by Lessor Permitted	35
ARTICLE XV ESTOPPEL CERTIFICATE		36
	Section 15.01 Estoppel Certificate	36
ARTICLE XVI LESSOR’S LIABILITY		36
	Section 16.01 Limitations on Lessor’s Liability	36
ARTICLE XVII GENERAL PROVISIONS		37
	Section 17.01 Severability	37
	Section 17.02 Agreed Rate Interest on Past Due Obligations	37
	Section 17.03 Time of Essence	37
	Section 17.04 Additional Rent	37
	Section 17.05 Incorporation of Prior Agreements, Amendments and Exhibits	37
	Section 17.06 Notices	38
	Section 17.07 Waivers	39
	Section 17.08 Recording	39
	Section 17.09 Surrender of Possession; Holding Over	39

iv

Section 17.10 Cumulative Remedies	41
Section 17.11 Covenants and Conditions	41
Section 17.12 Binding Effect; Choice of Law	41
Section 17.13 Lease to be Subordinate	41
Section 17.14 Attorneys’ Fees	42
Section 17.15 Signs	42
Section 17.16 Merger	43
Section 17.17 Quiet Possession	43
Section 17.18 Easements	43
Section 17.19 Authority	43
Section 17.20 Force Majeure Delays	43
Section 17.21 Hazardous Materials	44
Section 17.22 Modifications Required by Lessor’s Lender	47
Section 17.23 Brokers	47
Section 17.24 Acknowledgment of Notices	48
Section 17.25 Right of First Offer	48
Section 17.26 Right of First Refusal	50
Section 17.27 Lessee’s Expansion Right	51
Section 17.28 Notification of Intention to Market	52
Section 17.29 List of Lease Expiration Dates	52
Section 17.30 [Intentionally omitted.]	52
Section 17.31 Condition Subsequent	52
Section 17.32 List of Exhibits	53

v

ARTICLE I

PARTIES

Section 1.01 Parties

This Lease, dated for reference purposes, and effective as of July 6, 2006, is made by and between PACIFIC SHORES INVESTORS LLC (“Lessor”) and PDL BIOPHARMA, INC., a Delaware corporation (“Lessee”).

ARTICLE II

PREMISES

Section 2.01 Demise of Premises

Lessor hereby leases to Lessee and Lessee leases from Lessor for the Lease Term, at the rental, and upon all of the terms and conditions set forth herein, certain space consisting of the entire two hundred eighty-three thousand and fifteen (283,015) rentable square foot building sometimes known as “Building 9” and commonly known as 1400 Seaport Boulevard, Redwood City, California 94063 (“Building 9”), which is one of ten free standing, office and research and development Project Buildings (“Project Buildings”) on real property situated in Redwood City, County of San Mateo, State of California and commonly known as Pacific Shores Center. The Premises are more particularly described and depicted herein in Exhibit “A.” The rentable square footage of the Premises, Building 9 and other Project Buildings (the “Rentable Area”) has been determined and certified by Lessor’s architect by a method described as “dripline,” whereby the measurement encompasses the outermost perimeter of the constructed building, including every projection thereof and all area beneath each such projection, whether or not enclosed, with no deduction for any inward deviation of structure and with the measurement being made floor by floor, but beginning from the top of Building 9. The Premises, the Project Buildings and appurtenances described herein, including Common Area (defined below), and all other improvements at Pacific Shores Center together with the land on which the same are located are together designated as the project (“Project”). Lessor and Lessee acknowledge that Lessor, as landlord, and Lessee, as tenant, are also parties to that certain Triple Net Space Lease of even date herewith (the “Building 10 Lease”) whereby Lessor leases to Lessee, and Lessee leased from Lessor, Building 10 (“Building 10”) in the Project.

Section 2.02 Common Area

As of the Commencement Date, and thereafter, during the Lease Term, Lessee shall have the non-exclusive right to use the Common Area defined herein. Lessor reserves the right to modify the Common Area, including increasing or reducing the size, adding additional Project Buildings, structures or other improvements or changing the use, configuration and elements thereof in its sole discretion and to close or restrict access from time to time for repair, maintenance or construction or to prevent a dedication thereof, provided that Lessee nonetheless (i) shall have reasonable access to parking and the Premises during such activities; and (ii) such modifications, when completed, shall not unreasonably interfere with or restrict Lessee’s possession and use of the Premises. Lessor further reserves the right to establish, repeal and amend from time to time non-discriminatory rules and regulations for the use of the Common

1

Area and to grant reciprocal easements or other rights to use the Common Area to owners of other property provided that no amendment to the rules and regulations shall unreasonably interfere with or restrict Lessee’s use of the Premises or the Common Area. “Common Area” means all portions of the Project other than the Project Buildings, including landscaping, sidewalks, walkways, driveways, curbs, parking lots (including striping), roadways within the Project, sprinkler systems, lighting, surface water drainage systems, an athletic facility to be available for use by Lessee’s employees (the “Athletic Facility”), as well as baseball and soccer fields, a water front park, and a perimeter walking/biking trial, and additional or different facilities as Lessor may from time to time designate or install or make available for the use by Lessee in common with others. Lessee’s use of the Common Areas shall be subject to any easements affecting the Project as of the date of this Lease. Subject to the rights of the other tenants or users of the Project and the need for Lessee to execute a license agreement therefor in the form attached hereto as Schedule 1, Lessee shall have the right to use portions of the Common Areas for the hosting of outdoor meetings, which meetings may include the use of tents and the catering and/or barbeque of food for such meetings. The location, time and manner of such meetings shall be subject to the prior written consent of Lessor, which consent shall not be unreasonably withheld.

Section 2.03 Parking

Lessor shall provide Lessee with three (3) parking spaces per one thousand (1,000) square feet of area within the Premises. In the event Lessor elects or is required by any law to limit or control parking at the Premises, whether by validation of parking tickets or any other method of assessment, Lessee agrees to participate in such validation or assessment program under such reasonable rules and regulations as are from time to time established by Lessor. Lessor agrees that Lessee’s access to parking shall not be unreasonably limited beyond any requirement of law by any such rules and regulations. Parking shall be free of charge throughout the Lease Term (including any extensions thereof) except as provided for in Article VI (i.e., Operating Expenses payable hereunder) for reimbursement of repair, replacement and maintenance costs and expenses, and in Article IX for payment or reimbursement of any real property taxes including governmental or public authority charges, fees or impositions of any nature hereafter imposed, except as otherwise provided herein. Nothing herein shall prevent Lessee from allowing two (2) company vans, along with up to ten (10) cars of employees of Lessee on an occasional basis, to remain in the parking spaces for the Premises on an overnight basis.

Section 2.04 Athletic Facility

As of the Commencement Date, Lessee and its employees shall have access to the thirty-eight thousand (38,000) square foot Athletic Facility and all of the amenities thereof at no additional cost to Lessee or its employees, except that Lessee acknowledges that the cost of operating and maintaining the Athletic Facility will be an Operating Expense as described in Section 4.07 below.

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ARTICLE III

TERM

Section 3.01 Lease Term

Subject to the terms of Section 3.02 below, the term of this Lease (“Lease Term”) shall be for one hundred and four (104) months, beginning on April 30, 2013 (the “Commencement Date”) and expiring, unless sooner terminated as provided for herein, on December 31, 2021 (“Expiration Date”). The parties shall execute a “Memorandum of Commencement of Lease Term” on the Commencement Date which shall be substantially in the form attached hereto as Exhibit “B”.

Section 3.02 Acceleration of Commencement Date. If that certain Sublease Agreement dated                     , 2006 (the “Openwave Sublease”) between Openwave, Inc.(“Openwave”), as sublessor, and Lessee, as sublessee, terminates for any reason other than a default by Lessee thereunder or a termination of that certain Triple Net Space Lease dated February 4, 2000 between Lessor, as lessor, and Openwave, as lessee by Lessor or Openwave pursuant to the terms of Article VIII or Article XIII thereof, then the Commencement Date of this Lease will be accelerated to be date on which the Openwave Sublease terminates, and the Lease Term shall be extended to begin on such accelerated Commencement Date, but still expire on the Expiration Date of December 31, 2021. During any portion of such extended Lease Term that precedes the originally intended Commencement Date (i.e., April 30, 2013), the monthly Base Rent due hereunder shall be as follows:

Time Period	Monthly Base Rent
1/1/07-12/31/07	$	466,974.75
1/1/08-12/31/08	$	483,318.86
1/1/09-12/31/09	$	500,235.02
1/1/10-12/31/10	$	517,743.24
1/1/11-12/31/11	$	535,864.25
1/1/12-12/31/12	$	554,619.49
1/1/13-4/29/13	$	574,031.17

Section 3.03. Option to Extend.

(a) Exercise. Subject to the “Conditions to Extend” described in Section 3.03(d) below, Lessee is given two (2) options to extend the Lease Term (each, an “Option to Extend”) with respect to Building 9 for periods of five (5) years each (each, an “Extended Term”) following the date on which the initial Lease Term (or, in the case of the second Extended Term, the first Extended Term) would otherwise expire, which option may be exercised only by written notice (“Option Notice”) from Lessee to Lessor given not less than twelve (12) months nor more than fifteen (15) months prior to the end of the initial Lease Term or the first Extended Term, as relevant (“Option Exercise Date”).

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(b) Extended Term Rent. In the event Lessee exercises any Option to Extend set forth herein, all the terms and conditions of this Lease shall continue to apply except that Lessee shall no longer have the future right to exercise the Option to Extend in question and the Base Rent payable by Lessee during the Extended Term shall be equal to the greater of (i) ninety-five percent (95%) of Fair Market Rent (defined below), as determined under subparagraph (c) below, or (ii) the monthly Base Rent paid by Lessee during the last year of the initial Lease Term or the first Extended Term, as relevant. “Fair Market Rent” shall mean the effective rate being charged (including periodic adjustments thereto as applicable during the period of the Extended Term, to the extent such adjustments are determined to be part of the Fair Market Rent), for comparable space in similar buildings in the vicinity, i.e. of a similar age and quality considering any recent renovations or modernization, and floor plate size or, if such comparable space is not available, adjustments shall be made in the determination of Fair Market Rent to reflect the age and quality of Building 9 and Premises as contrasted to other buildings used for comparison purposes, with similar amenities, taking into consideration: size, location, floor level, leasehold improvements or allowances provided or to be provided, term of the lease, extent of services to be provided, the time that the particular rate under consideration became or is to become effective, and any other relevant terms or conditions applicable to tenants.

(c) Determination of Fair Market Rent.

(i) Negotiation. If Lessee so exercises the Option to Extend in a timely manner, the parties shall then meet in good faith to negotiate the Base Rent for the Premises for the Extended Term during the first thirty (30) days after the date of the delivery by Lessee of the Option Notice (the “Negotiation Period”). If, during the Negotiation Period, the parties agree on the Base Rent applicable to the Premises for the Extended Term, then such agreed amount shall be the Base Rent payable by Lessee during the Extended Term.

(ii) Arbitration. In the event that the parties are unable to agree on the Base Rent for the Premises within the Negotiation Period, then within ten (10) days after the expiration of the Negotiation Period, each party shall separately designate to the other in writing an appraiser to make this determination. Each appraiser designated shall be a member of MAI and shall have at least ten (10) years experience in appraising commercial real property in Santa Clara County. The failure of either party to appoint an appraiser within the time allowed shall be deemed equivalent to appointing the appraiser appointed by the other party, who shall then determine the Fair Market Rent for the Premises for the Extended Term. Within five (5) business days of their appointment, the two designated appraisers shall jointly designate a third similarly qualified appraiser. Within thirty (30) days after their appointment, each of the two appointed appraisers shall submit to the third appraiser a sealed envelope containing such appointed appraiser’s good faith determination of the Fair Market Rent for the Premises for the Extended Term; concurrently with such delivery, each such appraiser shall deliver a copy of his or her determination to the other appraiser. The third appraiser shall within ten (10) days following receipt of such submissions, then determine which of the two appraisers’ determinations most closely reflects Fair Market Rent, as defined in Section 3.03(b) of this Lease. The determination most closely reflecting the third appraiser’s determination shall be

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deemed to be the Fair Market Rent for the Premises during the Extended Term; the third appraiser shall have no rights to adjust, amend or otherwise alter the determinations made by the appraisers selected by the parties, but must select one or the other of such appraisers’ submissions. The determination by such third appraiser shall be final and binding upon the parties. Said third appraiser shall, upon selecting the determination which most closely resembles Fair Market Rent, concurrently notify both parties hereto. The parties shall share the appraisal expenses equally. If the Extended Term begins prior to the determination of Fair Market Rent, Lessee shall pay monthly installments of Base Rent equal to one hundred three and one half percent (103.5%) of the monthly installment of Base Rent in effect for the last year of the initial Lease Term or the first Extended Term, as relevant (in lieu of “holdover rent” payable under Section 17.09(b)). Once a determination is made, any over payment or under payment shall be reimbursed as a credit against, or paid by adding to, the monthly installment of Base Rent next falling due.

(d) Conditions to Extend. Notwithstanding anything herein to the contrary, Lessee shall have no right to exercise Lessee’s Option to Extend hereunder, and any Option Notice delivered by Lessee shall be void and invalid if at the time Lessee delivers such notice any of the following conditions (collectively, the “Conditions to Extend”) are not satisfied both at the time such Option Notice is delivered and at the time the Extended Term in question is to commence: (i) Lessee has not assigned this Lease or the Building 10 Lease to any party other than an Affiliate (as defined in Section 11.02), during any time in which Lessor or any affiliate thereof owns Building 10 and the Building 10 Lease is in effect (ii) Lessee has not sublet more than fifty percent (50%) of the Premises to anyone other than an Affiliate, (iii) Lessee physically occupies at least fifty percent (50%) of the Premises, (iv) Lessor has delivered a written notice of default under this Lease or the Building 10 Lease and the default specified therein has not yet been cured, and (v) Lessor has not delivered a written notice to Lessee that Lessee has committed a monetary default under this Lease more than three (3) times during the Lease Term and delivered a written notice to Lessee that Lessee has committed a non-monetary default under this Lease more than one (1) time during the Lease Term.

ARTICLE IV

RENT: TRIPLE NET LEASE

Section 4.01 Base Rent

Lessee shall pay to Lessor monthly Base Rent, in advance, on the first day of each calendar month of the Lease Term, commencing on the Commencement Date (subject to the adjustment of the Commencement Date pursuant to the terms of Section 3.02 above), in the initial amount of Five Hundred Seventy-Four Thousand Thirty-One and 11/100 Dollars ($574,031.11) per month; but subject to increase pursuant to the terms of Section 4.02 below. Base Rent for any period during the Lease Term which is for less than one month shall be a pro rata portion of the monthly installment (based on the actual days in that month).

Section 4.02 Rent Adjustment

As of January 1, 2014, the Base Rent due hereunder shall adjust to Five Hundred Ninety-Four Thousand One Hundred Twenty-Two and 19/100 Dollars ($594,122.19). As of

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June 1, 2014, the Base Rent shall further adjust to the higher of: (i) Five Hundred Ninety-Four Thousand One Hundred Twenty-Two and 19/100 Dollars ($594,122.19) or (ii) one hundred percent (100%) of the then existing Fair Market Rent (as determined pursuant to Sections 3.03(b) and (c)), but in no event higher than Seven Hundred Forty-Nine Thousand Nine Hundred Eighty-Nine and 75/100 Dollars ($749,989.75). Thereafter, the Base Rent due hereunder shall increase by escalations as determined in the Fair Market Rent determination, effective on January 1 of each remaining year of the Lease Term..

Section 4.03 Intentionally Deleted

Section 4.04 Absolute Triple Net Lease

This Lease is what is commonly called a “Absolute Triple Net Lease,” it being understood that Lessor shall receive the Base Rent set forth in Section 4.01 free and clear of any and all expenses, costs, impositions, taxes, assessments, liens or charges of any nature whatsoever. Lessee shall pay all rent in lawful money of the United States of America to Lessor at the notice address stated herein or to such other persons or at such other places as Lessor may designate in writing not later than ten (10) days before the due date specified for same without prior demand, set-off or deduction of any nature whatsoever. It is the intention of the parties hereto that this Lease shall not be terminable for any reason by Lessee and that Lessee shall in no event be entitled to any abatement of or reduction in rent payable under this Lease, except as herein expressly provided in Articles VIII and XIII. Any present or future law to the contrary shall not alter this agreement of the parties.

Section 4.05 Additional Rent

In addition to the Base Rent reserved by Section 4.01, Lessee shall pay, beginning on the Commencement Date and continuing throughout the Lease Term as Additional Rent (i) 100% of amounts applicable solely to the Premises, and Lessee’s Share (as defined in Section 4.07(c) below) of amounts applicable to Building 9, the Project and the Common Area of all taxes, assessments, fees and other impositions payable by Lessee in accordance with the provisions of Article IX and insurance premiums in accordance with the provisions of Article VII, (ii) Lessee’s Share of Operating Expenses ( as defined below), and (iii) any other applicable charges, costs and expenses whether or not contemplated which may arise under any provision of this Lease during the Lease Term, as the same may be extended, plus a Management Fee to Lessor equal to two percent (2%) of the Base Rent. The Management Fee is due and payable, in advance, with each installment of Base Rent. All of such charges, costs, expenses, Management Fee and all other amounts payable by Lessee hereunder, shall constitute Additional Rent, and upon the failure of Lessee to pay any of such charges, costs or expenses, Lessor shall have the same rights and remedies as otherwise provided in this Lease for the failure of Lessee to pay Base Rent.

Section 4.06 Letter of Credit

(a) Deposit of Letter of Credit Security

Lessee shall deposit with Lessor, on or before the date that is three (3) business days after the date Lessee executes this Lease, an unconditional, irrevocable letter of

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credit (“Letter of Credit”) on a form acceptable to Lessor and, if required, Lessor’s lender(s), and in favor of Beneficiary (as defined below) in the amount of One Million Five Hundred Thousand and 00/100 Dollars ($1,500,000.00) (the “Letter of Credit Security”). “Beneficiary,” as used herein refers to either: (x) Lessor as beneficiary, or (y) if required by Lessor’s lender(s), Lessor and Lessor’s lender(s) as co-beneficiaries under the Letter of Credit Security. The Letter of Credit Security shall: (i) be issued by a commercial money center bank reasonably satisfactory to Lessor with retail branches in San Francisco, California (the “Issuer”); (ii) be a standby, at-sight, irrevocable letter of credit; (iii) be payable to Beneficiary; (iv) permit multiple, partial draws , (v) provide that any draw on the Letter of Credit Security shall be made upon receipt by the Issuer of a sight draft accompanied by a letter from Lessor stating that Lessor is entitled, pursuant to the provisions of this Lease, to draw on the Letter of Credit Security in the amount of such draw; (vi) provide for automatic annual extensions, without amendment (so-called “evergreen” provision) with a final expiry date no sooner than ninety (90) days after the end of the Lease Term; (vii) provide that it is governed by the Uniform Customs and Practice for Documentary Credits (1993 revisions) International Chamber of Commerce Publication 500; and (viii) be cancelable if, and only if, Issuer delivers to Beneficiary no less than sixty (60) days advance written notice of Issuer’s intent to cancel. Lessee shall pay all costs, expenses, points and/or fees incurred by Lessee in obtaining the Letter of Credit Security.

(b) Lessor’s Right to Draw on Letter of Credit Security

The Letter of Credit Security shall be held by Lessor as security for the faithful performance by Lessee of all of the terms, covenants, and conditions of this Lease and, so long as Lessor or an affiliate thereof is the lessor under the Building 10 Lease and the Building 10 Lease is in effect, all of the terms, covenants and conditions of the Building 10 Lease, applicable to Lessee. Lessor shall have the immediate right to draw upon the Letter of Credit Security, in whole or in part and without prior notice to Lessee, other than as required under this Lease, at any time and from time to time: (i) if an Event of Lessee’s Default occurs under this Lease or, if Lessor or an affiliate thereof is the lessor under the Building 10 Lease and the Building 10 Lease is in effect, the Building 10 Lease (beyond any applicable notice and cure period), or (ii) Lessee either files a voluntary bankruptcy petition or an involuntary bankruptcy petition is filed against Lessee by an entity or entities other than Lessor, under 11 U.S.C. §101 et seq., or Lessee executes an assignment for the benefit of creditors. No condition or term of this Lease shall be deemed to render the Letter of Credit Security conditional, thereby justifying the Issuer of the Letter of Credit Security in failing to honor a drawing upon such Letter of Credit Security in a timely manner. The Letter of Credit Security and its proceeds shall constitute Lessor’s sole and separate property (and not Lessee’s property or, in the event of a bankruptcy filing by or against Lessee, property of Lessee’s bankruptcy estate) and Lessor may immediately upon any draw (and without notice to Lessee) apply or offset the proceeds of the Letter of Credit Security against: (A) any amounts payable by Lessee under the Lease that are not paid when due, after the expiration of any applicable notice and cure period; (B) all losses and damages that Lessor has suffered or may reasonably estimate that it may suffer as a result of an Event of Lessee’s Default under this Lease or the Building 10 Lease, including any damages arising under Section 1951.2 of the California Civil Code for rent due following termination of this Lease; (C) any costs incurred by Lessor in connection an Event of Lessee’s Default under this Lease (including attorney’s fees); and (D) any other amount that Lessor may spend or become obligated to spend by reason of an Event of Lessee’s Default under this Lease or the Building 10

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Lease but in no event in excess of amounts to which the Lessor would be entitled under the law. If any portion of the Letter of Credit Security is so drawn upon or applied, Lessee shall, within five (5) business days after written demand therefore, deposit cash with Issuer in an amount sufficient to restore the Letter of Credit Security to its original amount. Tenant’s failure to do so shall be a Default by Lessee. It is expressly understood that Lessor shall be relying on Issuer rather than Lessee for the timely payment of proceeds under the Letter of Credit Security and the rights of Lessor pursuant to this Section are in addition to any rights which Lessor may have against Lessee pursuant to Article XII below. Lessor shall not be required to keep the proceeds from the Letter of Credit Security separate from Lessor’s general funds nor be deemed a trustee of same.

(c) Replacement Letter of Credit Security

If, for any reason whatsoever, the Letter of Credit Security becomes subject to cancellation or expiration during the Lease Term, within forty-five (45) days prior to expiration of the Letter of Credit Security, Lessee shall cause the Issuer or another bank satisfying the conditions of Section 4.06(a) above to issue and deliver to Lessor a Letter of Credit Security to replace the expiring Letter of Credit Security (the “Replacement Letter of Credit Security”). The Replacement Letter of Credit Security shall be in the same amount as the original Letter of Credit Security (or such reduced amount as provided by the terms of Section 4.06(g) of this Lease) and shall be on the terms and conditions set forth in items (A) through (D) above. Failure of Lessee to cause the Replacement Letter of Credit Security to be issued forty-five (45) days prior to the then pending expiration or cancellation shall entitle Lessor to fully draw down on the existing Letter of Credit Security and, at Lessor’s election, shall be an event of default under this Lease and/or the Building 10 Lease without any relevant notice and cure period.

(d) Transfer of Beneficiary

During the Lease Term Lessor may transfer its interest in the Lease or Lessor’s lender may change. Lessor may request a change to Beneficiary under the Letter of Credit Security to the successor of Lessor and/or Lessor’s lender (the “Transferee”). Lessee agrees to cooperate and to cause Issuer, at Lessor’s cost, to timely issue a new Letter of Credit Security on the same terms and conditions as the original Letter of Credit Security, except that the new Letter of Credit Security shall be payable to the Transferee. Lessor shall surrender the existing Letter of Credit Security to Lessee simultaneously with Lessee’s delivery of the new Letter of Credit Security to Transferee.

(e) Return of the Letter of Credit Security

If Lessee fully and faithfully performs every provision of this Lease to be performed by it, the Letter of Credit Security or any balance thereof shall be returned (without interest) to Lessee (or, at Lessee’s option, to the last assignee of Lessee’s interests hereunder) within thirty (30) days after the expiration or earlier termination of the Lease and after Lessee has vacated the Premises and surrendered possession; provided that if prior to the Lease Expiration Date a voluntary bankruptcy provision is filed by Lessee, or an involuntary bankruptcy is filed against Lessee by any of Lessee’s creditors other than Lessor, under 11

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U.S.C. § 101 et seq., or Lessee executes an assignment for the benefit of creditors, then to the fullest extent permitted by law Lessor shall not be obligated to return the Letter of Credit Security or any proceeds of the Letter of Credit Security until all statutes of limitations for any preference avoidance statutes applicable to such bankruptcy or assignment for the benefit of creditors have elapsed or the bankruptcy court or assignee, whichever is applicable, has executed a binding release releasing Lessor of any and all liability for the preferential transfers relating to payments made under this Lease, and Lessor may retain and offset against any remaining Letter of Credit Security proceeds the full amount Lessor is required to pay to any third party on account of preferential transfers relating to this Lease. Lessor agrees it will cooperate in providing Issuer with a letter of cancellation or such other reasonable documentation as Issuer requests to effect the return and extinguishment of the credit issued under the Letter of Credit Security.

(f) Acknowledgment of Parties

Lessor and Lessee (a) acknowledge and agree that in no event or circumstance shall the Letter of Credit Security or any renewal thereof or substitute therefor or any proceeds thereof be deemed to be or treated as a “security deposit” under any law applicable to security deposits in the commercial context, including, but not limited to Section 1950.7 of the California Civil Code, as such Section now exists or as it may be hereafter amended or succeeded (the “Security Deposit Laws”), (b) acknowledge and agree that the Letter of Credit Security (including any renewal thereof or substitute therefor or any proceeds thereof) is not intended to serve as a security deposit, and the Security Deposit Laws shall have no applicability or relevancy thereto, and (c) waive any and all rights, duties and obligations that any such party may now, or in the future will, have relating to or arising from the Security Deposit Laws. Lessee hereby waives the provisions of Section 1950.7 of the California Civil Code and all other provisions of law, now or hereafter in effect, which (i) establish the time frame by which a Lessor must refund a security deposit under a lease, and/or (ii) provide that a Lessor may claim from a security deposit only those sums reasonably necessary to remedy defaults in the payment of rent, to repair damage caused by a Lessee or to clean the premises, it being agreed that Lessor may, in addition, claim those sums specified in this Section 4.06 and/or those sums reasonably necessary to compensate Lessor for any loss or damage caused by Lessee’s breach of this Lease, including any damages Lessor suffers.

(g) Scheduled Reduction in Letter of Credit Security.

Notwithstanding anything herein to the contrary, as of the eighth (8th) anniversary of the “Commencement Date” of the Building 10 Lease, the amount of the Letter of Credit Security shall be reduced to Seven Hundred Fifty Thousand Dollars ($750,000), provided that (i) at such time Lessor has not delivered a written notice of default by Lessee hereunder and such default has not yet been cured, and (ii) Lessor has not delivered to Lessee written notice that Lessee is in monetary default hereunder more than three (3) times and written notice that Lessee is in non-monetary default more than one (1) time during the Lease Term.

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Section 4.07 Operating Expenses

(a) Definition

“Operating Expenses” shall mean and include those actual costs or expenses of the Premises, Building 9 or Project described in Articles VI, VII or IX, as well as all actual costs and expenses of every kind and nature paid or incurred by Lessor (whether obligated to do so or undertaken at Lessor’s discretion) in the ownership, operation, maintenance, repair and replacement of the Common Areas, including Common Area Project Buildings and improvements located within the Project as well as the Common Areas of Building 9. Such cost and expenses shall include, but not be limited to, costs of cleaning; lighting; maintaining, repairing and replacing all Common Area improvements and elements (replacing shall be deemed to include but not be limited to the replacement of light poles and fixtures, storm and sanitary sewers, parking lots, driveways and roads as well as the Building 9 elevators, stairways, floors and walls in the Common Area and Building 9, but not the Building 9 elements which are the responsibility of Lessor to maintain, repair and replace under this Lease), repairs to and maintenance of the structural and non-structural portions of the Athletic Facility; supplies, tools, equipment and materials used in the operation and maintenance of the Project; parking lot striping; removal of trash, rubbish, garbage and other refuse; painting; removal of graffiti; painting of exterior walls; landscaping; providing security to the extent Lessor determines in its sole discretion to do so(including security systems and/or systems designed to safeguard life or property against acts of God and/or criminal and/or negligent acts, and the costs of maintaining of same); personal property taxes; fire protection and fire hydrant charges (including fire protection system signaling devices, now or hereafter required, and the costs of maintaining of same); water and sewer charges; utility charges; license and permit fees necessary to operate and maintain the Project; the initial cost or the reasonable depreciation of equipment used solely in operating and maintaining the Common Areas which is expensed or amortized, respectively by Lessor in its good faith discretion using accounting practices commonly utilized in the commercial real estate industry, consistently applied and rent paid for leasing any such equipment; reasonable cost of on or off site storage space of any and all items used in conjunction with the operation, maintenance and management of the Project, including but not limited to tools, machinery, records, decorations, tables, benches, supplies and meters; the cost of and installation cost of any and all items which are installed for the purpose of reducing Operating Expenses, increasing building or public safety or which may be then required by governmental authority, laws, statutes, ordinances and/or regulations, a use privilege for the Athletic Facility equal to: (A) the product of 3,744 (Lessee’s Share of the Athletic Facility Square Footage) times the monthly Base Rent per square foot then due hereunder, plus (B) Lessee’s Share of the costs and expenses arising from the operation of same; total compensation and benefits (including premiums for workers’ compensation and other insurance) paid to or on behalf of Lessor’s employees, agents, consultants and contractors, including but not limited to full or part time on-site management or maintenance personnel, however, excluding any person with a title greater than property manager, for work performed at the Project.

Notwithstanding the above, if Lessee’s Share of the cost of any particular capital expenditure to the Project or Premises exceeds Fifty Thousand Dollars ($50,000), then

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such cost, together with interest thereon at the rate actually charged Lessor by any lender or, if no such interest is relevant, with interest thereon at an interest rate equal to the Bank of America prime rate plus two percent (2%), shall be amortized over its useful life, and the amount includible in Operating Expenses shall be limited to the monthly amortized cost thereof. The determination of what constitutes a capital expenditure and the useful life applicable thereto shall be made by Lessor in its good faith discretion using accounting practices commonly utilized in the commercial real estate industry, consistently applied

(b) Payment

Lessee shall pay Lessee’s Share of Operating Expenses, as Additional Rent, in monthly installments on the first day of each month in an amount set forth in a written estimate by Lessor. Within ninety (90) days after the end of each calendar year, Lessor shall furnish to Lessee a statement (hereinafter referred to as “Lessor’s Statement”) of the actual amount of Lessee’s Share of such Operating Expenses for such period. Within thirty (30) days after receipt thereof, Lessee shall pay to Lessor, as Additional Rent, or Lessor shall apply as a credit to Additional Rent next falling due (or if the Lease Term has expired or terminated and there remains no money due to Lessor, remit to Lessee), as the case may be, the difference between the estimated amounts paid by Lessee and the actual amount of Lessee’s Share of Operating Expenses for such period as shown by such Lessor’s Statement. Lessee’s Share of Operating Expenses for the ensuing estimation period shall be adjusted upward or downward based upon Lessor’s Statement.

(c) Lessee’s Share

For purposes hereof, “Lessee’s Share” shall mean (i) as to amounts allocable solely to Building 9 (and with respect to real property tax, also to the legal parcel in which Building 9 is located), one hundred percent (100%), and (ii) as to amounts allocable to the Project or Project Common Area, the Rentable Area of the Premises divided by the Rentable Area of all Project Buildings at the Project (irrespective of whether they are rented). Subject to being increased or decreased (in an amount Lessor shall, in good faith, determine), upon the increase or reduction in the Rentable Area of the Premises and the Project, respectively, Lessee’s Share for each of the Building 9 items shall be 100% and Lessee’s Share of Project items shall be sixteen and ninety-three hundredths percent (16.93%). The Rentable Area of all Project Buildings at the Project shall not be reduced for vacancies in the ordinary course of business.

(d) Exclusions

For purposes of this Lease, the term Operating Expenses shall not include (and Lessee shall have no liability for) any of the following:

(i) any expenses incurred by Lessor for the sole benefit of Lessee, which expenses are reimbursed by Lessee pursuant to the other terms of this Lease,

(ii) any expenses incurred by Lessor for the benefit of the other tenants of the Project, but not Lessee, which expenses are in fact reimbursed by such other tenant(s),

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(iii) any payments of points, interest or principal relating to any debt secured by Building 9 or the Project,

(iv) costs associated with the operation of the business of the ownership or entity which constitutes “Lessor,” as distinguished from the costs of Project operations, including, but not limited to, partnership accounting and legal matters, costs of defending any lawsuits with any mortgagee (except as the actions of Lessee may be in issue), costs of selling syndicating, financing, mortgaging or hypothecating any of Lessor’s interest in the Project, costs of any disputes between Lessor and its employee (if any) not engaged in Project operation, or outside fees paid in connection with disputes with other tenants,

(v) Legal fees, space planners’ fees, real estate brokers’ leasing commissions, and advertising expenses incurred in connection with leasing of the Project Buildings,

(vi) Costs for which Lessor is reimbursed by its insurance carrier or any tenant’s insurance carrier,

(vii) any bad debt loss, rent loss or reserves for bad debts or rent loss,

(viii) costs, including permit, license and inspection costs, incurred with respect to the installation of tenant improvements made for new tenants in the Project or incurred in renovating or otherwise improving, decorating, painting or redecorating vacant space for tenants or other occupants of the Project,

(ix) costs of a capital nature, including, without limitation, capital improvements and replacements, capital repairs, capital equipment and capital tools, unless such costs are amortized pursuant to the terms of Subsection 4.07(a) above,

(x) any interest or late fee resulting from any failure of Lessor to pay any item of Operating Expense when it would have been due without such interest or late fee, provided, however, that nothing herein shall be deemed from precluding Lessor from passing through to Lessee as an Operating

Expense any cost associated with paying Operating Expenses on any permitted installment or other periodic basis, even if such payment basis results in an increase in the Operating Expense in question,

(xi) overhead and profit increment paid to Lessor or to subsidiaries or affiliates of Lessor for such services in the Building to the extent the same exceeds the costs of such services rendered by unaffiliated third parties on a competitive basis.

It is understood that Operating Expenses shall be reduced by all cash discounts, trade discounts, or quantity discounts received by Lessor or Lessor’s managing agent in the purchase of any goods, utilities, or services in connection with the operation of the Project. In the calculation of any expenses hereunder, it is understood that Lessor will not charge Lessee more than one hundred percent (100%) of any Operating Expense due hereunder. Lessor shall use its best efforts to effect an equitable proration of bills for services rendered to Building 9 and to any other property owned by Lessor.

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Section 4.08 Lessee’s Right to Review Supporting Data

(a) Exercise of Right by Lessee

Provided that Lessor has not delivered to Lessee written notice of any default by Lessee hereunder, which default has not then been cured, and provided further that Lessee strictly complies with the provisions of this Section 4.08, Lessee shall have the right to reasonably review supporting data for any portion of a Lessor’s Statement that Lessee believes may be incorrect. In order for Lessee to exercise its right under this Section 4.08, Lessee shall, within: (i) forty-five (45) days after any Lessor’s Statement is received, if Lessor includes a copy of Lessor’s general ledger for Building 9 with such Lessor’s Statement, or (ii) ninety (90) days after Lessor’s Statement is received, in all other events, deliver a written notice to Lessor specifying the portions of the Lessor’s Statement that it believes to be incorrect, and Lessee shall simultaneously pay to Lessor all amounts due from Lessee to Lessor as specified in the Lessor’s Statement, if applicable. Except as expressly set forth in subparagraph (c) below, in no event shall Lessee be entitled to withhold, deduct, or offset any monetary obligation of Lessee to Lessor under the Lease including, without limitation, Lessee’s obligation to make all Base Rent payments and all payments for Additional Rent, pending the completion of, and regardless of the results of, any review under this Section 4.08. The right to review granted to Lessee under this Section 4.08 may only be exercised once for any Lessor’s Statement, and if Lessee fails to meet any of the above conditions as a prerequisite to the exercise of such right, the right of Lessee under this Section 4.08 for a particular Lessor’s Statement shall be deemed waived.

(b) Procedures for Review

Lessee acknowledges that Lessor maintains its records for Building 9 and the Project at its offices in San Francisco, and Lessee therefore agrees that any review of supporting data under this Section shall occur at such location. Any review to be conducted under this Section shall be at the sole expense of Lessee, except as otherwise provided herein, below, and shall be conducted by an independent (i.e., not then engaged by Lessee for any other purposes) firm of certified public accountants on a non-contingency fee basis. Lessee acknowledges and agrees that any supporting data reviewed under this Section shall constitute confidential information of Lessor, which shall not be disclosed to anyone other than the accountants of national standing performing the review and the principals or other employees or counsel of Lessee who receive the results of the review. Except to the extent (i) required by law, (ii) in connection with any legal proceeding concerning this Lease, or (iii) if such information or results are otherwise publicly available, the disclosure of such information or results of the review to any other person by Lessee or any person or entity who received such information from or on behalf of Lessee shall constitute a material breach of this Lease.

(c) Finding of Error

Any errors disclosed by the review of supporting data under this Section shall be promptly corrected, provided that Lessor shall have the right to cause another review of the supporting data to be made by an independent (i.e., not then engaged by Lessor for any other purposes) firm of certified public accountants of Lessor’s choice. If the results of the review of the supporting data, taking into account (if applicable) the results of any additional review

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caused by Lessor, reveal that Lessee has overpaid obligations for a preceding period, the amount of such overpayment shall be credited against Lessee’s subsequent installment obligations to pay its share of Additional Rent or, if the Lease has terminated or expired, in cash within thirty (30) days after the determination of overpayment is received by Lessor. In the event that such results show that Lessee has underpaid its obligations for a preceding period, the amount of such underpayment shall be paid by Lessee to Lessor with the next succeeding installment obligation of Additional Rent or, if this Lease has terminated or expired, in cash within thirty (30) days after the determination of underpayment is received by Lessee. Each party shall pay all the costs, and expenses of its chosen accounting firm; provided, however, if Lessor and Lessee determine that Operating Expenses for the Project for the year in question were less than those stated in Lessor’s Statement by more than five percent (5%), Lessor shall reimburse Lessee for the reasonable amounts paid by Lessee to third parties in connection with such review. If Lessor and Lessee determine that Operating Expenses for the Project in the year in question were not less than those stated in Lessor’s Statement by more than five percent (5%), then Lessee shall reimburse Lessor for the reasonable amounts paid by Lessor to third parties in connection with such review.

(d) Effect of Lessee’s Default. In the event that Lessor has delivered a written notice of default to Lessee hereunder and such default then remains uncured during the pendency of a review of records under this Section, said right to review shall immediately cease and the matters originally set forth in Lessor’s Statement shall be deemed to be correct.

ARTICLE V

USE

Section 5.01 Permitted Use and Limitations on Use

(a) The Premises shall be used and occupied only for general office purposes, research and development, laboratory, biopharmaceutical research (including without limitation, vivarium and animal colony facilities for rodents only, small scale pilot fermentation and other pilot plant facilities) and other related legal uses and for no other use without Lessor’s prior written consent, which shall not be unreasonably withheld, conditioned or delayed so long as such use is lawful and does not conflict with any other provision of this Lease, including, without limitation, the restrictions set forth in the following provisions of this Section. Lessee shall not use, suffer or permit the use of the Premises in any manner that will tend to constitute waste, nuisance or unlawful acts or void any warranties that Lessor has received with respect to Building 9, provided that biological and chemical and other waste generated and disposed of in the ordinary course of business for the permitted uses in full and timely compliance with all applicable laws shall not be deemed a violation of this Section 5.01. In no event shall it be unreasonable for Lessor to withhold its consent as to uses other than those expressly permitted above which it determines would tend to materially increase the wear of the Premises or any part thereof or increase the potential liability of Lessor or decrease the marketability, financeability, leaseability or value of the Premises or Project. Lessee shall not do anything in or about the Premises which will (i) cause structural injury to Building 9 or Premises, or (ii) cause damage to any part of Building 9 or Premises except to the extent reasonably necessary for the installation of Lessee’s trade fixtures and Lessee’s Alterations, and then only in a manner and to the extent consistent with this Lease. Lessee shall not operate any equipment within Building 9 or

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Premises which will (A) materially damage Building 9 or the Common Area, (B) overload existing electrical systems or other mechanical equipment servicing Building 9, (C) impair the efficient operation of the sprinkler system or the heating, ventilating or air conditioning (“HVAC”) equipment within or servicing Building 9, (D) damage, overload or corrode the sanitary sewer system, or (E) damage the Common Area or any other part of the Project. Lessee shall not do any of the following in excess of the load limits for which such items are designed (based on structural reinforcements to be constructed by Lessee as part of Lessee’s alterations to the Premises): attach, hand or suspend anything from the ceiling, roof, walls or columns of Building 9 or set any load on the floor. Lessee shall not operate hard wheel forklifts within the Premises. Any dust, fumes, or waste products generated by Lessee’s use of the Premises shall be contained and disposed so that they do not (1) create an unreasonable fire or health hazard, (2) damage the Premises, or (3) result in the violation of any law. Except as approved by Lessor, Lessee shall not change the exterior of Building 9, or the outside area of the Premises, or install any equipment or antennas on or make any penetrations of the exterior or roof of Building 9. Lessee shall not conduct, on any portion of the Premises, any sale of any kind (but nothing herein is meant to prohibit sales and marketing activities of Lessee’s products and services in the normal course of business consistent with the permitted uses), including any public or private auction, fire sale, going-out-of-business sale, distress sale or other liquidation sale, and any such sale shall be an immediate event of default hereunder without the benefit of a notice and cure period from Lessor, notwithstanding anything to the contrary in this Lease. No materials, supplies, tanks or containers, equipment, finished products or semi-finished products, raw materials, inoperable vehicles or articles of any nature shall be stored upon or permitted to remain within the outside areas of the Premises except in fully fenced and screened areas outside Building 9 which have been designed for such purpose and have been approved in writing by Lessor for such use by Lessee and for which Lessee has obtained all appropriate permits from governmental agencies having jurisdiction over such articles. Lessee shall also reimburse Lessor for any increased premiums or additional insurance which Lessor reasonably deems necessary as a result of Lessee’s use of the Premises.

Section 5.02 Compliance with Laws

Lessor represents and warrants to Lessee that Building 9 was constructed in accordance with all applicable laws, codes and regulations in effect as of the date Building 9 was built. Except for any work necessary as a result of the inaccuracy of the foregoing representation and warranty, Lessee shall, at Lessee’s cost and expense, comply promptly with all statutes, ordinances, codes, rules, regulations, orders, covenants and restrictions of record, and requirements applicable to the Premises and Lessee’s use and occupancy of same in effect during any part of the Lease Term, whether the same are presently foreseeable or not, and without regard to the cost or expense of compliance provided that any Alteration(s) required for compliance shall be subject to the provisions of this Lease. By executing this Lease, Lessee acknowledges that it has reviewed and satisfied itself as to its compliance, or intended compliance with the applicable zoning and permit requirements, hazardous materials and waste requirements, and all other statutes, laws, or ordinances relevant to the uses stated in Section 5.01, above, or the occupancy of the Premises.

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Section 5.03 Condition of Premises at Commencement Date

Lessee hereby accepts the Premises in their condition existing as of the date the Premises is delivered to Lessee, “AS-IS” and “WITH ALL FAULTS” subject to all applicable zoning, municipal, county and state laws, ordinances and regulations governing and regulating the use and condition of the Premises, and any covenants or restrictions, liens, encumbrances and title exceptions of record, and accepts this Lease subject thereto and to all matters disclosed thereby and by any exhibits attached hereto. Lessee acknowledges that neither Lessor nor any agent of Lessor has made any representation or warranty as to the present or future suitability of the Premises for the conduct of Lessee’s business, except as otherwise provided herein.

Section 5.04 Intentionally Deleted

Section 5.05 Building Security

Lessee acknowledges and agrees that it assumes sole responsibility for security at the Premises for its agents, employees, invitees, licensees, contractors, guests and visitors and will provide such systems and personnel for same including, without limitation, while such person(s) are using the Common Area, as it deems necessary or appropriate and at its sole cost and expense. Lessor shall have absolutely no liability whatsoever with respect to the security of Lessee’s agents, employees, invitees or contractors or their respective personal property at the Project, except to the extent that liability to such parties arises out of the intentional misconduct of Lessor or Lessor’s agents, employees, invitees or contractors. Lessee acknowledges and agrees that Lessor does not intend to provide any security system or security personnel at the Premises or Project, including, without limitation, at the Common Area, provided, however, that nothing herein shall be deemed to prevent Lessor from providing such system or personnel in the future, the cost of which will be included in those items for which Lessee pays additional rent.

Section 5.06 Rules and Regulations

Lessor may from time to time promulgate reasonable and nondiscriminatory rules and regulations applicable for the care and orderly management of the Premises, the Project and/or its Common Area. Such rules and regulations shall be binding upon Lessee upon delivery of a copy thereof to Lessee, and Lessee agrees to abide by such rules and regulations. A copy of the initial Rules and Regulations is attached hereto as Exhibit “I.” If there is a conflict between the rules and regulations and any of the provisions of this Lease, the provisions of this Lease shall prevail. Lessor shall not be responsible for the violation of any such rules and regulations by any person, including, without limitation, Lessee or its employees, agents, invitees, licensees, guests, visitors or contractors.

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ARTICLE VI

MAINTENANCE, REPAIRS AND ALTERATIONS

Section 6.01 Maintenance of Premises and Building

(a) Throughout the Lease Term, Lessee, at its sole cost and expense, shall keep, maintain, repair and replace the Premises and every part thereof (except as provided in 6.01(b), Article VIII (Damage and Destruction), Article XIII (Eminent Domain) and also, except for uninsured maintenance, repairs or replacement costs caused solely by an act of gross negligence or intentional misconduct by Lessor, or its employees, agents or contractors during the Lease Term), maintain and repair all improvements and appurtenances in the Premises, including, without limitation, all interior walls, all doors and windows, all wall surfaces and floor coverings, all Alterations, additions and improvements installed by or on behalf of Lessee during the Lease Term, all sewer, plumbing, electrical, lighting, heating, ventilation and cooling systems and fixtures, fire sprinklers, fire safety and security systems and fixtures and all wiring and glazing, in the same good order, condition and repair as they are in on the Commencement Date, or may be improved during the Lease Term, reasonable wear and tear excepted, provided that such wear and tear could not have been reasonably prevented by best maintenance practices customarily used in the Project.

(b) Lessor, at its sole cost and expense, shall (i) repair defects, latent and patent, in Building 9 (including all exterior glass which is damaged by structural defects in exterior walls), and keep, maintain, repair and, if deemed necessary by Lessor, replace (ii) (a) supporting pillars, (b) structural walls, (c) the structural portions of Building 9 (including, but not limited to, the roof and window systems, provided that Lessee, and not Lessor, shall be responsible for washing the windows, and Lessee shall be responsible for Lessee’s Share of any costs incurred by Lessee in repairing, maintaining or replacing the roof membrane of Building 9 as an Operating Expense) and (d) foundations of Building 9. Notwithstanding the foregoing, subject to the terms of Section 7.06 hereof, if the need for such repair is caused by Lessee, Lessor shall, at Lessee’s sole cost and expense, repair same. Lessee shall give Lessor written notice of any needed repairs which are the obligation of Lessor hereunder. It shall then be the obligation of Lessor, after receipt of such notice, to perform the same within fifteen (15) business days after such notice (or, if the condition in need of repair constitutes an emergency which is causing imminent and material risk of damage or injury to persons or property at Building 9, Lessor must perform such repair within five (5) business days after receipt of such notice); provided, however, that if the nature of the repairs is such that more than fifteen (15) business days (or, in the case of the emergency repairs described above, five (5) business days) are reasonably required for performance, then Lessor shall not be deemed to be in default hereunder if Lessor commences such repairs within said fifteen (15) business day period and thereafter diligently completes them and provided further, that for purposes of this sentence “commences” includes any steps taken by Lessor to investigate, design, consult, bid or seek permit or other governmental approval in connection with such repair. Should Lessor default as provided in Section 12.03 with respect to its obligation to make any of the repairs assumed by it hereunder with respect to the Premises or Building 9, Lessee shall have the right to perform such repairs and Lessor agrees that within thirty (30) days after written demand accompanied by detailed

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invoice(s), it shall pay to Lessee the cost of any such repairs together with accrued interest from the date of Lessee’s payment at the Agreed Rate. Lessor shall not be liable to Lessee for any damage to person or property as a result of any failure to timely perform any of its obligations with respect to the repair, maintenance or replacement of the Premises, Project Buildings or Project or any part thereof, and Lessee’s sole right and remedy (together with its rights under Section 12.03 below) shall be the performance of said repairs by Lessee with right of reimbursement from Lessor of the reasonable fair market cost of said repairs, not exceeding the out of pocket sums actually expended by Lessee, together with accrued interest from the date of Lessee’s payment at the Agreed Rate, provided that nothing herein shall be deemed to create a right of setoff or withholding by Lessee of Base Rent or Additional Rent or any other amounts due herein. Lessee hereby expressly waives all rights under and benefits of Sections 1941 and 1942 of the California Civil Code or under any similar law, statute or ordinance now or hereafter in effect to make repairs and offset the cost of same against rent or to withhold or delay any payment of rent or any other of its obligations hereunder as a result of any default by Lessor under this Section 6.01(b).

(c) Lessee agrees to keep the Premises, both inside and out, clean and in sanitary condition as required by the health, sanitary and police ordinances and regulations of any political subdivision having jurisdiction and to remove all trash and debris which may be found in or around the Premises. Lessee further agrees to keep the interior surfaces of the Premises, including, without limitation, windows, floors, walls, doors, showcases and fixtures clean and neat in appearance.

(d) If Lessee refuses or neglects to commence such repairs and/or maintenance for which Lessee is responsible under this Article VI within a ten (10) business day period (or as soon as practical and in no event later than five (5) days, if the failure to initiate the repair threatens to cause further damage to the Premises) after written notice from Lessor and thereafter diligently prosecute the same to completion, then Lessor may enter the Premises (except in an emergency, upon at least 24 hours advance written notice) during Lessee’s business hours and cause such repairs and/or maintenance to be made. Lessor shall not be responsible to Lessee for any loss or damage occasioned thereby other than physical damage to the Premises caused by the negligence of Lessor or Lesson’s agents, employees or contractors which damage Lessor shall repair at its sole cost as Lessor’s sole obligation and Lessee’s sole right and remedy with respect to such damage. Lessee agrees that upon demand, it shall pay to Lessor the reasonable cost of any such repairs subject to the terms of the preceding sentence, not exceeding the amount of out-of-pocket expenses actually expended by Lessor, together with accrued interest from the date of Lessor’s payment at the Agreed Rate. Notwithstanding anything to the contrary contained herein, above, if Lessor elects to enter the Premises as permitted herein, above, it shall use commercially reasonable efforts to minimize any interference with Lessee’s business at the Premises.

Section 6.02 Maintenance of Project Common Areas

Lessor shall maintain, repair and replace all landscape, hardscape and other improvements within the Project Common Area and shall operate and manage the Athletic Facility and other Project Common Area features and facilities described in Section 2.02 including, without limitation, all landscape, hardscape and other improvements within the

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outside areas of Building 9 and the other Project Buildings located within the Project, including without limitation, landscaping, curbs, walkways, driveways, roadways, parking areas and lighting, sprinkler, drainage, sewer, plumbing systems. Notwithstanding the foregoing, subject to the terms of Section 7.06 below, any damage thereto, except for normal wear, caused by Lessee or its employees, agents, contractors, invitees or visitors shall be repaired by Lessor and the cost thereof shall be paid by Lessee within ten (10) days after presentation of Lessor’s bill for same. The cost and expense of Lessor’s obligations hereunder shall be Operating Expenses as to which Lessee shall pay Lessee’s Share pursuant to Section 4.05 (except as otherwise provided herein); provided, however, that Lessor’s obligation under this Section 6.02(b) in any instance where the damage, other than normal wear and tear, was caused by Lessor or its employees, agents or contractors shall not be recovered by Lessor from Lessee as an Operating Expense or in any other manner. Notwithstanding anything to the contrary contained herein, Lessee shall not be responsible for any cost or expense pertaining solely to another Project Building, except for costs or expenses pertaining to any Project Buildings which provide amenities for the Project or any Project Building in which Lessee is a tenant.

Section 6.03 Alterations, Additions and Improvements

No alterations, additions, or improvements (“Alterations”) shall be made to the Premises by Lessee without the prior written consent of Lessor, which Lessor will not unreasonably withhold, condition or delay; provided, however, that Lessee may make Alterations which do not affect the Building systems, exterior appearance or structural integrity of Building 9, involve penetration of either the ceiling or floor of Building 9 and which do not collectively exceed One Hundred Thousand Dollars ($100,000) in cost within any twelve (12) month period, without Lessor’s prior written consent; provided, further, that Lessee gives Lessor prior notice of such alterations (which notice shall include the estimated value of such alterations) and such alterations are otherwise performed in accordance with the terms of this Lease. As a condition to Lessor’s obligation to consider any request for consent hereunder, Lessee shall pay Lessor upon demand for the reasonable out of pocket costs and expenses of consultants, engineers, architects and others (exclusive of property management personnel for reviewing plans and specifications. Lessor may require Lessee to remove any such Alterations at the expiration or sooner termination of the Lease Term and to restore the Premises to their prior condition pursuant to the terms of Section 17.09 hereof; provided that: (i) Lessor shall make such election, if at all, at the time consent to such Alteration is given, if such election is requested in writing of Lessor at such time by Lessee, or if Lessor’s consent to such Alteration is not required, then Lessor shall make such election within 30 days following a written request of Lessor by Lessee, and (ii) in any event, at the end of the Lease Term or earlier termination of the Lease, Lessee shall remove from the Premises the equipment listed as “Equipment To Be Removed” on Schedule 3 attached hereto (the “Removal Obligations Schedule”), and shall surrender to Lessor, and have no obligation to remove, the equipment listed as “Equipment Left In Place” on the Removal Obligations Schedule. Lessee shall furnish security or make other arrangement satisfactory to Lessor to assure payment for the completion of all Alterations work free and clear of liens. All Alterations to be made to the Premises shall be made under the supervision of a competent, California licensed architect and/or competent California licensed structural engineer (each of whom has been approved by Lessor) and shall be made in accordance with plans and specifications which have been furnished to and approved by Lessor in writing prior to commencement of work. All Alterations shall be designed, constructed and installed at the sole

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cost and expense of Lessee by California licensed architects, engineers, and contractors approved by Lessor in compliance with all applicable law, and in good and workmanlike manner, and shall have been approved in writing by Redwood City and any other applicable governmental agencies, if so required. Such approvals shall not be unreasonably withheld, conditioned or delayed by Lessor. Except as is provided for in the Removal Obligations Schedule, subject to Lessor’s right to have Lessee retain ownership and remove same, any Alteration, including, without limitation, all lighting, electrical, heating, ventilation, air conditioning and full height partitioning, drapery and carpeting installations made by Lessee, together with all property that has become an integral part of the Premises such as fume hoods which penetrate the roof or plenum area, built-in cold rooms, built-in warm rooms, deionized water systems, glass washing equipment, autoclaves, chillers, built-in plumbing, electrical and mechanical equipment and systems and any power generator and transfer switches, shall not be deemed trade fixtures and shall become the property of Lessor at the expiration or sooner termination of the Lease, unless Lessor directs otherwise. Lessee shall retain title to all furniture and trade fixtures placed on the Premises. Within thirty (30) days after completion of any Alteration, Lessee shall provide Lessor with a complete set of both hard copies and CAD drawings of “as built” plans for same.

Section 6.04 Covenant Against Liens

Lessee shall not allow any liens arising from any act or omission of Lessee to exist, attach to, be placed on, or encumber Lessor’s or Lessee’s interest in the Premises, Building 9 or Project, or any portion of either, by operation of law or otherwise. Lessee shall not suffer or permit any lien of mechanics, material suppliers, or others to be placed against the Premises, Building 9 or Project, or any portion of either, with respect to work or services performed or claimed to have been performed for Lessee or materials furnished or claimed to have been furnished to Lessee or the Premises. Lessor has the right at all times to post and keep posted on the Premises any notice that it considers necessary for protection from such liens. At least ten (10) days before beginning construction of any Alteration, Lessee shall give Lessor written notice of the expected commencement date of that construction to permit Lessor to post and record a notice of nonresponsibility. If any such lien attaches or Lessee receives notice of any such lien, Lessee shall cause the lien to be immediately released and removed of record by payment or bond. Despite any other provision of this Lease, if the lien is not released and removed within twenty (20) days after Lessor delivers notice of the lien to Lessee, Lessor may immediately take all action necessary to release and remove the lien, without any duty to investigate the validity of it. All expenses (including reasonable attorney fees and the cost of any bond) incurred by Lessor in connection with a lien incurred by Lessee or its removal shall be considered Additional Rent under this Lease and be immediately due and payable by Lessee. Notwithstanding the foregoing, if Lessee shall, in good faith, contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense, defend and protect itself, Lessor and the Premises, Building 9 and Project against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof. If Lessor shall require, Lessee shall furnish a surety bond in an amount equal to one hundred fifty percent (150%) of the amount of such contested lien, claim or demand, indemnifying Lessor against liability for the same. If Lessor elects to participate in or is made a party to any such action, Lessee shall reimburse Lessor’s reasonable attorneys’ fees and costs within ten (10) days after demand.

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ARTICLE VII

INSURANCE

Section 7.01 Property/Rental Insurance for Premises

At all times during the Lease Term, Lessor shall keep Building 9, any tenant improvements or Alterations made by Lessee therein and the Project insured against loss or damage by fire and those risks normally included in the term “all risk,” extended coverage, fire and casualty insurance, including, without limitation, coverage for (i) earthquake and earthquake sprinkler leakage, (ii) flood, (iii) loss of rents and extra expense for eighteen (18) months, including scheduled rent increases, (iv) boiler and machinery, and (v) fire damage legal liability, including waiver of subrogation. Lessee shall pay Lessee’s Share of any deductibles. The amount of such insurance shall not be less than 100% of replacement cost. Insurance shall include a Building Ordinance and Increased Cost of Construction Endorsement insuring the increased cost of reconstructing the Premises incurred due to the need to comply with applicable statutes, ordinances and requirements of all municipal, state and federal authorities now in force, which or may be in force hereafter. Any recovery received from said insurance policy shall be paid to Lessor and thereafter applied by Lessor to the reconstruction of the Premises in accordance with the provisions of Article VIII below. Lessee, as part of the Operating Expenses, shall reimburse Lessor for Lessee’s Share of the cost of the premiums for all such insurance in accordance with Article IV. Such reimbursement shall be made within fifteen (15) days of Lessee’s receipt of a copy of Lessor’s statement therefore. To the extent commercially available in Lessor’s reasonable business judgment, Lessor’s insurance shall have a deductible not greater than fifteen percent (15%) for earthquake and ten percent (10%) for the basic “all risk” coverage.

Notwithstanding the foregoing, Lessee may, at Lessee’s election, maintain at Lessee’s sole cost and expense a separate, additional policy of insurance insuring the Improvements or Alterations made by Lessee against loss or damage by fire and those risks normally included in the term “all risk,” extended coverage, fire and casualty insurance. Any recovery received from said insurance policy shall be paid to Lessee in accordance with the provisions of Article VIII below.

Section 7.02 Property Insurance for Fixtures and Inventory

At all times during the Lease Term, Lessee shall, at its sole expense, maintain fire and casualty insurance with “all risk” coverage which includes the same coverage as required of Lessor in Section 7.01, above, on any trade fixtures, furnishings, merchandise, equipment, artwork or other personal property, whether or not presented to Lessor for its consent in or on the Premises, whether in place as of the date hereof or installed hereafter. The amount of such insurance shall not be less than one hundred percent (100%) of the replacement cost thereof with commercially reasonable deductibles, and Lessor shall not have any responsibility nor pay any cost for maintaining any types of such insurance. Lessee shall pay all deductibles.

Section 7.03 Lessor’s Liability Insurance

During the Lease Term, Lessor shall maintain a policy or policies of commercial general liability insurance naming Lessor (and such others as designated by Lessor) against

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claims and liability for bodily injury, personal injury and property damage on or about the Premises and Project, with combined single limit coverage in an amount determined by Lessor in its sole discretion (which amount is currently Fifty Million Dollars ($50,000,000.00)); provided that if such policy is a blanket policy that covers properties (other than the Project) owned by Lessor, only that portion allocable to the Project shall be payable hereunder. Lessee, in addition to the rent and other charges provided herein, agrees to pay Lessee’s Share of the premiums for all such insurance in accordance with Article IV.

Section 7.04 Liability Insurance Carried by Lessee

At all times during the Lease Term (and any holdover period) Lessee shall obtain and keep in force a commercial general liability policy of insurance protecting Lessee, Lessor and any lender(s) whose names are provided to Lessee as additional insureds against claims and liability for bodily injury, personal injury and property damage based upon involving or arising out of ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing a single limit coverage in amount of not less than Ten Million Dollars ($10,000,000) per occurrence. The limits of said insurance required by this Lease as carried by Lessee shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder. All insurance to be carried by the Lessee shall be primary to and not contributory with, any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only. Lessor may require Lessee’s liability insurance policy limits to be raised to conform with requirements of Lessor’s lender and/or to bring coverage limits to levels then being generally required of new tenants within the Project.

Section 7.05 Proof of Insurance

Lessee shall furnish to Lessor prior to the Commencement Date, and during the Lease Term, at least thirty (30) days prior to the expiration date of any policy, certificates indicating that the property insurance and liability insurance required to be maintained by Lessee is in full force and effect for the twelve (12) month period following such expiration date; that Lessor has been named as an additional insured to the extent of contractual liability assumed in Section 7.07 and Section 7.08 and that all such policies will not be canceled unless thirty (30) days’ prior written notice of the proposed cancellation has been given to Lessor. The insurance shall be with insurers approved by Lessor, provided, however, that such approval shall not be unreasonably withheld so long as Lessee’s insurance carrier has a Best’s Insurance Guide rating not less than A VIII and is licensed to do business in California. Lessor shall furnish to Lessee reasonable evidence of its insurance coverage required hereunder within fifteen (15) business days after demand made therefor, however, not more than once in any calendar year.

Section 7.06 Mutual Waiver of Claims and Subrogation Rights

Lessor and Lessee hereby release and relieve the other, and waive their entire claim of recovery for loss or damage to property arising out of or incident to fire, lightning, and the other perils included in a standard “all risk” insurance policy of a type described in Sections 7.01 and 7.02 above that is carried by the waiving party (or that would have been if the waiving party had carried the insurance required hereunder), when such property constitutes the Premises or Building 9 or the Project, or is in, on or about the Premises or Building 9, whether or not such

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loss or damage is due to the negligence of Lessor or Lessee, or their respective agents, employees, guests, licensees, invitees, or contractors. Lessee and Lessor waive all rights of subrogation against each other on behalf of, and shall obtain a waiver of all subrogation rights from, all property and casualty insurers referenced above.

Section 7.07 Indemnification and Exculpation

(a) Except as otherwise provided in Section 7.07(b), Lessee shall indemnify and hold Lessor free and harmless from any and all liability, claims, loss, damages, causes of action (whether in tort or contract, law or equity, or otherwise), expenses, charges, assessments, fines, and penalties of any kind, including without limitation, reasonable attorney fees, expert witness fees and costs, arising by reason of the death or injury of any person, including any person who is an employee, agent, invitee, licensee, permittee, visitor, guest or contractor of Lessee, or by reason of damage to or destruction of any property, including property owned by Lessee or by any person who is an employee, agent, invitee, permittee, visitor, or contractor of Lessee, caused or allegedly caused (1) while that person or property is in or about the Premises; (2) by some condition of the Premises (exclusive of structural defects or disrepair that are the sole responsibility of Lessor under the terms of Section 5.04 and 6.01(b) of this Lease); (3) by some act or omission by Lessee or its agent, employee, licensee, invitee, guest, visitor or contractor or any person in, adjacent, on, or about the Premises with the permission, consent or sufferance of Lessee; or (4) by any breach or default in timely observance or performance of any obligation on Lessee’s part to be observed or performed under this Lease.

(b) Notwithstanding the provisions of Section 7.07(a) of this Lease, Lessee’s duty to indemnify and hold Lessor harmless shall not apply to any liability, claims, loss or damages, causes of action (whether in tort or contract, law or equity, or otherwise), expenses, charges, assessments, fines and penalties of any kind, including without limitation, reasonable attorney fees, expert witness fees and costs arising by reason of Lessor’s, or its employees’, agents’ or contractors’, negligence or willful act of misconduct.

(c) Lessee hereby waives all claims against Lessor for damages to goods, wares and merchandise and all other personal property in, on or about the Premises and for injury or death to persons in, on or about the Premises from any cause other than the intentionally misconduct of Lessor or Lessor’s agents, employees or contractors, Notwithstanding the provisions of Section 7.07(b) above, or any other provision of this Lease, in no event shall Lessor be liable (i) for lost profits or other consequential damages arising from any cause, or (ii) for any damage which is or could be covered by the insurance Lessee is required to carry under this Lease.

Section 7.08 Lessor as Party Defendant

If by reason of an act or omission of Lessee or any of its employees, agents, invitees, licensee, visitors, guests or contractors, Lessor is made a party defendant or a cross defendant to any action involving the Premises or this Lease, Lessee shall hold harmless and indemnify Lessor from all liability or claims of liability, including all damages, attorney fees and costs of suit.

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ARTICLE VIII

DAMAGE OR DESTRUCTION

Section 8.01 Destruction of the Premises

(a) In the event of a partial destruction of the Premises (i.e., less than fifty percent (50%) of its Rentable Area) during the Lease Term from any cause, Lessor, upon receipt of, and to the extent of, insurance proceeds paid in connection with such casualty (or the proceeds that would have been received by Lessor had Lessor maintained the insurance required of Lessor in Subsection 7.01 above, in the event Lessor fails to maintain such insurance) and the deductible from Lessee which Lessee shall pay Lessee’s Share to Lessor within thirty (30) business days after demand, shall forthwith repair the same, including without limitation all Tenant Improvements and Alterations, whether or not originally paid for or constructed by Lessor or Lessee, provided the repairs can be made within a reasonable time under state, federal, county and municipal applicable law, but such partial destruction shall in no way annul or void this Lease, (except as provided in Section 8.01(b) or 8.01(c) below) provided that Lessee shall be entitled to a proportionate credit for rent equal to rental income insurance proceeds received by Lessor (or the proceeds that would have been received by Lessor had Lessor maintained the insurance required of Lessor in subsection 7.01 above, in the event Lessor fails to maintain such insurance) and provided further that Lessee shall repair all damage and destruction to those items as to which Lessee is required to maintain fire and casualty insurance under Section 7.02 above. Lessor and Lessee each shall use diligence in making such repairs within a reasonable time period, subject to the Force Majeure provisions of Section 17.21, in which instance the time period shall be extended accordingly, and this Lease shall remain in full force and effect, with the rent to be proportionately reduced as provided above in this Section. If the Premises are damaged by any peril within six (6) months prior to the last day of the Lease Term (or, if Lessee has delivered its Option Notice pursuant to Section 3.03(a) above, within six (6) months prior to the last day of the Extended Term) and, in the reasonable opinion of the Lessor’s architect or construction consultant, the restoration of the Premises cannot be substantially completed within thirty (30) days after the date of such damage Lessor or Lessee may terminate this Lease on thirty (30) days written notice to the other party.

(b) If the Premises are damaged or destroyed by any cause to the extent of more than fifty percent (50%) of their total Rentable Area during the Lease Term, Lessor shall notify Lessee within thirty (30) days after such damage or destruction whether it will repair the same. If Lessor states that it will not, or cannot, repair, this Lease shall terminate thirty (30) business days after Lessor gives its notice.

(c) Lessee shall have the option to terminate this Lease if the Premises are affected by a casualty not caused by Lessee and the time estimated to substantially complete the restoration exceeds thirteen (13) months from the date Lessor’s architect’s opinion of the repair time is delivered to Lessee. Such termination right shall be (i) exercised by written notice to Lessor delivered within thirty (30) days after delivery to Lessee of Lessor’s architect’s opinion and (ii) irrevocable and automatically waived if not so timely exercised.

(d) In the event of a termination of the Lease pursuant to this Section 8.01, Lessor shall be entitled to any insurance proceeds received by Lessor under the policy of

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insurance maintained by Lessor under Section 7.01 as a result of the damage or destruction and Lessee shall be entitled to any insurance proceeds from any separate, additional policy obtained by Lessee as described in Sections 7.01 and/or 7.02. The respective insurable interests of Lessor and Lessee in the Lessee Improvements and Alterations shall not be affected by any termination of the Lease following an event of damage or destruction as described herein.

(e) If Lessor states that it will repair the Premises, Lessor shall, upon receipt of and to the extent of insurance proceeds paid in connection with such casualty and the deductible amount from Lessee, forthwith conduct the repair and diligently pursue the same to completion, but such destruction shall in no way annul or void this Lease except upon a termination of the Lease pursuant to this Article VIII, provided that Lessee shall be entitled to a proportionate credit for rent equal to rental income insurance proceeds received by Lessor (or the proceeds that would have been received by Lessor had Lessor maintained the insurance required of Lessor in subsection 7.01(iii) above, in the event Lessor fails to maintain such insurance).

Section 8.02 Waiver of Civil Code Remedies

Lessee hereby expressly waives any rights to terminate this Lease upon damage or destruction to the Premises, including without limitation any rights pursuant to the provisions of Section 1932, Subdivisions 1 and 2 and Section 1933, Subdivision 4, of the California Civil Code, as amended from time-to-time, and the provisions of any similar law hereinafter enacted.

Section 8.03 Damages Incurred during Repair

The Base Rent, Additional Rent and other charges due under this Lease shall not be reduced or abated by reason of any damage or destruction to the Premises (but will be subject to credit as provided in Section 8.01(a) and (b) above with respect to rental loss insurance proceeds received), and Lessor shall be entitled to all proceeds of the insurance maintained pursuant to Section 7.01 above during the period of rebuilding pursuant to Section 8.01 above, or if the Lease is terminated pursuant to Section 8.01 above. Lessee shall have no claim against Lessor, including, without limitation, for compensation for inconvenience or loss of business, profits or goodwill during any period of repair or reconstruction.

Section 8.04 No Liability for Lessee’s Alterations or Personal Property

In no event shall Lessor have any liability for, nor shall it be required to repair or restore, any injury or damage to Lessee’s Alterations or personal property or to any other personal property of Lessee in or upon the Premises, Building 9 or Project.

ARTICLE IX

REAL PROPERTY TAXES

Section 9.01 Payment of Taxes

(a) Lessee shall pay to Lessor Lessee’s Share, as an Operating Expense pursuant to Section 4.07 above, of all real property taxes, including any supplemental tax and any form of real estate tax or assessment, general, special, ordinary or extraordinary, and any license, fee, charge, excise or imposition (“real property tax”), imposed, assessed or levied on or

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with respect to the Premises and the Project Common Areas by any Federal, State, County, City or other political subdivision or public authority having the direct or indirect power to tax, including, without limitation, any improvement district or any community facilities district (including with respect to a district established for purposes of constructing the Seaport Boulevard improvements and other improvements as required in the Development Agreement or by the City of Redwood City (“Community Facility District Bond”), as against any legal or equitable interest of Lessor in the Project or against the Project or any part thereof applicable to the Project for all periods of time included within the Lease Term (as the same may be extended and during any holdover period), as well as any government or private cost sharing agreement assessments made for the purpose of augmenting or improving the quality of services and amenities normally provided by government agencies and any tax, fee, charge, imposition or excise described in subsection (b) below. Notwithstanding the foregoing, Lessee shall not be required to pay any net income taxes, franchise taxes, or any succession, estate or inheritance taxes of Lessor or any penalties due to Lessor’s late or non-payment of any real property taxes, unless such failure is caused by Lessee’s failure to pay Lessee’s Share of real property taxes due hereunder.

(b) If at any time during the Lease Term, the State of California or any political subdivision of the state, including any county, city, city and county, public corporation, district, or any other political entity or public corporation of this state, levies or assesses against Lessor a tax, fee, charge, imposition or excise on rents under the Lease, the square footage of the Premises or Project, the act of entering into this Lease, or the occupancy of Lessee, or levies or assesses against Lessor any other tax, fee, or excise, however described, including, without limitation, a so called value added, business license, transit, commuter, environmental or energy tax fee, charge or excise or imposition related to the Project as a direct substitution in whole or in part for, or in addition to, any real property taxes on the Project the same shall be included in real property taxes and paid in accordance with Section 9.01(a).

(c) Lessor shall provide Lessee with copies of all tax and assessment bills on the Premises promptly upon Lessor’s receipt of Lessee’s written request therefor. Lessor shall also promptly provide to Lessee evidence of payment upon Lessor’s receipt of Lessee’s written request therefor.

(d) With respect to taxes and assessments which may lawfully be paid in installments, for the purpose of this Section, real property tax in any period shall include only such portion of the same which is payable within such period and any interest payable thereon computed (whether or not such is the case) as if Lessor had elected to pay the same over the longest period permitted by law.

(e) If Lessor shall obtain any abatement or refund on account of any real property tax as to which Lessee shall have paid payments hereunder, Lessor shall promptly refund to Lessee Lessee’s portion of any such abatement or refund, after deducting therefrom the reasonable costs and expenses incurred by Lessor in obtaining such abatement or refund.

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Section 9.02 Pro Ration for Partial Years

If any such taxes paid by Lessee shall cover any period prior to the Commencement Date or after the Expiration Date of the Lease Term, Lessee’s Share of such taxes shall be equitably prorated to cover only the period of time within the tax fiscal year during which this Lease shall be in effect, and Lessor shall reimburse Lessee to any extent required.

Section 9.03 Personal Property Taxes

(a) Lessee shall pay prior to delinquency all taxes imposed, assessed against and levied upon trade fixtures, furnishings, equipment and all other personal property of Lessee contained in the Premises or elsewhere. When possible, Lessee shall cause said trade fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor.

(b) If any of Lessee’s personal property shall be assessed with Lessor’s real property, Lessee shall pay Lessor the taxes attributable to Lessee within thirty (30) days after receipt of a written statement setting forth the amount of such tax bill reasonably allocated to Lessee’s property.

(c) If Lessee shall fail to pay any such taxes, Lessor shall have the right to pay the same, in which case Lessee shall repay such amount to Lessor with Lessee’s next rent installment together with interest at the Agreed Rate.

Section 9.04 Right to Contest Real Property Taxes

Lessee may, at any time (unless Lessor is already doing so), and at its sole expense, contest the real property taxes due with respect to the Premises in its own name and in a manner set forth by appropriate judicial or administrative proceedings, provided that: (i) Lessee gives Lessor prior written notice of such contest, (ii) Lessee pays the real property taxes required by the applicable taxing authority while such contest is occurring, (iii) pays any and all penalties, late interest or other fines associated with any such contest and (iv) indemnifies, defends, protects and holds Lessor harmless from any and all expenses (including reasonable attorneys’ fees), causes of action, damages or liabilities associated with such contest.

ARTICLE X

UTILITIES

Section 10.01 Lessee to Pay

Lessee shall pay prior to delinquency and throughout the Lease Term, all charges for water, gas, heating, cooling, sewer, telephone, electricity, garbage, air conditioning and ventilation, janitorial service, landscaping and all other services and utilities supplied to the Premises directly to the service provider in question. The disruption, failure, lack or shortage of any service or utility with respect to the Premises, Building 9 or Project due to any cause whatsoever shall not affect any obligation of Lessee hereunder, and Lessee shall faithfully keep

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and observe all the terms, conditions and covenants of this Lease and pay all rent due hereunder, all without diminution, credit or deduction, provided that, to the extent the cause is the failure of Lessor to observe or perform an obligation of Lessor, hereunder Lessor shall initiate the cure of such failure immediately after receipt from Lessee of notice of the failure and Lessor shall thereafter diligently prosecute said cure to completion.

ARTICLE XI

ASSIGNMENT AND SUBLETTING

Section 11.01 Lessor’s Consent Required

Except as provided in Section 11.02, Lessee shall not voluntarily or by operation of law assign, transfer, mortgage, sublet, license or otherwise transfer or encumber all or any part of Lessee’s interest in this Lease or in the Premises or any part thereof, without Lessor’s prior written consent, which Lessor shall not unreasonably withhold, condition or delay. Lessor shall respond in writing to Lessee’s request for consent hereunder within fifteen (15) business days of Lessor’s receipt of Lessee’s request therefor, or within any extended time period necessary in order for Lessor to receive a response from Lessor’s lender, and any attempted assignment, transfer, mortgage, encumbrance, subletting or licensing without such consent shall be void, and shall constitute a breach of this Lease. If Lessor refuses to consent to Lessee’s request, it shall specifically state in its response to Lessee the reason(s) for denying such consent. By way of example, but not limitation, reasonable grounds for denying consent include: (i) poor credit history or insufficient financial strength of transferee, (ii) transferee’s intended use of the Premises is inconsistent with the permitted use and will materially and adversely affect Lessor’s interest. Lessee shall reimburse Lessor upon demand for Lessor’s reasonable costs and expenses (including attorneys’ fees, architect fees and engineering fees) involved in reviewing any request for consent whether or not consent is granted. Notwithstanding any other provisions of this Lease, if (i) the proposed assignee or sublessee has been required by any prior landlord, lender or governmental authority to take remedial action in connection with Hazardous Materials contaminating a property, where the contamination resulted from such party’s action or use of the property in question, (ii) the proposed assignee or sublessee is subject to any enforcement order issued by any governmental authority in connection with the use, storage, handling, treatment, generation, release or disposal of hazardous materials (including, without limitation, any order related to the failure to make a required reporting to any governmental authority), or (iii) because of the existence of a pre-existing environmental condition in the vicinity of or underlying the Project, the risk that Lessor would be targeted as a responsible party in connection with the remediation of such pre-existing environmental condition would be materially increased or exacerbated by the proposed use of Hazardous Materials by such proposed assignee or sublessee, Lessor shall have the absolute right to refuse to consent to any assignment or subletting to any such party.

Section 11.02 Lessee Affiliates

Lessee may assign this Lease, or sublet up to forty percent (40%) of the Premises, without the need for Lessor’s consent (but with written notice to Lessor prior to such transfer), to any corporation, limited liability company or partnership which controls, is controlled by, or is under common control with Lessee, or to any corporation, limited liability company or

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partnership resulting from the merger or consolidation with Lessee, or to any person or entity which acquires all of Lessee’s stock or all, or substantially all of the assets of Lessee as a going concern of the business that is being conducted on the Premises (collectively, an “Affiliate”), provided that said assignee or sublessee (i) in the event of an assignment of this Lease to an Affiliate only, has a net worth at least equal to the net worth of Lessee as of the date of this Lease, and (ii) assumes, in full, the obligations of Lessee under this Lease (or, in the case of a sublease, the portion of the Premises subject to the Lease) and provided further that the use to which the Premises will be put does not materially change. Any such assignment shall not, in any way, affect or limit the liability of Lessee under the terms of this Lease. Any portion of the Premises which is assigned or sublet to an Affiliate of Lessee shall not be included in the calculation of subleased, assigned or transferred Rentable Area for the purposes of Section 11.06. In addition, the terms of Section 11.04, below, shall not be applicable to any assignment or sublease pursuant to this Section.

Section 11.03 No Release of Lessee

Regardless of Lessor’s consent, no subletting or assignment shall release Lessee of Lessee’s obligation or alter the primary liability of Lessee to pay the rent and to perform all other obligations to be performed by Lessee hereunder. The acceptance of rent by Lessor from any other person shall not be deemed consent to any subsequent assignment or subletting. In the event of default by any assignee of Lessee or any successor of Lessee, in the performance of any of the terms hereof, Lessor may proceed directly against Lessee without the necessity of exhausting remedies against said assignee.

Section 11.04 Excess Rent

In the event Lessor shall consent to a sublease or an assignment, Lessee shall pay to Lessor with its regularly scheduled Base Rent payments, fifty percent (50%) of all sums and the fair market value of all consideration collected or received by Lessee from a sublessee or assignee which are in excess of the Base Rent and Additional Rent due and payable with respect to the subleased or assigned space pursuant to Article IV for the time period encompassed by the sublease or assignment term, after first deducting: leasing commissions, incurred by Lessee in connection with such assignment or subletting.

Section 11.05 Information to be Provided

Lessee’s written request to Lessor for consent to an assignment or subletting or other form of transfer shall be accompanied by (a) the name and legal composition of the proposed transferee; (b) the nature of the proposed transferee’s business to be carried on in the Premises; (c) the terms and provisions of the proposed transfer agreement; and (d) such financial and other information as Lessor may reasonably request concerning the proposed transferee.

Section 11.06 Lessor’s Recapture Rights

(a) Lessor’s Recapture Rights

Notwithstanding any other provision of this Article 11, in the event that Lessee proposes to sublease or assign or otherwise transfer to any person or entity not an

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Affiliate of Lessee any interest in this Lease or the Premises or any part thereof affecting (collectively with all other such subleases, assignments, or transfers then in effect to parties which are not Affiliates) more than fifty percent (50%) of the square footage of the Rentable Area of the Premises for more than fifty percent (50%) of the remaining Lease Term is hereafter designated “Recapture Space”), then Lessor shall have the option to recapture the Recapture Space by written notice to Lessee (“Recapture Notice”) given within ten (10) business days after Lessor receives any notice of such proposed assignment or sublease or other transfer (“Transfer Notice”). A timely Recapture Notice terminates this Lease for the Recapture Space, effective as of the date Lessee specified in the Transfer Notice, which date shall in no event be shorter than thirty (30) days from the date of the Recapture Notice. If Lessor declines or fails timely to deliver a Recapture Notice, Lessor shall have no further right under this Section 11.06 to the Recapture Space unless it becomes available again after transfer by Lessee. Lessor’s recapture rights shall be subject to the rights of any sublessee, assignee or transferee of Lessee set forth in any sublease, assignment or agreement of transfer to which Lessor has consented, but subject to the terms and conditions set forth in Lessor’s consent; any such sublease, assignment or agreement of transfer shall be assigned to Lessor as of the effective date of the recapture. Notwithstanding anything herein to the contrary, if Lessor elects to deliver a Recapture Notice and terminate the Lease as set forth above, Lessee may negate Lessor’s Recapture Notice by withdrawing its Transfer Notice by delivering written notice thereof to Lessor within five (5) business days after Lessee’s receipt of the Recapture Notice.

(b) Consequences of Recapture

To determine the new Base Rent under this Lease if Lessor recaptures the Recapture Space and Lessee does not negate Lessor’s Recapture Notice within the time periods provided therefore above, the then current Base Rent (immediately before Lessor’s recapture) under the Lease shall be multiplied by a fraction, the numerator of which is the square feet of the Rentable Area retained by Lessee after Lessor’s recapture and the denominator of which is the total square feet of the Rentable Area before Lessor’s recapture. The Additional Rent, to the extent that it is calculated on the Rentable Area of the Premises, shall be reduced to reflect Lessee’s Share based on the Rentable Areas of the Premises retained by Lessee after Lessor’s recapture. This Lease as so amended shall continue thereafter in full force and effect, except that Lessee shall be released from liability under this Lease for future Base Rent and Additional Rent with respect to the portion of the Premises subject to Lessor’s Recapture Notice. Either party may require written confirmation of the amendments to this Lease necessitated by Lessor’s recapture of the Recapture Space. If Lessor recaptures the Recapture Space, Lessor shall, at Lessor’s sole expense, construct, paint, and furnish any partitions required to segregate the Recapture Space from the remaining Premises retained by Lessee as well as arrange separate metering of utilities.

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ARTICLE XII

DEFAULTS; REMEDIES

Section 12.01 Defaults

The occurrence of any one or more of the following events shall constitute a material default and breach of this Lease by Lessee (each shall be an “Event of Lessee’s Default”):

(a) The abandonment of the Premises by Lessee or the commission of waste at the Premises or the making of an assignment or subletting in violation of Article XI, provided however, abandonment shall be considered to not occur if the Premises are maintained and occupied to the extent necessary to maintain the insurance on each and every portion of the Premises;

(b) The failure by Lessee to make any payment of rent or any other payment required to be made by Lessee hereunder, as and when due, if such failure continues for a period of five (5) business days after written notice thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a Notice to Pay Rent or Quit in the form required by applicable Unlawful Detainer statutes such Notice shall constitute the notice required by this paragraph, provided that the cure period stated in the Notice shall be five (5) business days rather than the statutory three (3) days;

(c) Lessee’s failure to provide (i) any required Replacement Letter of Credit Security as required by Section 4.06, (ii) an estoppel certificate as required by Section 15.01 or (iii) any document subordinating this Lease to a Lender’s deed of trust as required by Section 17.13, if any such failure continues for five (5) business days after written notice of the failure. In the event Lessor serves Lessee with a Notice to Perform Covenant or Quit in the form required by applicable Unlawful Detainer Statutes, such Notice shall constitute the notice required by this paragraph, provided that the cure period stated in the Notice shall be five (5) business days rather than the statutory three (3) days;

(d) The failure by Lessee to observe or perform any of the covenants, conditions or provisions of this Lease to be observed or performed by Lessee, other than described in paragraph (a) (b) or (c) above, if such failure continues for a period of fifteen (15) days after written notice thereof from Lessor to Lessee; provided, however, that if the nature of Lessee’s default is such that more than fifteen (15) days are reasonably required for its cure, then Lessee shall not be deemed to be in default if Lessee commences such cure within said fifteen (15) day period and thereafter diligently prosecutes such cure to completion;

(e) (i) The making by Lessee of any general arrangement or assignment for the benefit of creditors; (ii) the filing by Lessee of a voluntary petition in bankruptcy under Title 11 U.S.C. or the filing of an involuntary petition against Lessee which remains uncontested for a period of sixty (60) days; (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee’s assets located at the Premises or of Lessee’s interest in this Lease; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee’s assets located at the Premises or of Lessee’s interest in this Lease, provided, however, in the event that any provisions of this Section 12.01(e) is contrary to any applicable law, such provision shall be of no force or effect;

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(f) The discovery by Lessor that Lessee delivered to Lessor a financial statement that was materially false; and

(g) The occurrence of a material default and breach under any other lease between Lessee (or an Affiliate thereof) and Lessor (or an affiliate of Lessor) for premises in the Project, including but not limited to the Building 10 Lease.

Section 12.02 Remedies

If an Event of Lessee’s Default shall occur, Lessor may at any time thereafter, and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Event of Lessee’s Default:

(a) Terminate Lessee’s right to possession of the Premises by any lawful means including by way of unlawful detainer (and without any further notice if a notice in compliance with the unlawful detainer statutes and in compliance with paragraphs (b), (c) and (d) of Section 12.01 above has already been given), in which case this Lease shall terminate and Lessee shall immediately surrender possession of the Premises to Lessor. In such event Lessor shall be entitled to recover from Lessee all damages incurred by Lessor by reason of an Event of Lessee’s Default including, but not limited to, (i) the cost of recovering possession of the Premises including reasonable attorney’s fees related thereto; (ii) the worth at the time of the award of any unpaid rent that had been earned at the time of the termination, to be computed by allowing interest at the Agreed Rate but in no case greater than the maximum amount of interest permitted by law, (iii) the worth at the time at the time of the award of the amount by which the unpaid rent that would have been earned between the time of the termination and the time of the award exceeds the amount of unpaid rent that Lessee proves could reasonably have been avoided, to be computed by allowing interest at the Agreed Rate but in no case greater than the maximum amount of interest permitted by law, (iv) the worth at the time of the award of the amount by which the unpaid rent for the balance of the Lease Term after the time of the award exceeds the amount of unpaid rent that Lessee proves could reasonably have been avoided, to be computed by discounting that amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of the award plus one per cent (1%), (v) any other amount necessary to compensate Lessor for all the detriment proximately caused by Lessee’s failure to perform obligations under this Lease, including brokerage commissions and advertising expenses, and (vi) any other amounts, in addition to or in lieu of those listed above, that may be permitted by applicable law.

(b) Maintain Lessee’s right to possession as provided in Civil Code Section 1951.4 in which case this Lease shall continue in effect whether or not Lessee shall have abandoned the Premises. In such event Lessor shall be entitled to enforce all of Lessor’s rights and remedies under this Lease, including the right to recover the rent as it becomes due hereunder.

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(c) Pursue any other remedy now or hereafter available to Lessor under the laws or judicial decisions of the state of California. Unpaid amounts of rent and other unpaid monetary obligations of Lessee under the terms of this Lease shall bear interest from the date due at the Agreed Rate.

Section 12.03 Default by Lessor

Lessor shall not be in default under this Lease unless Lessor fails to perform obligations required of Lessor within a reasonable time, but in no event later than ten (10) business days after written notice by Lessee to Lessor and to the holder of any first mortgage or deed of trust covering the Premises whose name and address shall have theretofore been furnished to Lessee in writing, specifying that Lessor has failed to perform such obligation; provided, however, that if the nature of Lessor’s obligation is such that more than ten (10) business days are reasonably required for performance then Lessor shall not be in default if Lessor commences performance within such ten (10) business day period and thereafter diligently prosecutes the same to completion. In the event Lessor does not commence performance within the ten (10) business day period provided herein, or fails to diligently prosecute such cure to completion, Lessee may perform such obligation and will be reimbursed for its expenses by Lessor together with interest thereon at the Agreed Rate within thirty (30) days following demand for such payment. Lessee waives any right to terminate this Lease or to vacate the Premises on Lessor’s default under this Lease. Lessee’s sole remedy on Lessor’s default is an action for damages or injunctive or declaratory relief. Notwithstanding the foregoing, (i) any default beyond any applicable cure period by Lessor under the terms of the Building 10 Lease shall also be a default under this Lease for any period of time during which Lessor or any affiliate thereof is also the landlord under the Building 10 Lease, and (ii) nothing herein shall be deemed applicable in the event of Lessor’s delay in delivery of the Premises, in which case Lessee’s rights and remedies shall be determined under Section 3.01 above.

Section 12.04 Late Charges

Lessee hereby acknowledges that late payment by Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed on Lessor by the terms of any mortgage or trust deed covering the Premises. Accordingly, if any installment of rent or any other sum due from Lessee shall not be received by Lessor or Lessor’s designated agent within five (5) business days after such amount is due and owing, Lessee shall pay to Lessor a late charge equal to five percent (5%) of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of late payment by Lessee. Acceptance of such late charge by Lessor shall in no event constitute a waiver of an Event of Lessee’s Default with respect to such overdue amount, nor prevent Lessor from exercising any of the other rights and remedies granted hereunder. Notwithstanding the foregoing, Lessor shall grant Lessee one (1) late payment during the first twelve (12) months of the Lease Term without late charge, provided that Lessee shall pay the applicable delinquent amount within five (5) business days following written notice from Lessor of such delinquency.

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Section 12.05 Lessor’s Right to Perform Lessee’s Obligations

All obligations to be performed or observed by Lessee under this Lease shall be performed or observed by Lessee at Lessee’s expense and without any reduction of rent. Lessor may perform or observe any obligation of Lessee for which there exists an Event of Lessee Default hereunder, without waiving Lessor’s other rights and remedies for Lessee’s failure to perform or observe any obligations under this Lease and without releasing Lessee from any such obligations. Within ten (10) days after receiving a statement from Lessor, Lessee shall pay to Lessor the amount of expense reasonably incurred by Lessor in performing or observing Lessee’s obligation.

ARTICLE XIII

CONDEMNATION OF PREMISES.

Section 13.01 Total Condemnation

If the entire Premises, whether by exercise of governmental power or the sale or transfer by Lessor to any condemnor under threat of condemnation or while proceedings for condemnation are pending, at any time during the Lease Term, shall be taken by condemnation such that there does not remain a portion suitable for occupation, this Lease shall then terminate as of the date transfer of possession is required. Upon such condemnation, all rent shall be paid up to the date transfer of possession is required, and Lessee shall have no claim against Lessor or the award for the value of the unexpired portion of this Lease Term.

Section 13.02 Partial Condemnation

If any portion of the Premises is taken by condemnation during the Lease Term, whether by exercise of governmental power or the sale or transfer by Lessor to an condemnor under threat of condemnation or while proceedings for condemnation are pending, this Lease shall remain in full force and effect except that in the event a partial taking (i) is more than thirty-three percent (33%) of the Rentable square footage of the Premises; or (ii) leaves the Premises unfit for the conduct of the business of Lessee, then Lessee shall have the right to terminate this Lease effective upon the date transfer of possession is required. Moreover, Lessor shall have the right to terminate this Lease effective on the date transfer of possession is required if more than thirty three percent (33%) of the total square footage of the Premises is taken by condemnation. Lessee and Lessor may elect to exercise their respective rights to terminate this Lease pursuant to this Section by serving written notice to the other within thirty (30) days after receipt of notice of condemnation (i.e., 30 days from the date on which Lessor received such notice from the condemning authority for purposes of calculating the 30 days with respect to Lessor, and 30 days from the date on which Lessee received a copy of such notice from Lessor for purposes of calculating the 30 days with respect to Lessee. All rent shall be paid up to the date of termination, and Lessee shall have no claim against Lessor for the value of any unexpired portion of the Lease Term. If this Lease shall not be terminated, then Base Rent after such partial taking shall be that percentage of the adjusted Base Rent specified herein, equal to the percentage which the rentable square footage of the untaken part of the Premises, immediately after the taking, bears to the rentable square footage of the entire Premises immediately before the taking. If Lessee’s continued use of the Premises requires alterations and repair by reason of a partial

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taking, all such alterations and repair shall be made by Lessor at Lessor’s expense. Lessee waives all rights it may have under California Code of Civil Procedure Section 1265.130 or otherwise, to terminate this Lease based on partial condemnation.

Section 13.03 Award to Lessee

In the event of any condemnation, whether total or partial, Lessee shall have the right to claim and recover from the condemning authority such compensation as may be separately awarded or recoverable by Lessee for loss of its business fixtures, or equipment belonging to Lessee immediately prior to the condemnation, moving expenses and loss of good will, to the extent separately awarded by the condemning authority. The balance of any condemnation award shall belong to Lessor (including, without limitation, any amount attributable to any excess of the market value of the Premises for the remainder of the Lease Term over the then present value of the rent payable for the remainder of the Lease Term) and Lessee shall have no further right to recover from Lessor or the condemning authority for any claims arising out of such taking, provided that Lessee shall have the right to make a separate claim in the condemnation proceeding, as long as the award payable to Lessor is not reduced thereby, for (i) the taking of the unamortized (using the Lease Term as the amortization period) value of the Alterations paid for by Lessee which are not removed by Lessee, (ii) reasonable removal and relocation costs for any Alterations that Lessee has the right to remove and elects to remove (if condemnor approves the removal), and (iii) relocation costs for Lessee’s business, provided that the awarding to Lessee of the items described in (i), (ii) and (iii) above does not reduce the condemnation award that would otherwise be awarded to Lessor.

ARTICLE XIV

ENTRY BY LESSOR

Section 14.01 Entry by Lessor Permitted

Lessee shall permit Lessor and its employees, agents and contractors, if accompanied by Lessee (except in cases of emergency), to enter the Premises and all parts thereof (i) upon twenty-four (24) hours notice (or without notice in an emergency), including without limitation, Building 9 and all parts thereof at all reasonable times for any of the following purposes: to inspect the Premises; to maintain the Premises; to make such repairs to the Premises as Lessor is obligated or may elect to make; and (ii) upon twenty-four (24) hours notice to show the Premises and post “To Lease” signs for the purposes of re-letting during the last twelve (12) months of the Lease Term (provided Lessee has failed to exercise any remaining Option to Extend) to show the Premises as part of a prospective sale by Lessor or to post notices of nonresponsibility. Lessor shall have such right of entry without any rebate of rent to Lessee for any loss of occupancy or quiet enjoyment of the Premises hereby occasioned, provided, Lessor shall use commercially reasonable efforts not to interfere with Lessee’s business operations at the Premises or unreasonably interfere with Lessee’s access to, or parking at, the Project or materially increase Lessee’s obligations or decrease Lessee’s rights under this Lease. Notwithstanding anything in this Lease to the contrary, in exercising any right to undertake any renovations, alterations, additions, restoration, inspections, repairs or maintenance as set forth in this Lease, Lessor shall comply with Lessee’s reasonable security measures and operating procedures and shall minimize any disruption to Lessee..

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ARTICLE XV

ESTOPPEL CERTIFICATE

Section 15.01 Estoppel Certificate

(a) Either Lessor or Lessee shall at any time upon not less than fifteen (15) days’ prior written notice from the other execute, acknowledge and deliver to the requesting party a statement in writing (i) certifying, if true, that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying, if true, that this Lease, as so modified, is in full force and effect) and the date to which the rent and other charges are paid in advance, if any, and (ii) acknowledging, if true, that there are not, to Lessee’s (or Lessor’s, as relevant) knowledge, any uncured defaults on the part of the requesting party hereunder, or specifying such defaults if any are claimed and (iii) certifying or acknowledging, if true, such other matters as are reasonably requested by any prospective lender or buyer which are reasonably related to the loan or sale transaction. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer of the Premises.

(b) Lessee’s failure to deliver such statement within such time shall be conclusive upon Lessee (i) that this Lease is in full force and effect, without modification except as may be represented by Lessor, (ii) that there are no uncured defaults in Lessor’s performance, and (iii) that not more than one month’s rent has been paid in advance, if any, and stating whether or not to the actual knowledge of the signer of such certificate Lessee is in default in the performance of any covenant, agreement or condition contained in this Lease and, if so, specifying each such default of which the signer may have knowledge, it being intended that any such statement delivered pursuant to this Section 15.01(b) may be relied upon by any prospective assignee of Lessee’s interest in this Lease or any lender or prospective lender (or investor) or purchaser of any interest in Lessee or its assets. Any failure of Lessee to deliver an estoppel certificate as provided herein shall, at the option of Lessor, be an event of default hereunder by Lessee without the requirement of any notice or grace period, except as is provided for in Section 12.01(c) above. In addition, Lessor may charge Lessee, and Lessee shall pay to Lessor, a fee equal to Five Hundred Dollars ($500) per day for each day Lessee is late in delivering such estoppel certificate.

ARTICLE XVI

LESSOR’S LIABILITY

Section 16.01 Limitations on Lessor’s Liability

The term “Lessor” as used herein shall mean only the owner or owners at the time in question of the fee title of the Premises. In the event of any transfer of such title or interest, Lessor herein named (and in case of any subsequent transfers then the grantor) shall be relieved from and after the date of such transfer of all liability as respects Lessor’s obligations thereafter to be performed, provided that the Letter of Credit and any funds in the hands of Lessor or the then grantor at the time of such transfer, in which Lessee has an interest, shall be delivered to the grantee. The obligations contained in this Lease to be performed by Lessor shall, subject as aforesaid, be binding on Lessor’s successors and assigns, only during their respective periods of ownership. For any breach of this Lease by Lessor, the liability of Lessor (including all persons

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and entities that comprise Lessor, and any successor Lessor) and any recourse by Lessee against Lessor shall be limited to the interest of Lessor, and Lessor’s successors in interest, in and to Building 9 and, to the extent Building 10 is owned by Lessor or any affiliate thereof, Building 10, and the proceeds therefrom (including rents, insurance and condemnation proceeds). On behalf of itself and all persons claiming by, through, or under Lessee, Lessee expressly waives and releases Lessor and each member, agent and employee of Lessor from any personal liability for breach of this Lease.

ARTICLE XVII

GENERAL PROVISIONS

Section 17.01 Severability

The invalidity of any provision of this Lease as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof.

Section 17.02 Agreed Rate Interest on Past Due Obligations

Except as expressly herein provided, any amount due to either party not paid when due shall bear interest at the lesser of the Bank of America prime rate plus four percent (4%) or the maximum amount of interest allowed by law (“Agreed Rate”). Payment of such interest shall not excuse or cure any default by either party under this Lease. Despite any other provision of this Lease, the total liability for interest payments shall not exceed the limits, if any, imposed by the usury laws of the State of California. Any interest paid in excess of those limits shall be refunded to the payor by application of the amount of excess interest paid against any sums outstanding in any order that payee requires. If the amount of excess interest paid exceeds the sums outstanding, the portion exceeding those sums shall be refunded in cash to the payor by the payee. To ascertain whether any interest payable exceeds the limits imposed, any nonprincipal payment (including late charges) shall be considered to the extent permitted by law to be an expense or a fee, premium, or penalty rather than interest.

Section 17.03 Time of Essence

Time is of the essence in the performance of all obligations under this Lease.

Section 17.04 Additional Rent

Any monetary obligations of Lessee to Lessor under the terms of this Lease shall be deemed to be Additional Rent and Lessor shall have all the rights and remedies for the nonpayment of same as it would have for nonpayment of Base Rent. All references to “rent” (except specific references to either Base Rent or Additional Rent) shall mean Base Rent and Additional Rent.

Section 17.05 Incorporation of Prior Agreements, Amendments and Exhibits

This Lease (including Exhibits A, B, C, D, E, F, G, H and I and Schedules 1, 2, 3, 4, 5 and 6) contains all agreements of the parties with respect to any matter mentioned herein. No prior agreement or understanding pertaining to any such matter shall be effective. This Lease

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may be modified in writing only, signed by the parties in interest at the time of the modification. Except as otherwise stated in this Lease, Lessee hereby acknowledges that neither the Lessor nor any employees or agents of the Lessor has made any oral or written warranties or representations to Lessee relative to the condition or use by Lessee of said Premises and Lessee acknowledges that Lessee assumes all responsibility regarding the Occupational Safety Health Act, the legal use and adaptability of the Premises and the compliance thereof with all applicable laws and regulations in effect during the Lease Term except as otherwise specifically stated in this Lease. Neither party has been induced to enter into this Lease by, and neither party is relying on, any representation or warranty outside those expressly set forth in this Lease.

Section 17.06 Notices

(a) Written Notice

Any notice required or permitted to be given hereunder shall be in writing and shall be given by a method described in paragraph (b) below and shall be addressed to Lessee or to Lessor at the addresses noted below, next to the signature of the respective parties, as the case may be. Either party may specify a different address for notice purposes at any time by giving written notice of such change to the other party in a manner provided herein at least ten (10) days prior to the date such change is desired to be effective. A copy of all notices required or permitted to be given to Lessor or Lessee (as applicable) hereunder shall be concurrently transmitted to such party or parties at such addresses as such party may from time to time hereafter designate by notice to the other, but delay or failure of delivery to such person shall not affect the validity of the delivery to Lessor or Lessee.

(b) Methods of Delivery

(i) When personally delivered to the recipient, notice is effective on delivery. Delivery to the person apparently designated to receive deliveries at the subject address is personally delivered if made during business hours (e.g. receptionist).

(ii) When mailed by certified mail with return receipt requested, notice is effective on receipt if delivery is confirmed by a return receipt.

(iii) When delivery by overnight delivery Federal Express/Airborne/United Parcel Service/DHL WorldWide Express with charges prepaid or charged to the sender’s account, notice is effective on delivery if delivery is confirmed by the delivery service.

(c) Refused, Unclaimed or Undeliverable Notices

Any correctly addressed notice that is refused, unclaimed, or undeliverable because of an act or omission of the party to be notified shall be considered to be effective as of the first date that the notice was refused, unclaimed, or considered undeliverable by the postal authorities, messenger, or overnight delivery service.

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Section 17.07 Waivers

No waiver of any provision hereof shall be deemed a waiver of any other provision hereof or of any subsequent breach of the same or any other provisions. Any consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of consent to or approval of any subsequent act. 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 the time of acceptance of such rent.

Section 17.08 Recording

Either Lessor or Lessee shall, upon request of the other, execute, acknowledge and deliver to the other a “short form” memorandum of this Lease for recording purposes for each of the properties on which Building 6, Building 7, Building 8, Building 10 and Building 9 are located, provided that Lessee simultaneously executes in recordable form and delivers to Lessor a quit claim deed as to is leasehold and any other interest in the Premises and hereby authorizes Lessor to date and record the same only upon the expiration or sooner termination of this Lease or, in the case of Buildings 6, 7 and 8, upon the termination of Lessee’s expansion options with respect to each such property.

Section 17.09 Surrender of Possession; Holding Over

(a) At the expiration or earlier termination of the Lease, Lessee shall remove all of Lessee’s signs (pursuant to Section 17.15) and, subject to the terms of the Removal Obligations Schedule and Section 6.03 of the Lease, shall remove all of Lessee’s equipment, trade fixtures, supplies, wall decoration and other personal property from within the Premises, Building 9 and the Common Area and shall vacate, deliver up and surrender to Lessor possession of the Premises and all improvements thereon, subject to the terms of Section 17.21 of this Lease concerning Hazardous Materials brought upon, kept, used, stored, handled, treated, generated in, or released or disposed of from the Premises by Lessee or any of Lessee’s agents, employees or contractors (collectively, “Lessee HazMat Operations”) and released of all clearances required by any governmental authorities with respect to Lessee HazMat Operations, broom clean and, in good order and condition, excepting only ordinary wear and tear (wear and tear which could have been avoided by best maintenance practices customarily used at the Project) and damage due to casualty not caused by Lessee or Lessee’s agents, employees or contractors. Except for such ordinary wear and tear and damage due to casualty not caused by Lessee’s agents, employees or contractors (collectively, the “Lessee’s Parties”), Lessee shall (i) repair all damage to the Premises, the interior and exterior of Building 9 and the Common Area caused by Lessee’s removal of its property, (ii) patch and refinish, to Lessor’s reasonable satisfaction, all penetrations made by Lessee or its agents, contactors, employees or invitees to the roof, floor, interior or exterior walls or ceiling of the Premises and Building 9, whether such penetrations were made with Lessor’s approval or not, to the extent that the equipment requiring such penetration is removed at the expiration or earlier termination of the Lease, (iii) repair or replace all stained or damaged ceiling tiles, wall coverings and floor coverings (unless such staining or

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damage was caused by the actions of Lessor or the tenant of a leased space above the Premises) to the reasonable satisfaction of Lessor, (iv) repair all damage caused by Lessee to the exterior surface of Building 9 and, where necessary, replace or resurface same. Upon expiration or sooner termination of this Lease, Lessor may reenter the Premises and remove all persons and property therefrom. If Lessee shall fail to surrender to Lessor the Premises, Building 9 and the Common Area in the condition required by this paragraph at the expiration or, if sooner terminated, within ten (10) days after sooner termination, of this Lease, Lessor may, at Lessee’s expense, remove Lessee’s signs, property and/or improvements not so removed and make such repairs and replacements not so made or hire, at Lessee’s expense, independent contractors to perform such work. Lessee shall be liable to Lessor for all reasonable costs incurred by Lessor in returning the Premises, Building 9 and the Common Area to the required condition, together with interest thereon at the Agreed Rate from the date incurred by Lessor until paid. Lessee shall pay to Lessor the amount of all costs so incurred (including, without limitation, costs of disposal, storage and insurance) together with interest at the Agreed Rate within five (5) business days from Lessor’s delivery of a statement therefor. If the Premises are not surrendered at the end of the Lease Term, Lessee shall indemnify Lessor against loss or liability resulting from delay by Lessee in so surrendering the Premises, including, without limitation, actual damages for lost rent and with respect to any claims of a successor occupant. Notwithstanding anything to the contrary contained in this Section 17.09, and subject to the terms of the Removal Obligations Schedule, Lessee shall only be required to remove those Alterations as Lessor shall have designated at the time Lessor gave its consent to such Alterations to the extent required pursuant to the terms of Section 6.03 hereof, or when consent was not required, in response to Lessee’s written request for such determination.

(b) If Lessee, with Lessor’s prior written consent, remains in possession of the Premises after expiration of the Lease Term and if Lessor and Lessee have not executed an express written agreement as to such holding over, then such occupancy shall be a tenancy from month to month at a monthly Base Rent equivalent to one hundred fifty percent (150%) of the higher of: (i) the monthly rental in effect immediately prior to such expiration, or (ii) the Fair Market Rent for the Premises, such payments to be made as herein provided for Base Rent. In the event of such holding over, all of the terms of this Lease, including the payment of Additional Rent all charges owing hereunder other than rent shall remain in force and effect on said month to month basis.

(c) At least three (3) months prior to the surrender of the Premises, Lessee shall deliver to Lessor a narrative description of the actions proposed (or required by any governmental authority) to be taken by Lessee in order to surrender the Premises (including any Alterations permitted by Lessor to remain in the Premises) at the expiration or earlier termination of the Lease Term, in accordance with the requirements of any Environmental Laws or relevant governmental authority or, in the absence thereof, the requirements of Lessor’s lender or any commercially reasonable requirements of Lessor’s environmental consultant (collectively “HazMat Requirements”) with respect to the Lessee HazMat Operations and otherwise released for unrestricted use and occupancy (the “Surrender Plan”). Such Surrender Plan shall be accompanied by a current listing of (i) all Hazardous Materials licenses and permits held by or on behalf of any Lessee’s Parties with respect to the Premises, and (ii) all Hazardous Materials used, stored, handled, treated, generated, released or disposed of from the Premises, and shall be subject to the review and approval of Lessor’s environmental consultant. In connection with the

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review and approval of the Surrender Plan, upon the request of Lessor, Lessee shall deliver to Lessor or its consultant such additional non-proprietary information concerning Lessee HazMat Operations as Lessor shall request. On or before such surrender, Lessee shall deliver to Lessor evidence that the approved Surrender Plan shall have been satisfactorily completed and all HazMat Requirements have been met and Lessor shall have the right, subject to reimbursement at Lessee’s expenses as set forth below, to cause Lessor’s environmental consultant to inspect the Premises and perform such additional procedures as may be deemed reasonably necessary to confirm that the Premises are, as of the effective date of such surrender or early termination of the Lease, in accordance with applicable HazMat Requirements. Lessee shall reimburse Lessor, as Additional Rent, for the actual, out-of-pocket expense incurred by Lessor for Lessor’s environmental consultant to review and approve the Surrender Plan and to visit the Premises and verify satisfactory completion of the same. Lessor shall have the unrestricted right to deliver such Surrender Plan and any report by Lessor’s environmental consultant with respect to the surrender of the Premises to third parties. If Lessee shall fail to prepare or submit a Surrender Plan approved by Lessor, or if Lessee shall fail to complete the approved Surrender Plan, or if such Surrender Plan, whether or not approved by Lessor, shall fail to adequately address any residual effect of Lessee HazMat Operations in, on or about the Premises in violation of HazMat Requirements, Lessor shall have the right to take such actions as Lessor may deem reasonable or appropriate to assure that the Premises and the Project are surrendered free from any residual impact from Lessee HazMat Operations, the cost of which actions shall be reimbursed by Lessee as Additional Rent.

Section 17.10 Cumulative Remedies

No remedy or election hereunder by Lessor shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity, provided that notice and cure periods set forth in Article XII are intended to extend and modify statutory notice provisions to the extent expressly stated in Section 12.01.

Section 17.11 Covenants and Conditions

Each provision of this Lease to be observed or performed by Lessee and Lessor shall be deemed both a covenant and a condition.

Section 17.12 Binding Effect; Choice of Law

Subject to any provisions hereof restricting assignment or subletting by Lessee and subject to the provisions of Article XVI, this Lease shall bind the parties, their personal representatives, successors and assigns. This Lease shall be governed by the laws of the State of California and any legal or equitable action or proceeding brought with respect to the Lease or the Premises shall be brought in San Mateo County, California except for such actions or proceedings as are required by California law to be brought in the County were the subject real property is located.

Section 17.13 Lease to be Subordinate

Lessee agrees that this Lease is and shall be, at all times, subject and subordinate to the lien of any mortgage, deed of trust or other encumbrances which Lessor may create against

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the Premises, including all renewals, replacements and extensions thereof provided, however, that regardless of any default under any such mortgage, deed of trust or other encumbrance or any sale of the Premises under such mortgage, deed of trust or other encumbrance so long as, subject to all applicable notice and cure periods, Lessee timely performs all covenants and conditions of this Lease and continues to make all timely payments hereunder, this Lease and Lessee’s possession and rights hereunder shall not be disturbed by the mortgagee or beneficiary or anyone claiming under or through such mortgagee or beneficiary. Lessee shall execute any documents which are commercially reasonable (i.e., of a type customarily executed between lenders and lessees for similar loans and leases) subordinating this Lease within ten (10) business days after delivery of same by Lessor so long as the mortgagee or beneficiary agrees therein that this Lease will not be terminated if Lessee is not in default following a foreclosure, including, without limitation, any Subordination Non-Disturbance and Attornment Agreement (“SNDA”) which is substantially in the form attached hereto as Exhibit “C”. In any event, Lessor and Lessee agree that Lessee may terminate this Lease upon written notice thereof to Lessor at any time after the date that is twenty (20) business days after the date of this Lease if Lessor and Lessor’s lender have not executed and delivered an executed version of a SNDA in the substantially the form attached hereto as Exhibit “C” to Lessee. In the event that any mortgage or deed of trust is foreclosed or a conveyance in lieu of foreclosure is made for any reason, and this Lease shall terminate, Lessee shall, notwithstanding any subordination, attorn to and become the tenant of such mortgagee or beneficiary or any successor to Lessor by foreclosure or deed-in-lieu of foreclosure, at the option of such successor in interest, provided however, that any such successor shall not (i) be liable for any previous act or omission of Lessor under the Lease, (ii) be subject to any offset, defense or counterclaim which shall theretofore have accrued to the Lessee under the Lease against Lessor, or (iii) have any obligation with respect to any security deposit unless it shall have been paid over or physically delivered to such successor, or (iv) be bound by any rents paid more than one month in advance to Lessor or any prior landlord or owner. Lessee shall execute and deliver, upon reasonable prior notice from Lessor any additional documents in such form as is designated by Lessor evidencing the priority or subordination of the Lease with respect to any such lien of any such mortgage or deed of trust.

Section 17.14 Attorneys’ Fees

If either party herein brings an action to enforce the terms hereof or to declare rights hereunder, the prevailing party in any such action, on trial or appeal, shall be entitled to recover its reasonable attorney’s fees, expert witness fees and costs as fixed by the Court.

Section 17.15 Signs

Lessee may, at Lessee’s sole expense, place Lessee’s company name on the monument sign for Building 9 at a location reasonably agreed by Lessee and Lessor and otherwise subject to the terms of this Section 17.15. Lessee shall also be entitled, at Lessee’s expense, to a pro rata share of directional signage at the Project for Building 9. Lessee shall not place any sign outside the Premises (or visible from outside the Premises) without Lessor’s prior written consent, which consent shall not be unreasonably withheld and subject to Lessee’s obtaining approval by the City of Redwood City. Lessee, at its sole cost and expense, after obtaining Lessor’s prior written consent, shall install, maintain and remove prior to expiration of this Lease (or within ten (10) days after any earlier termination of this Lease) all signage in full

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compliance with (i) all applicable law, statutes, ordinances and regulations and (ii) all provisions of this Lease concerning Alterations, and (iii) Lessor’s signage policy set forth on Exhibit “D” hereto.

Section 17.16 Merger

The voluntary or other surrender of this Lease by Lessee, or a mutual cancellation thereof, or a termination by Lessor, shall not work a merger, and shall, at the option of Lessor, terminate all or any existing subtenancies or may, at the option of Lessor, operate as an assignment to Lessor of any or all of such subtenancies.

Section 17.17 Quiet Possession

Upon Lessee timely paying the rent for the Premises and timely observing and performing all of the covenants, conditions and provisions on Lessee’s part to be observed and performed hereunder, Lessee shall have quiet possession of the Premises for the entire Lease Term, subject to all of the provisions of this Lease.

Section 17.18 Easements

Lessor reserves to itself the right, from time to time, to grant such easements, rights and dedications that Lessor deems necessary or desirable, and to cause the recordation of Parcel Maps and conditions, covenants and restrictions, so long as such easements, rights, dedications, Maps and conditions, covenants and restrictions do not unreasonably interfere with or diminish the use of the Premises or parking rights granted hereunder, including access thereto, by Lessee. Lessee shall sign any of the aforementioned or other documents, and take such other actions, which are reasonably necessary or appropriate to accomplish such granting, recordation and subordination of the Lease to same, upon request of Lessor, and failure to do so within ten (10) business days after a written request to do so shall constitute a material breach of this Lease, provided that Lessor shall reimburse Lessee for Lessee’s reasonable out-of-pocket expenses (including reasonable attorneys’ fees) necessarily incurred in the performance of Lessee’s obligations under this Section 17.18.

Section 17.19 Authority

Each individual executing this Lease on behalf of a corporation, limited liability company or partnership represents and warrants that he or she is duly authorized to execute and deliver this Lease on behalf of such entity, and that this Lease, once fully executed, shall be binding upon said entity in accordance with its terms.

Section 17.20 Force Majeure Delays

In any case where either party hereto is required to do any act (other than the payment of money), delays caused by or resulting from Acts of God or Nature, war, civil commotion, fire, flood or other casualty, labor difficulties, shortages of labor or materials or equipment, government regulations, delay by government or regulatory agencies with respect to approval or permit process, unusually severe weather, or other causes beyond such party’s reasonable control, the time during which such act shall be completed, shall be deemed to be extended by the period of such delay, whether such time be designated by a fixed date, a fixed time or a “reasonable time.”

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Section 17.21 Hazardous Materials

(a) Definition of Hazardous Materials and Environmental Laws

“Hazardous Materials” means any (a) substance, product, waste or other material of any nature whatsoever which is or becomes listed regulated or addressed pursuant to the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. sections 9601, et seq. (“CERCLA”); the Hazardous Materials Transportation Act (“HMTA”) 49 U.S.C. section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. section 6901, et seq. (“RCRA”); the Toxic Substances Control Act, 15 U.S.C. sections 2601, et seq. (“TSCA”); the Clean Water Act, 33 U.S.C. sections 1251, et seq.; the California Hazardous Waste Control Act, Health and Safety Code sections 25100, et seq.; the California Hazardous Substances Account Act, Health and Safety Code sections 26300, et seq.; the California Safe Drinking Water and Toxic Enforcement Act, Health and Safety Code sections 25249.5, et seq.; California Health and Safety Code sections 25280, et seq.; (Underground Storage of Hazardous Substances); the California Hazardous Waste Management Act, Health and Safety Code sections 25170.1, et seq.; California Health and Safety Code sections 25501. et seq. (Hazardous Materials Response Plans and Inventory); or the Porter Cologne Water Quality Control Act, California Water Code sections 13000, et seq., all as amended, or any other federal, state or local statute, law, ordinance, resolution, code, rule, regulation, order or decree regulating, relating to or imposing liability (including, but not limited to, response, removal and remediation costs) or standards of conduct or performance concerning any hazardous, toxic or dangerous waste, substance or material, as now or at any time hereafter may be in effect (collectively, “Environmental Laws”); (b) any substance, product, waste or other material of any nature whatsoever whose presence in and of itself may give rise to liability under any of the above statutes or under any statutory or common law theory based on negligence, trespass, intentional tort, nuisance, strict or absolute liability or under any reported decisions of a state or federal court, (c) petroleum or crude oil, including but not limited to petroleum and petroleum products contained within regularly operated motor vehicles and (d) asbestos.

(b) Lessor’s Representations and Disclosures

Lessor represents that it has provided Lessee with a description of the Hazardous Materials on or beneath the Project as of the date hereof attached hereto as Exhibit “I” and incorporated herein by reference and that except as described in the documents identified in Exhibit “F,” Lessor has no actual knowledge of any Hazardous Materials at the Project. Lessee acknowledges receipt of the attached Exhibit “F”, which Lessor has provided pursuant to California Health & Safety Code Section 25359.7 which requires:

“Any owner of nonresidential real property who knows, or has reasonable cause to believe, that any release of hazardous substances has come to be located on or beneath that real property shall, prior to the sale, lease or rental of the real property by that owner, give written notice of that condition to the buyer, lessee or renter of the real property.”

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(c) Use of Hazardous Materials

Lessee shall not cause or permit any Hazardous Materials to be brought upon, kept or used in, on or about the Project by Lessee or Lessee’s Parties without Lessor’s prior written consent, except that Lessee may, without the need for Lessor’s prior written consent, bring on, keep at and use in, on or about the Premises those Hazardous Materials described in Schedule 4 attached hereto or any similar Hazardous Materials used for substantially the same purposes in substitution thereof in compliance with applicable Environmental Laws, even if they are Hazardous Materials. All such Hazardous Materials will be used, kept and stored by Lessee in a manner that complies with all applicable Environmental Laws. Lessee shall, at all times, use, keep, test, store, handle, transport, treat or dispose all such Hazardous Materials in or about the Project in compliance with all applicable HazMat Requirements. Lessee shall remove Hazardous Materials used or brought onto the Project during the Lease Term from the Project prior to the expiration or earlier termination of the Lease in accordance with any applicable HazMat Requirements and the Surrender Plan approved by Lessor.

(d) Lessee’s Environmental Indemnity

Lessee agrees to indemnify, defend, protect and hold Lessor harmless from any liabilities, losses, claims, damages, penalties, fines, attorney fees, expert fees, court costs, remediation costs, investigation costs, or other expenses resulting from or arising out of the use, storage, treatment, transportation, release, presence, generation, or disposal of Hazardous Materials on, from or about the Project, and/or subsurface or ground water from an act or omission of Lessee (or Lessee’s successor-in-interest), its agents, employees, invitees, vendors or contractors.

(e) Lessee’s Obligation to Promptly Remediate

If the presence of Hazardous Materials on the Premises after the Commencement Date results from an act or omission of Lessee (or Lessee’s successor-in-interest), its agents, employees, invitees, vendors, contractors, guests, or visitors results in contamination of the Project or any water or soil beneath the Project in violation of applicable HazMat Requirements, Lessee shall promptly take all action necessary or appropriate to test, investigate and remedy that contamination, at its sole cost and expense, provided that Lessor’s consent to such action shall first be obtained, which consent shall not be unreasonably withheld, conditioned or delayed.

(f) Notification

Lessor and Lessee each agree to promptly notify the other of any communication received from any governmental entity concerning Hazardous Materials or the violation or alleged violation of Environmental Laws that relate to the Project. In addition, Lessee shall promptly provide to Lessor copies of any approvals or disapprovals received from any relevant governmental agency in connection with permits, licenses or periodic or episodic testing or remediation of the Premises by Lessee required by HazMat Requirements, including but not limited to the plans, permits and licenses described in Schedule 5 attached hereto or any

45

other such plans, permits and licenses instead performed by Lessee pursuant to HazMat Requirements. Without limiting the foregoing, Lessee shall deliver to Lessor any applications for decommissioning the Premises pursuant to HazMat Requirements at the same time such application is delivered to the relevant governmental agency. Lessor shall have the opportunity to participate in, and comment on, any such decommission or surrender plan application and the final version of such plan shall be subject to Lessor’s written approval.

(g) Testing.

Lessor shall have the right to conduct tests of the Premises at any time that Lessor seeks to sell or refinance the Premises, or if Lessor has reasonable grounds to believe that Hazardous Materials may exist at the Premises in violation of the terms of this Lease. Such test shall be performed in order to determine whether any contamination of the Premises or the Project has occurred as a result of Lessee’s use. Lessee shall be required to pay the reasonable cost of such tests of the Premises if they are performed due to Lessor’s reasonable grounds to believe that Hazardous Materials may exist at the Premises in violation of the terms of this Lease (Lessor shall pay the costs of such tests in the event of a sale or refinancing); provided, however, that if Lessee conducts its own tests of the Premises using third party contractors and test procedures acceptable to Lessor which tests are certified to Lessor, Lessor shall accept such tests in lieu of such tests to be paid for by Lessee. In connection with such testing, upon the request of Lessor, Lessee shall deliver to Lessor or its consultant such non-proprietary information concerning the use of Hazardous Materials in or about the Premises by Lessee or any Lessee Parties. If contamination has occurred in violation or excess of the HazMat Requirements for which Lessee is liable under this Section 17.21, Lessee shall pay all costs to conduct such tests. If no such contamination is found, Lessor shall pay the costs of such tests. Lessee shall, at its sole cost and expense, promptly and satisfactorily remediate any environmental conditions identified by such testing in accordance with HazMat Requirements. Lessor’s receipt of or satisfaction with any environmental assessment in no way waives any rights which Lessor may have against Lessee. Notwithstanding anything herein to the contrary, within thirty (30) days prior to the Expiration Date or any earlier date on which the Lease terminates, Lessee shall, at Lessee’s sole expense, deliver to Lessor a phase II environmental audit of the Premises showing the environmental condition of the Premises and the completion of Lessee’s Surrender Plan for the Premises.

(h) Dispute Resolution. Notwithstanding anything herein to the contrary, if Lessor requires Lessee to perform any testing, clean-up or remediation of Hazardous Materials, or if Lessor requires Lessee to modify Lessee’s use of Hazardous Materials at the Premises in a manner or in amounts other than as is required by Environmental Laws pursuant to either this Section 17.21 or Section 17.09(c) above, and Lessee believes that Lessor’s requirements are not commercially reasonable, then if Lessee provides Lessor with written notice thereof (the “Dispute Notice”) within fifteen (15) business days of the date on which Lessor first informs Lessee in writing of such requirement, then such dispute shall be remedied pursuant to the terms of this Subparagraph 17.22(h). If such a dispute exists, Lessor and Lessee shall meet within ten (10) business days after the date of the Dispute Notice and attempt in good faith to resolve the dispute. If, despite such meeting, the parties cannot resolve the dispute, each of Lessor and Lessee shall separately designate to the other in writing an environmental expert to determine if the requirement in question is commercially reasonable. The two (2) environmental experts shall

46

then each prepare a written proposal of a commercially reasonable environmental requirement for the activity in question. Each environmental expert designated shall have at least ten (10) years experience in performing environmental audits of real property in San Mateo County and shall be paid by the party choosing such expert. The failure of either party to appoint an environmental expert within the time allowed shall be deemed equivalent to appointing the environmental expert appointed by the other party, who shall then determine whether the requirement in question is commercially reasonable. If the two (2) environmental experts are unable to agree on whether the requirement in question is commercially reasonable, or, in lieu thereof, to come to agreement on a commercially reasonable environmental requirement for the issue in question, within fifteen (15) business days of their appointment, the two designated environmental experts shall jointly designate a third similarly qualified environmental expert. The third environmental expert shall within ten (10) business days following its appointment, then determine which of the two environmental experts’ determinations most closely reflects an appropriate, commercially reasonable requirement with respect to the Hazardous Materials issue in question. The third environmental expert shall have no rights to adjust, amend or otherwise alter the determinations made by the environmental experts selected by the parties, but must select one or the other of such experts’ submissions. The determination by such third environmental expert shall be final and binding upon the parties. Said third environmental expert shall, upon selecting the determination, concurrently notify both parties hereto. The parties shall share the expenses of the third environmental expert equally.

(i) Survival.

Lessee’s obligations pursuant to this Section 17.21 shall survive the expiration or earlier termination of this Lease.

Section 17.22 Modifications Required by Lessor’s Lender

If any lender of Lessor requests a modification of this Lease that will not increase Lessee’s cost or expense or materially and adversely change Lessee’s rights and obligations hereunder, this Lease shall be so modified and Lessee shall execute whatever documents are required by such lender and deliver them to Lessor within ten (10) days after the request.

Section 17.23 Brokers

Lessor and Lessee each represents to the other that it has had no dealings with any real estate broker or agent in connection with the negotiation of this Lease, except for Cornish & Carey Commercial, in the case of Lessor, and Cornish & Carey Commercial in the case of Lessee (collectively, the “Brokers”) and that they know of no other real estate broker or agent who is entitled to a commission or finder’s fee in connection with this Lease. Each party shall indemnify, protect, defend, and hold harmless the other party against all claims, demands, losses, liabilities, lawsuits, judgments, and costs and expenses (including reasonable attorney fees) for any leasing commission, finder’s fee, or equivalent compensation alleged to be owning on account of the indemnifying party’s dealings with any real estate broker or agent other than the Brokers. The terms of this Section 17.23 shall survive the expiration or earlier termination of the Lease.

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Section 17.24 Acknowledgment of Notices

Lessor has provided and Lessee hereby acknowledges receipt of the Notices attached as Exhibits “G” and “H” hereto, concerning the presence of certain uses and operations of neighboring parcels of land.

Section 17.25 Right of First Offer.

(a) Grant.

Subject to the terms of this Section 17.25, Lessor grants to Lessee during the Right of First Offer Term a continuing right of first offer (“Right of First Offer”) to lease any space which is available for lease located in Building 6 in the Project (“Available Space”). For the purposes of this Section 17.25, such space shall not be deemed available for lease, and this Right of First Offer shall not apply, if the space in question is already leased to a tenant thereof who leases or re-leases such space pursuant to any then-existing or future agreement to extend the term of its lease or expand the size of its premises between Lessor and such tenant.

(b) Term.

The term of the Right of First Offer (“Right of First Offer Term”) shall commence on the Commencement Date of this Lease and shall terminate on the expiration or earlier termination of this Lease.

(c) Covenants of Lessor.

Subject to the conditions precedent established by subsection (e) below, if at any time during the Right of First Offer Term Lessor decides to offer any Available Space for lease to the general public, Lessor shall first provide Lessee with a written notice (“Offer Notice”) detailing (i) the rent at which said Available Space is being offered, (ii) the rentable square footage and location thereof, (iii) the date the Available Space will become available and (iv) all other material economic terms upon which Lessor proposes to lease the Available Space to Lessee. If Lessee does not deliver an Acceptance Notice (as defined below) in response to such Offer Notice and Lessor subsequently decides to offer the Available Space for lease to the general public at a lesser rental rate than was described in the initial Offer Notice, then Lessor shall send Lessee a subsequent Offer Notice and the terms of this Section 17.25 shall apply again to such subsequent Offer Notice.

(d) Exercise of Lessee’s Right of First Offer.

Subject to the conditions precedent established by subsection (e) below, Lessee may exercise Lessee’s Right of First Offer to lease all (but not less than all) of the Available Space described in the Offer Notice by providing Lessor with written notice (“Acceptance Notice”) thereof within ten (10) business days of Lessor’s delivery to Lessee of the Offer Notice. If Lessee does not exercise its Right of First Offer within said ten (10) business day period, Lessor shall be relieved of Lessor’s obligation to lease the Available Space mentioned in the Offer Notice to Lessee and the provisions of this Section 17.25 shall not apply to Lessor.

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(e) Conditions to Right of First Offer.

Notwithstanding anything to the contrary in this Section 17.25, Lessor shall have no obligation to provide Lessee with an Offer Notice, and Lessee shall have no right to exercise Lessee’s Right of First Offer, if: (i) Lessor has delivered a written notice to Lessee that Lessee is in default hereunder or under the Building 10 Lease and such default has not yet been cured either: (a) at the time Lessor seeks to lease the Available Space in question, or at the time Lessee seeks to give Lessor an Acceptance Notice, whichever, is relevant, or (b) upon the date Lessee seeks to take possession of the Available Space referenced in the Offer Notice, (ii) Lessee has assigned this Lease or sublet more than fifty percent (50%) of the rentable space located in the Premises to a party other than an Affiliate, (iii) Lessee then occupies less than fifty percent (50%) of the Premises, (iv) Lessee has received more than three (3) written notices of monetary default and more than one (1) written notice of a non-monetary default from Lessor hereunder during the Lease Term or under the Building 10 Lease during the “Lease Term” of that lease, (v) as of the date of such Offer Notice, Lessee does not meet the financial tests set forth in Schedule 6 attached hereto, or (vi) Lessor’s lender does not consent to Lessee’s expansion into the Available Space.. Lessee’s Right of First Offer shall be personal to Lessee and Lessee’s Affiliate and shall not be transferable with any assignment of this Lease or subletting of the Premises.

(f) Terms for Right of First Offer.

In the event that Lessee exercises Lessee’s Right of First Offer, Lessee’s occupancy of the Available Space taken shall be on all of the same terms and conditions described in the Offer Notice. In such event, Lessee’s Share due hereunder shall also be adjusted accordingly.

(g) New Lease.

Lessor and Lessee hereby agree to execute a new lease for such Available Space in the same form and, except for the business terms of the Offer Notice and terms made necessary as a result of the different space, having the same content as this Lease (“New Lease”) prior to Lessee’s occupancy of the Available Space in question. The New Lease shall specify, among other things, the Rent, date of occupancy, increase in Lessee’s Share and square footage of the Available Space taken in connection with Lessee’s exercise of Lessee’s Right of First Offer, and shall otherwise be on the terms of this Lease, except for whatever changes are required in connection with any differing uses of the Available Space by Lessee. If Lessee does not execute such a New Lease within ten (10) business days after the date on which Lessor provides Lessee with a form of New Lease as described in this Subsection (g), then, at Lessor’s option, Lessee’s right to lease the Available Space on the terms referenced in the Offer Notice shall be void and terminated, provided that such termination shall not affect Lessee’s ongoing rights pursuant to the terms of this Section 17.25.

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Section 17.26 Right of First Refusal.

(a) Grant.

Subject to the terms of this Section 17.26, Lessor grants to Lessee during the Right of First Refusal Term a continuing right of first refusal (“Right of First Refusal”) to lease any space which is available for lease in either Building 7 or Building 8 in the Project (“Available ROFR Space”). For the purposes of this Section 17.26, such space shall not be deemed available for lease, and this Right of First Refusal shall not apply, if the space in question is already leased to a tenant thereof who leases such space pursuant to any then-existing or future agreement to extend the term of its lease or expand the size of its premises between Lessor and such tenant.

(b) Covenants of Lessor.

Subject to the conditions precedent established by subsection (d) below, if at any time during the Lease Term Lessor receives an offer which Lessor is willing to accept from a bona fide third party to lease any space in the Available ROFR Space, Lessor shall first provide Lessee with a written notice (“Refusal Offer Notice”) detailing (i) the rent at which said Available ROFR Space is to be leased to the third party, (ii) the rentable square footage and location thereof, (iii) the date the Available ROFR Space will become available and the term of the proposed lease and (iv) all other material economic terms upon which Lessor is willing to lease the Available ROFR Space in question to such third party.

(c) Exercise of Lessee’s Right of First Refusal.

Subject to the conditions precedent established by subsection (d) below, Lessee may exercise Lessee’s Right of First Refusal to lease all (but not less than all) of the Available ROFR Space described in the Refusal Offer Notice by providing Lessor with written notice (“ROFR Acceptance Notice”) thereof within five (5) business days of Lessor’s delivery to Lessee of the Refusal Offer Notice. If Lessee does not exercise its Right of First Refusal within said five (5) business day period, Lessor shall be relieved of Lessor’s obligation to lease the Available ROFR Space mentioned in the Refusal Offer Notice, to Lessee and the provisions of this Section 17.26 shall not apply to Lessor. If the transaction described in the ROFR Offer Notice is not consummated, then, prior to entering into a new lease for the Available ROFR Space, Lessor shall repeat the process described in this Section 17.26.

(d) Conditions to Right of First Refusal.

Notwithstanding anything to the contrary in this Section 17.26, Lessor shall have no obligation to provide Lessee with a Refusal Offer Notice, and Lessee shall have no right to exercise Lessee’s Right of First Refusal, if: (i) Lessor has delivered to Lessee a written notice that Lessee is in default hereunder or under the Building 10 Lease and such default has not yet been cured either: (a) at the time Lessor seeks to lease the Available ROFR Space in question, or at the time Lessee seeks to give Lessor an ROFR Acceptance Notice, whichever, is relevant, or (b) upon the date Lessee seeks to take possession of the Available ROFR Space referenced in the Refusal Offer Notice, (ii) Lessee has assigned this Lease or sublet more than fifty percent (50%)

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of the rentable space located in the Premises to a party other than an Affiliate, (iii) Lessee then occupies less than fifty percent (50%) of the Premises, (iv) Lessee has received more than three (3) written notices of monetary default and one (1) written notice of non-monetary default from Lessor hereunder during the Lease Term or under the Building 10 Lease during the “Lease Term” of that lease, (v) at the time of the Refusal Offer Notice Lessee fails to meet the financial tests set forth in Schedule 6 attached hereto, or (vi) Lessor’s lender does not consent to Lessee’s expansion into the Available Space.. Lessee’s Right of First Refusal shall be personal to Lessee and Lessee’s Affiliate and shall not be transferable with any assignment of this Lease or subletting of the Premises.

(e) Terms for Right of First Refusal.

In the event that Lessee exercises Lessee’s Right of First Refusal, Lessee’s occupancy of the Available ROFR Space taken shall be on all of the same terms and conditions described in the Refusal Offer Notice. In such event, Lessee’s Share due hereunder shall also be adjusted accordingly.

(f) New Lease.

Lessor and Lessee hereby agree to execute a new lease for such Available ROFR Space in the same form and, except for the business terms of the ROFR Offer Notice and terms made necessary as a result of the different space, having the same content as this Lease (“ROFR Lease”) prior to Lessee’s occupancy of the Available ROFR Space in question. The ROFR Lease shall specify, among other things, the Rent, date of occupancy, increase in Lessee’s Share and square footage of the Available ROFR Space taken in connection with Lessee’s exercise of Lessee’s Right of First Refusal, and shall otherwise be on the terms of this Lease, except for whatever changes are required in connection with any differing uses of the Available ROFR Space by Lessee. If Lessee does not execute such a ROFR Lease within ten (10) business days after the date on which Lessor provides Lessee with a form of ROFR Lease as described in this Subsection (f), then, at Lessor’s option, Lessee’s right to lease the Available ROFR Space on the terms referenced in the ROFR Offer Notice shall be void and terminated, provided that such termination shall not affect Lessee’s ongoing rights pursuant to the terms of this Section 17.26.

Section 17.27 Lessee’s Expansion Right. If, during the Lease Term, Lessee desires to lease additional space in the Project but there is no such space then available for lease in the Project, and if Lessor (and Lessor’s lender) determines, in its sole and absolute discretion, that it would not adversely affect the Project and Lessor determines, in Lessor’s sole and absolute discretion, that Lessor can construct an additional building in the Project, then, at Lessee’s written request, Lessor shall use Lessor’s good faith efforts to gain the necessary governmental approvals for, and shall construct, such an additional building for Lessee’s use. The size, location and date of availability of such building, and the economic terms on which Lessor shall lease such building to Lessee, shall be subject to the mutual agreement of the Lessor and Lessee. Further, Lessor shall have no obligations whatsoever to Lessee under this Section 17.27 if at the time of Lessee’s request for such building Lessee does not meet the relevant financial tests set forth in Schedule 6 attached hereto or has received a written notice of default hereunder or under the Building 10 Lease and such default has not yet been cured. The terms of this Section 17.27 shall only be operative at any time that Pacific Shores Investors, LLC or any affiliate thereof

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owns the entire Project, and upon the sale or other transfer of this Project or any portion thereof the terms of this Section 17.27 shall be rendered null and void and of no further effect, and the Lessor shall then have no further obligations to the Lessee hereunder whatsoever.

Section 17.28 Notification of Intention to Market. If Lessor shall decide to market the Project for sale, Lessor shall provide Lessee with marketing materials therefore at the same time and in a similar manner as Lessor provides such materials to the general public. Nothing herein shall be deemed to create an obligation of Lessor to sell the Project or enter into negotiations for the sale of the Project with Lessee or keep Lessee informed of the status of any such negotiations with a third party for the sale of the Project. The parties acknowledge and agree that nothing herein shall be deemed to create any sort of an option, right of first refusal, right of first offer, right of first negotiation or any other type of option or right of Lessee to purchase the Project or any portion thereof. The obligation of Lessor hereunder is limited solely to notifying Lessee of Lessor’s marketing of the Project for a potential sale, and Lessor reserves the right to sell the Project, or not sell it at all, on any terms and conditions that Lessor shall deem appropriate, in Lessor’s sole and absolute discretion. Lessee agrees to keep the notification delivered to it by Lessor hereunder strictly and completely confidential, and shall not disclose such notification to anyone whatsoever. The terms of this Section 17.28 shall only be operative at any time that Pacific Shores Investors, LLC or any affiliate thereof owns the entire Project, and upon the sale or other transfer of this Project or any portion thereof the terms of this Section 17.28 shall be rendered null and void and of no further effect, and the Lessor shall then have no further obligations to the Lessee hereunder whatsoever.

Section 17.29 List of Lease Expiration Dates. Upon written request therefor by Lessee, Lessor shall deliver to Lessee a list of then current expiration dates (not taking into account any extension or expansion rights that may or may not be exercised by the tenants of the Project) of the current leases of space in the portion of the Project then owned by Lessor, which list shall also describe the size and location of the space in question. Nothing herein shall be deemed to create an obligation of Lessor to lease such space to Lessee or enter into negotiations for the lease of such space to Lessee or keep Lessee informed of the status of any space for lease in the Project. The parties acknowledge and agree that nothing in this Section 17.29 shall be deemed to create any sort of an option, right of first refusal, right of first offer, right of first negotiation or any other type of option or right of Lessee to lease space the Project or any portion thereof. The obligation of Lessor hereunder is limited solely to delivering to Lessee a list of the expiration dates of existing leases of space in the Project.

Section 17.30 [Intentionally omitted.]

Section 17.31 Condition Subsequent. Notwithstanding anything to the contrary herein, Lessor and Lessee acknowledge and agree that the effectiveness of this Lease is conditioned upon Lessee’s exercise of Lessee’s option to lease the Premises and the Building 10 Premises (as defined therein) pursuant to the terms of that certain Amended and Restated Option to Lease dated June 15, 2006 (the “Option Agreement”) between Lessor, as optionor, and Lessee, as optionee. Notwithstanding Lessor and Lessee’s execution of this Lease, if Lessee fails to exercise such option by July 5, 2006, or if the Option Agreement is terminated pursuant to its terms, then this Lease and all of the obligations of the parties hereunder shall terminate and be null and void, and any amount prepaid by Lessee to Lessor hereunder shall be promptly repaid to Lessee.

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Section 17.32 List of Exhibits

EXHIBIT A:	Premises
EXHIBIT B:	Memorandum of Commencement of Lease Term and Schedule of Base Rent
EXHIBIT C	SNDA
EXHIBIT D	Signage Exhibit
EXHIBIT E	Intentionally Deleted
EXHIBIT F	Hazardous Materials Disclosure
EXHIBIT G:	Notice to Tenants
EXHIBIT H:	Notice to Tenants
EXHIBIT I:	Rules and Regulations
SCHEDULE 1	License Agreement
SCHEDULE 2	Intentionally Deleted
SCHEDULE 3	Removal Obligations Standard
SCHEDULE 4	Permitted Hazardous Materials
SCHEDULE 5	Plans, Licenses and Permits
SCHEDULE 6	Financial Tests

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LESSOR AND LESSEE EACH HAS CAREFULLY READ AND HAS REVIEWED THIS LEASE AND BEEN ADVISED BY LEGAL COUNSEL OF ITS OWN CHOOSING AS TO EACH TERM AND PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOWS ITS INFORMED AND VOLUNTARY CONSENT THERETO. EACH PARTY HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS AND CONDITIONS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES.

Executed at Redwood City, California, as of the reference date.

(Signatures continued on next page)

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LESSOR:							ADDRESS:
PACIFIC SHORES INVESTORS, LLC,							c/o Jay Paul Company
a Delaware limited liability company							350 California Street, Suite 1905
							San Francisco, CA 94104-1432
By:	Pacific Shores Mezzanine, LLC,
	a Delaware limited liability company,
	its sole member
	By:	Pacific Shores Junior Mezz, LLC,
		a Delaware limited liability company
		its sole member
		By:	Pacific Shores Junior Mezz Managers, LLC,
			a Delaware limited liability company,
			its sole member
			By:	Pacific Shores Development, LLC,
				a Delaware limited liability company,
				its sole member
				By:	TECHNOLOGY LAND LLC,
					a California limited liability company,
					Operating Member
					By:	/s/ Jay Paul
						Jay Paul, Sole Managing Member

LESSEE:		ADDRESS:
PDL BIOPHARMA, INC.,		(Before Commencement Date)
a Delaware corporation
		34801 Campus Drive
By:	/s/ Mark McDade	Freemont, California 94555
	Mark McDade	Attention: Ms. Laurie Torres, VP Human Resources
	(Type or Print Name)
Its:	Chief Executive Officer	(After Commencement Date)
		Pacific Shores Center
		Building 9
		1400 Seaport Boulevard
		Redwood City, CA 94063

55

With a copy to:

Silicon Valley Law Group

25 Metro Drive, Suite 600

San Jose, California 95110

Attn: Lucy A. Lofrumento, Esq.

56

EXHIBIT A

to

PACIFIC SHORES INVESTORS, LLC

LEASE

to

PDL BIOPHARMA, INC.,

a Delaware corporation

LESSEE

for

PREMISES

at

Pacific Shores Center

Building 9

Redwood City, California 94063

REAL PROPERTY LEGAL DESCRIPTION,

SITE PLAN AND PREMISES FLOOR PLAN

(See Building Description and Depiction of Property attached)

A-1

EXHIBIT A

LEGAL DESCRIPTION

Real property in the City of Redwood City, County of San Mateo, State of California described as follows:

Lot 9 as shown on the certain Map of Pacific Shores Center filed July 21, 2000 in Book 130 of Maps, pages 66-74, San Mateo County Records.

A-2

Site Plan

EXHIBIT B

to

PACIFIC SHORES INVESTORS, LLC

LEASE

to

PDL BIOPHARMA, INC.,

a Delaware corporation

as

LESSEE

for

PREMISES

at

Pacific Shores Center

Building 9

Redwood City, California 94063

MEMORANDUM OF

COMMENCEMENT OF LEASE TERM

Pursuant to Article III, Section 3.01, paragraph (a) of the above-referenced Lease, the parties to said Lease agree to the following:

The Commencement Date of the Lease                      and the Lease Term commenced on said date. The Expiration Date for the initial Lease Term is                     .

The date for commencement of Base Rent for the Premises is                     .

The date for commencement of Additional Rent, including, without limitation, Operating Expenses is                     .

Attached hereto as a part hereof is a true and correct schedule of Base Rent. The total Rentable Area of the Premises is an agreed                                      rentable square feet.

Each person executing this Memorandum certifies that he or she is authorized to do so on behalf of and as the act of the entity indicated. Executed as of                              , 2006, at Redwood City (San Mateo County), California.

B-1

“Lessor”
PACIFIC SHORES INVESTORS, LLC
a Delaware limited liability company
By:	Pacific Shores Mezzanine, LLC,
	a Delaware limited liability company,
	its sole member
	By:	Pacific Shores Junior Mezz, LLC,
		a Delaware limited liability company
		its sole member
		By:	Pacific Shores Junior Mezz Managers, LLC,
			a Delaware limited liability company,
			its sole member
			By:	Pacific Shores Development, LLC,
				a Delaware limited liability company,
				its sole member
				By:	TECHNOLOGY LAND LLC,
					a California limited liability company,
					Operating Member
					By:
						Jay Paul, Sole Managing Member

“Lessee”
PDL BIOPHARMA, INC.,
a Delaware corporation
By:
	(Type or Print Name)
Its:

B-2

EXHIBIT C

to

PACIFIC SHORES INVESTORS, LLC

LEASE

to

PDL BIOPHARMA, INC.,

a Delaware corporation

as

LESSEE

for

PREMISES

at

Pacific Shores Center

Building 9

Redwood City, California 94063

SUBORDINATION, NONDISTURBANCE

AND ATTORNMENT AGREEMENT

NOTICE: THIS SUBORDINATION AGREEMENT RESULTS IN YOUR OPTION AGREEMENT, BUILDING 9 LEASE AND BUILDING 10 LEASE BECOMING SUBJECT TO AND OF LOWER PRIORITY THAN THE LIEN OF THE DEED OF TRUST (DEFINED BELOW).

THIS AGREEMENT is dated for reference as of the      day of                     , 2006, and is made between WELLS FARGO BANK, N.A., as Trustee for the Registered Holders of Credit Suisse First Boston Mortgage Securities Corp., Commercial Mortgage Pass-Through Certificates Series 2004-TFL2 (“Mortgagee”), PACIFIC SHORES INVESTORS, LLC, a Delaware limited liability company (“Lessor”), and PROTEIN DESIGN LABS, INC., a Delaware corporation (“Lessee”).

RECITALS

A.	Lessor currently owns the Pacific Shores Center in Redwood City, California, which project includes that certain approximately 283,015 square foot building located at 1400 Seaport Boulevard and related real property referred to herein as the “Building 9 Premises”, and that certain approximately 164,732 square foot building located at 1500 Seaport Boulevard and related real property referred to herein as “Building 10 Premises.”
B.	Lessor and Lessee have entered into (a) that certain Triple Net Space Lease for the Building 9 Premises (“Building 9 Lease”), and (b) that certain Triple Net Space Lease for the Building 10 Premises (“Building 10 Lease”).
C.	Mortgagee is the current holder of a loan made by Column Financial, Inc. to Lessor and secured by a deed of trust (the “Deed of Trust”) encumbering the real property of which the Building 9 Premises and the Building 10 Premises form a part (the “Property”), and the parties desire to set forth their agreement as hereinafter set forth.

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NOW, THEREFORE, in consideration of the premises and of the sum of ONE DOLLAR ($1.00) by each party in hand paid to the other, the receipt of which is hereby acknowledged, the parties hereby agree as follows:

1. The Building 9 Lease and the Building 10 Lease are and shall be subject and subordinate to the Deed of Trust insofar as it affects the Property, and to all of Mortgagee’s rights thereunder, including all renewals, modifications, consolidations, replacement and extensions of the Deed of Trust, to the full extent of amounts secured thereby and interest thereon.

2. Subject to the terms and conditions of Paragraph 3 of this agreement, Lessee agrees that it will attorn to and recognize any purchaser at a foreclosure sale under the Deed of Trust, any transferee who acquires the Property by deed in lieu of foreclosure, and the successors and assigns of such purchasers (the applicable party taking title is referred to as the “New Owner”), as its landlord for the unexpired balance (and any extensions, if exercised) of the term of said leases upon the same terms and conditions set forth in the Building 9 Lease and the Building 10 Lease.

3. Regardless of any default under any such mortgage, deed of trust or other encumbrance or any sale of the Property under such mortgage, deed of trust or other encumbrance, the Building 9 Lease and the Building 10 Lease and Lessee’s rights thereunder, shall not be disturbed by the mortgagee or beneficiary or anyone claiming under or through such mortgagee or beneficiary; provided, however that nothing contained herein shall prevent Mortgagee from naming Lessee in any foreclosure or other action or proceeding initiated in order for Mortgagee to avail itself of and complete any such foreclosure or other remedy, so long as such joinder does not result in a termination of the Building 9 Lease and/or the Building 10 Lease, or diminish Lessee’s rights and privileges under the Building 9 Lease or the Building 10 Lease. After acquisition of title by a New Owner, Building 9 Lease and the Building 10 Lease shall be a direct agreement(s) between Lessee and the New Owner. Lessee shall be obligated to perform for the New Owner under the Building 9 Lease and the Building 10 Lease and the New Owner shall assume the obligations of the Lessor under the Building 9 Lease and the Building 10 Lease, including without limitation any extension thereof pursuant to the terms of the Building 9 Lease and the Building 10 Lease, in accordance with the terms of the applicable document(s), subject to Section 4 below.

4. If any New Owner succeeds to the interest of Lessor under the Building 9 Lease or the Building 10 Lease, the New Owner shall not be:

(a) liable for any act or omission of any prior lessor (including Lessor); provided, that nothing herein shall release the lessor under the Building 9 Lease or the Building 10 Lease from the obligation to perform maintenance or repair obligations or limit New Owner’s obligations under said leases to correct any conditions in violation of the New Owner’s obligations as lessor under the Building 9 Lease or the Building 10 Lease provided that Lessee provides such New Owner with written notice of such default and opportunity to cure pursuant to Section 6 below; or

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(b) liable for the return of any security deposit under either the Building 9 Lease or the Building 10 Lease not actually received by Mortgagee or the New Owner; or

(c) subject to any offsets or claims which Lessee might have against any prior lessor (including Lessor); or

(d) bound by any rent or additional rent which Lessee might have paid under the Building 9 Lease or the Building 10 Lease for more than the current month to any prior lessor (including Lessor) unless such monies have been actually received by New Owner; or

(e) bound by any amendment or modification of the Building 9 Lease or the Building 10 Lease (including an agreement to terminate the Building 9 Lease or the Building 10 Lease, other than as expressly contained in the Building 9 Lease or the Building 10 Lease) made without its consent.

5. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their successors and assigns.

6. Lessee agrees to give Mortgagee notice of any default by Lessor under the Building 9 Lease and the Building 10 Lease (if and when executed by the parties). Lessee further agrees that if Lessor shall have failed to cure such default within the time provided for in the Building 9 Lease or the Building 10 Lease, then Mortgagee shall have an additional thirty (30) days within which to cure such default or if such default cannot be cured within that time, then such additional time as may be necessary if within such thirty (30) days Mortgagee has commenced and is diligently pursuing the remedies necessary to cure such default (including, but not limited to, commencement of legal proceedings, if necessary to effect such cure) in which event neither the Building 9 Lease nor the Building 10 Lease shall be terminated while such remedies are being so diligently pursued. Lessee shall accept performance by Mortgagee of any term, covenant, condition or agreement to be performed by Lessor under the Building 9 Lease or the Building 10 Lease with the same force and effect as though performed by Lessor.

7. In the event Mortgagee succeeds to the interest of Lessor in the Property, Lessee’s rights against Mortgagee, as lessor, shall be limited to Mortgagee’s interest in the Property, and Lessee shall have no recourse with regard to any other assets of Mortgagee.

8. Any notices which a party may be obligated or elect to give hereunder shall be sufficient if sent by certified mail, return receipt requested, postage prepaid or by Federal Express or other established overnight courier addressed as follows:

If to Mortgagee: Wells Fargo Bank, N.A., as Trustee for the Registered Holders of Credit Suisse First Boston Mortgage Securities Corp., Commercial Mortgage Pass-Through Certificates Series 2004-TFL2
c/o Wachovia Securities, Commercial Real Estate Services
8739 Research Drive-URP4
Charlotte, NC 28288-1075 (28262-1075 for overnight deliveries)
Attn: Alex Aguilar Fax: 704-715-0036

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with a copy to:	Alston & Bird LLP 101 South Tryon Street, Suite 4000 Charlotte, NC 28280-4000 Attn: James A.L. Daniel, Jr., Esq. Fax: 704-444-1776
If to Lessee:	PDL BioPharma, Inc. 34801 Campus Drive Fremont, California 94555 Attention: Laurie Torres, VP Human Resources Facsimile: (510) 574-1661
With a copy to:	Silicon Valley Law Group 25 Metro Drive, Suite 600 San Jose, California 95110 Attention: Lucy Lofrumento, Esq. Facsimile: (408) 573-5701

Any such notice shall be deemed delivered on the earlier to occur of (a) receipt or (b) the date of delivery, refusal or non-delivery indicated on the return receipt if sent by certified mail. The above addresses may be changed by the persons identified above from time to time designated by written notice given as herein required; provided that no notice of a change of address shall be effective until actual receipt of such notice.

9. In the event of the bringing of any action or suit by any party or parties hereto against another party or parties hereunder alleging a breach of any of the covenants, conditions, agreements or provisions of this Agreement, the prevailing party or parties shall recover all reasonable costs and expenses of suit, including without limitation, reasonable attorneys’ fees, consultants fees and fees of expert witnesses.

10. This Agreement shall be governed by and construed in accordance with the laws of the State of California.

11. This Agreement may be executed in one or more counterparts, each of which shall be deemed original, and all of which together shall constitute one and the same instrument.

12. Neither Mortgagee nor its designee or nominee shall become liable under the Building 9 Lease and Building 10 Lease, unless and until Mortgagee or its designee or nominee becomes, and then only with respect to periods in which Mortgagee or its designee or nominee remains, the owner of the Property.

13. Lessee acknowledges that Lessor has assigned (or will assign) to Mortgagee its right, title and interest in the Building 9 Lease and the Building 10 Lease and to the rents, issues and profits of the Property pursuant to the Deed of Trust, and that Lessor has been granted the

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license to collect such rents provided no Event of Default has occurred under, and as defined in, the Deed of Trust. Lessee agrees to pay all rents and other amounts due under the Building 9 Lease and the Building 10 Lease directly to Mortgagee upon receipt of written demand by Mortgagee following an Event of Default, and Lessor hereby consents thereto and agrees that Lessee shall be released and discharged of all liability to Lessor for any such payments made to Mortgagee. The assignment of the Building 9 Lease and the Building 10 Lease to Mortgagee, or the collection of rents by Mortgagee pursuant to such assignment, shall not obligate Mortgagee to perform Lessor’s obligations under the Building 9 Lease and/or the Building 10 Lease.

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written.

PDL BIOPHARMA, INC.,
a Delaware corporation
By:
Name:
Title:
WELLS FARGO BANK, N.A., as Trustee for the Registered Holders of Credit Suisse First Boston Mortgage Securities Corp., Commercial Mortgage Pass-Through Certificates Series 2004-TFL2
By:	WACHOVIA BANK NATIONALASSOCIATION, solely in its capacity asMaster Servicer
By:
Name:
Title:

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The undersigned Lessor hereby consents to the foregoing Subordination, Non-Disturbance and Attornment Agreement and confirms the facts stated in the foregoing Subordination, Non-Disturbance and Attornment Agreement.

LESSOR:

PACIFIC SHORES INVESTORS, LLC,

a Delaware limited liability company

By:	Pacific Shores Mezzanine, LLC,
	a Delaware limited liability company,
	its sole member
	By:	Pacific Shores Junior Mezz, LLC,
		a Delaware limited liability company
		its sole member
		By:	Pacific Shores Junior Mezz Managers, LLC,
			a Delaware limited liability company,
			its sole member
			By:	Pacific Shores Development, LLC,
				a Delaware limited liability company,
				its sole member
				By:	TECHNOLOGY LAND LLC,
					a California limited liability company,
					Operating Member
					By:
						Jay Paul, Sole Managing Member

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ACKNOWLEDGMENTS

STATE OF CALIFORNIA	)
	) ss.:
COUNTY OF	)

On                         , 2006, before me,                                      the undersigned, a notary public in and for said state, personally appeared                                                      , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument.

WITNESS my hand and official seal.

Notary Public

STATE OF CALIFORNIA	)
	) ss.:
COUNTY OF	)

On                          , 2006, before me,                                          the undersigned, a notary public in and for said state, personally appeared                                              , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument.

WITNESS my hand and official seal.

Notary Public

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STATE OF CALIFORNIA	)
	) ss.:
COUNTY OF	)

On                          , 2006, before me,                                      the undersigned, a notary public in and for said state, personally appeared                                                      , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument.

WITNESS my hand and official seal.

Notary Public

STATE OF CALIFORNIA	)
	) ss.:
COUNTY OF	)

On                          , 2006, before me,                                        the undersigned, a notary public in and for said state, personally appeared                                                  , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument.

WITNESS my hand and official seal.

Notary Public

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EXHIBIT D

TO

PACIFIC SHORES INVESTORS, LLC

LEASE

TO

PDL BIOPHARMA, INC.

as

LESSEE

For

Pacific Shores Center

Building 9

1400 Seaport Boulevard

Redwood City, California 94063

SIGNAGE EXHIBIT

SINGLE TENANT BUILDINGS

Each tenant of a single tenant Building will be permitted (subject to compliance with Section 17.15 of the Lease) to place one sign to be located near the entrance to the parking lot associated with Building 9 (“Monument”). The exact size, design, color, location and materials of the Monument, and of the Lessee’s sign on the Monument, will be determined by Lessor in its sole and absolute discretion, provided that Lessor will not unreasonably withhold its consent to a tenant sign which employs a design and color commonly used by such tenant for marketing purposes so long as it fits within the space allocated by Lessor, and so long as it is in keeping with the overall design scheme of the Project. Each such tenant will also be permitted (subject to compliance with Section 17.15 of the Lease) to place one sign on the exterior surface of Building 9. Lessor reserves the right to allow different or additional signage anywhere in the Project, provided that, so long as Lessor may lawfully do so, Lessor will not reduce the size of space allocated on the Monument to a size smaller than that permitted as of the commencement date of the Lease, unless the size of the premises subject to the lease decreases from its size as of the lease commencement date or unless Lessor provides alternate signage of reasonably equivalent visibility. All signs shall comply with all applicable government laws and regulations and with the Pacific Shores Signage Master Plan (City of Redwood City Design Review Submittal dated November 11, 2000).

D-1

EXHIBIT E

To

PACIFIC SHORES INVESTORS, LLC.

LEASE

to

PDL BIOPHARMA, INC.,

For

PREMISES

at

1400 Seaport Drive

Building 9

Redwood City, California

INTENTIONALLY DELETED

E-1

EXHIBIT F

to

PACIFIC SHORES INVESTORS, LLC

LEASE

to

PDL BIOPHARMA, INC.,

as

LESSEE

for

PREMISES

at

Pacific Shores Center

Building 9

Redwood City, California 94063

HAZARDOUS MATERIALS DISCLOSURE

Lessor has provided Lessee, and Lessee acknowledges that it has received and pursuant to Section 17.22(b) of the Lease, reviewed same, a copy of each of those certain documents entitled: (i) PHASE I, ENVIRONMENTAL SITE ASSESSMENT, PACIFIC SHORES CENTER, REDWOOD CITY, CALIFORNIA, Prepared for: The Jay Paul Company, San Francisco, California, Prepared by: IRIS ENVIRONMENTAL, Oakland, California, December 20, 1999, Job No. 99-122A; and (ii) PHASE II, ENVIRONMENTAL SITE ASSESSMENT, PACIFIC SHORES CENTER, 1000 SEAPORT BOULEVARD, REDWOOD CITY, CALIFORNIA, Prepared for: The Jay Paul Company, San Francisco, California, Prepared by: IRIS ENVIRONMENTAL, Oakland, California, January 14, 1999, Job No. 99-122-B

LESSEE
PDL BIOPHARMA, INC., a Delaware corporation
By:
	(Type or print name)
Its:
By:
	(Type or print name)
Its:

F-1

EXHIBIT G

to

PACIFIC SHORES INVESTORS, LLC

LEASE

to

PDL BIOPHARMA, INC.,

a Delaware corporation

as

LESSEE

for

PREMISES

at

Pacific Shores Center

Building 9

Redwood City, California 94063

NOTICE TO TENANTS AND TRANSFEREES OF

CURRENT OR FUTURE USES OF ADJACENT PORT PROPERTY

Notice is hereby given to all lessees, tenants and transferees of land or interests in land located within Pacific Shores Center of the presence or potential future presence of Port related industrial activities on Port property adjacent to and west of Pacific Shores Center. All recipients of this notice should be aware of the following facts:

1. The parcel of Port property adjacent to Pacific Shores Center to the northwest shown on the Exhibit J-Figure One attached hereto (the “Port Parcel”) is now or may be developed for Port related maritime and industrial uses similar to those occupying other properties along the west side of Seaport Boulevard and to the west of Pacific Shores Center.

2. Such Port related maritime and industrial activities are those which are permitted by the general industrial zoning of the City of Redwood City and may include heavy industrial land uses, including uses which involve the receipt, transport, storage or management of hazardous wastes, aggregates, cement, gravel and similar materials, including the outdoor storage and handling of such materials.

3. Pacific Shores Center Limited Partnership, on behalf of itself, its successors and assigns, has recognized, accepted and approved such uses of the Port Parcel subject to the utilization of Best Available Management Practices in the development and use of the Port Parcel. Best Available Management Practices are defined on Schedule One to Exhibit G attached hereto.

4. Despite the use of Best Available Management Practices on the Port Parcel by the Port and its lessees and licensees and despite Pacific Shores Center Limited Partnership’s efforts to ensure compatibility between such uses and those in Pacific Shores Center, it is possible that such uses will cause emissions into the air of dust or other particulate matter, or noise or odorous substances which may be offensive to or be perceived as a nuisance by occupants of Pacific Shores Center.

G-1

5. Pursuant to covenants made by Pacific Shores Center Limited Partnership on behalf of its successors and assigns, tenants and lessees, the tenants, lessees and transferees of Pacific Shores Center Limited Partnership have approved and accepted such neighboring uses subject to their utilization of Best Available Management Practices.

6. Any actions to enjoin the continuation of such uses or to recover any damages to persons or property related to their operations are subject to a requirement for prior notice found in recorded covenants by Pacific Shores Center Limited Partnership. The following language is excerpted from such covenants:

“In the event that either party hereto believes that the other has failed to perform any covenant made herein in favor of the other, at least ten (10) days prior to the commencement of any action to enforce the covenants hereunder or to recover damages for the breach thereof, that party who believes that a failure to perform has occurred (the “Complaining Party”) shall give written notice (the “Notice”) to the party alleged not to have performed the covenant (the “Non-Complaining Party”) of the specific nature of the alleged failure and of the intent of the Complaining Party to take action to remedy the breach by the Non-Complaining Party. In the event that the nature of the alleged failure to perform is such that the same cannot reasonably be cured within ten (10) days after receipt of the Notice (the “Notice Period”), the Non-Complaining Party shall not be deemed to be in violation of its covenants and no action shall be commenced by the Complaining Party if, within the Notice Period, the Non-Complaining Party commences such cure and thereafter diligently and continuously prosecutes the same to completion within a reasonable time. Provided, however, that the Complaining Party shall not be precluded from recovering any actual damages suffered by reason of the alleged failure to perform prior to or after delivery of the Notice, whether or not such failure is thereafter cured.”

G-2

FIGURE ONE TO EXHIBIT G

to

PACIFIC SHORES INVESTORS, LLC

LEASE

to

PDL BIOPHARMA, INC.,

a Delaware corporation

as

LESSEE

for

PREMISES

at

Pacific Shores Center

Building 9

Redwood City, California 94063

G-3

G-4

SCHEDULE ONE TO EXHIBIT G

to

PACIFIC SHORES INVESTORS, LLC

LEASE

to

PDL BIOPHARMA, INC.,

a Delaware corporation

as

LESSEE

for

PREMISES

at

Pacific Shores Center

Building 9

Redwood City, California 94063

G-5

DEFINITION OF “BEST AVAILABLE MANAGEMENT PRACTICES”

(Exchange Parcel and New Road Access)

“Best Available Management Practices (“BAMP”) means the following:

1. Compliance with all laws, rules and regulations, and operating permits, whether Federal, state or local, applicable to the uses of the Exchange Parcel and industrial operations thereon, including without limitation all laws, rules and regulations and operating permits applicable to emissions into the air of gases, substances and particulate matter, the generation or release of odors or odorous substances into the air, and the generation of noise.

2. Initiation and maintenance of reasonable precautions to minimize emission and transport of dust from the Exchange Parcel and the New Road Access onto the Project Site. As used herein the term “reasonable precautions” shall mean the use of materials, techniques and equipment reasonably available at the time of commencement of a use or operation and designed to minimize emissions during predictably adverse climatic conditions common in the area (collectively, ‘‘initial measures”) plus the addition of one or more of the following additional measures if not already in use and if initial measures prove inadequate to achieve minimization of emission and transport of dust onto the Project Site:

(a) Paving of surfaces used for active operations where the absence of such paving causes emission and transport of dust onto the Project Site;

(b) Installation of wind fences to a height of not less than 20 feet with 50% porosity around areas of open storage and areas of active dust-generating uses causing emission and transport of dust onto the Project Site;

(c) Use of storage silos, open-ended enclosures or water spray equipment for the outdoor storage and handling of materials, such as rock, concrete, soil, mineral substances, and similar materials, causing emission and transport of dust onto the Project Site;

(d) Installation of enclosures or use of water or foam spray bars both above and below the belt surface of all conveyors used for loading and unloading materials, causing emission and transport of dust onto the Project Site; and

3. Initiation of a reasonable, regularly scheduled sweeping program for the New Road Access to minimize accumulation of dust and dirt and/or installation of dust traps, wheel washers or other methods of minimizing the tracking of dust onto the Road Access Area and resulting emission and transport of dust onto the Project Site.

G-6

EXHIBIT H

to

PACIFIC SHORES INVESTORS, LLC

LEASE

to

PDL BIOPHARMA, INC.,

a Delaware corporation

as

LESSEE

for

PREMISES

at

Pacific Shores Center

Building 9

Redwood City, California 94063

NOTICE TO PACIFIC SHORES TENANTS, LESSEES, SUCCESSORS, ASSIGNS AND

TRANSFEREES REGARDING CURRENT OR FUTURE USES OF ADJACENT RMC

LONESTAR AND PORT PROPERTY

Notice is hereby given to all tenants, lessees, successors, assigns and transferees of land or interest in land located within the Pacific Shores Center of the presence or potential future presence of maritime and industrial activities on RMC Lonestar and Port of Redwood City property west and adjacent to Pacific Shores Center. Recipients of this notice should be aware of the following:

1. The RMC Lonestar property and parcels of port property adjacent to and west of Pacific Shores Center are shown on the map attached to this notice. The RMC Lonestar and Port properties are now devoted to, or will be developed for, maritime and industrial uses.

2. These maritime and industrial uses are those which are permitted by the “Heavy Industry” General Plan designation and general industrial zoning of the City of Redwood City. These uses include, by way of example and not limitation, uses involving the receipt, transport, storage, handling, processing or management of aggregates, cement, concrete, asphalt, soil or other landscaping materials, recyclable metals and plastics, recyclable concrete and asphalt, chemicals, petroleum products, hazardous wastes, and similar materials, including indoor storage, mixing and handling of these materials.

3. These uses may cause, on either a regular or intermittent basis, air emissions, including without limitation, dust and other particulates, odors, vibrations, loud noises, and heavy truck, rail or marine vessel traffic. These uses may have visual, aesthetic or other aspects that may be offensive or perceived as a nuisance by occupants of Pacific Shores Center.

H-1

EXHIBIT I

to

PACIFIC SHORES INVESTORS, LLC

LEASE

to

PDL BIOPHARMA, INC.,

a Delaware corporation

as

LESSEE

for

PREMISES

at

Pacific Shores Center

Building 9

Redwood City, California 94063

RULES AND REGULATIONS

1. Lessee and Lessee’s employees shall not in any way obstruct the sidewalks, entry passages, pedestrian passageways, driveways, entrances and exits to the Project or the Building, and they shall use the same only as passageways to and from their respective work areas.

2. Any sash doors, sashes, windows, glass doors, lights and skylights that reflect or admit light into the Common Area of the Project shall not be covered or obstructed by the Lessee. Water closets, urinals and wash basins shall not be used for any purpose other than those for which they were constructed, and no rubbish, newspapers, food or other substance of any kind shall be thrown into them. Except in connection with ordinary and customary interior decorating, Lessee shall not mark, drive nails, screw or drill into, paint or in any way deface the exterior walls, roof, foundations, bearing walls or pillars without the prior written consent of Lessor, which consent may be withheld in Lessor’s sole discretion. The reasonable and actual, out-of-pocket expense of repairing any breakage, stoppage or damage resulting from a violation of the foregoing rule shall be borne by Lessee.

3. No awning or shade shall be affixed or installed over or in the windows or the exterior of the Premises except with the consent of Lessor, which consent may not be unreasonably withheld, conditioned or delayed.

4. Lessee shall not do anything in the Premises, or bring or keep anything therein, which will in any way increase the risk of fire or the rate of fire insurance or which shall conflict with the regulations of the fire department or the law or with any insurance policy on the Premises or any part thereof, or with any rules or regulations established by any administrative body or official having jurisdiction, and it shall not use any machinery therein, even though its installation may have been permitted, which may cause any unreasonable noise, jar, or tremor to the floors or walls, or which by its weight might injure the floors of the Premises.

I-1

5. Lessor may reasonably limit weight, size and position of all safes, fixtures and other equipment used in the Premises. If Lessee shall require extra heavy equipment, Lessee shall notify Lessor of such fact and shall pay the cost of structural bracing to accommodate it. All damage done to the Premises or Project by installing, removing or maintaining extra heavy equipment shall be repaired at the expense of Lessee.

6. Lessee and Lessee’s officers, agents and employees shall not make nor permit any loud, unusual or improper noises that unreasonably interfere with other lessees or those having business with them, nor bring into or keep within the Project any animal or bird or any bicycle or other vehicle, except such vehicle as Lessor may from time to time permit and guide dogs.

7. No machinery of any kind will be allowed in the Premises without the written consent of Lessor, which consent may not be unreasonably withheld, conditioned or delayed. This shall not apply, however, to customary office equipment or trade fixtures or package handling equipment.

8. All freight must be moved into, within and out of the Project only during such reasonable hours and according to such reasonable regulations as may be posted from time to time by Lessor.

9. Except as provided in the Lease, no aerial or satellite dish or similar device shall be erected on the roof or exterior walls of the Premises, or on the grounds, without in each instance, the written consent of Lessor, which consent may not be unreasonably withheld, conditioned or delayed. Any aerial so installed without such written consent shall be subject to removal without notice at any time.

10. All garbage, including wet garbage, refuse or trash shall be placed by the Lessee in the receptacles appropriate for that purpose and only at locations prescribed by the Lessor.

11. Lessee shall not burn any trash or garbage at any time in or about the Premises or any area of the Project.

12. Lessee shall observe all security regulations issued by the Lessor and comply with instructions and/or directions of the duly authorized security personnel for the protection of the Project and all tenants therein, except to the extent such regulations unreasonably and materially limit Lessee’s right of access to the Premises and Project’s parking facilities or prohibit Lessor from entering “Secured Areas,” all as provided in the Lease.

13. Any requirements of the Lessee will be considered only upon written application to Lessor at Lessor’s address set forth in the Lease.

14. No waiver of any rule or regulation by Lessor shall be effective unless expressed in writing and signed by Lessor or its authorized agent.

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15. Lessor reserves the right to exclude or expel from the Project any person who, in the reasonable judgment of Lessor, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of the law or the rules and regulations of the Project.

17. Lessor reserves the right at any time to change or rescind any one or more of these rules and regulations or make such other and further reasonable, non-discriminatory rules and regulations as in Lessor’s judgment may from time to time be necessary for the operation, management, safety, care and cleanliness of the Project and the Premises, and for the preservation of good order therein, as well as for the convenience of other occupants and tenants of the Project. Lessor shall not be responsible to Lessee or the any other person for the non-observance or violation of the rules and regulations by any other tenant or other person. Lessee shall be deemed to have read these rules and have agreed to abide by them as a condition to its occupancy of the Premises. Notwithstanding anything to the contrary contained herein, Lessor agrees that the rules and regulations for the Project shall not be (i) modified or enforced in any way by Lessor so as to unreasonably and materially interfere with Lessee’s permitted use set forth in this Lease or Lessee’s access to the Premises or Project parking facility, or (ii) discriminatorily enforced against Lessee and not against other tenants of the Project.

18. Lessee shall abide by any additional rules or regulations which are ordered or requested by any governmental or military authority.

19. In the event of any conflict between these rules and regulations, or any further or modified rules and regulations from time to time issued by Lessor, and the Lease provisions, the Lease provisions shall govern and control.

I-3

SCHEDULE 1

to

PACIFIC SHORES INVESTORS, LLC

LEASE

to

PDL BIOPHARMA, INC.,

a Delaware corporation

as

LESSEE

for

PREMISES

at

Pacific Shores Center

Building 9

Redwood City, California 94063

PACIFIC SHORES CENTER

COMMON AREA LICENSE AGREEMENT

This License Agreement (“Agreement”) is dated for reference purposes and entered into by and between Pacific Shores Investors LLC (“PSI”) and PDL BioPharma, Inc. (“Licensee”) as of                     , 200    .

R E C I T A L S

A. Licensee leases Building          at Pacific Shores Center pursuant to a written Lease (“Lease”) and Licensee desires to utilize a portion of the Pacific Shores Center Common Area for                                               (“Event”) on                     , 200     during the hours of              p.m. to              p.m. (“Event Period”); and

B. PSI is willing to grant a temporary license to Licensee for the Event during the Event Period and on that portion of the Pacific Shores Center Common Area depicted on Exhibit A hereto (“Event Location”) on the terms and conditions set forth below.

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AGREEMENT

1. Recitals. The recitals set forth above are true and correct and incorporated into this Agreement.

2. License Granted. PSI hereby grants to Licensee a revocable, temporary license to use the Event Area for the Event during the Event Period on all of the terms and conditions hereof (“License”).

3. Contractors. All contractors hired by Licensee to assist with the event shall be subject to the prior written approval of PSI, which approval shall not be unreasonably withheld.

4. Security. Licensee shall provide security for the Event and for at least one hour prior to and one hour after the Event Period and assumes all risk for the safety of Event participants.

5. Signage. Subject to the prior written approval of PSI as to location, size and materials, Licensee may place signage on the Common Area to direct attendees to the Event. Licensee shall remove and dispose of all such signage within              (    ) hours after the expiration of the Event Period.

6. Clean Up. Licensee shall initiate clean up of the Event Location and all other affected areas of Pacific Shores Center immediately upon expiration of the Event Period and complete such cleanup, such that no evidence of the Event remains, no later than              (    ) hours after the expiration of the Event Period.

7. Damage. Licensee agrees to pay to PSI the cost of repair of any damage arising from or in connection with the Event within five (5) business days after written demand for same.

8. Insurance. Licensee shall maintain in place at all times during the Event Period the insurance required to be maintained by Licensee (as Lessee) under Article VII of the Lease.

9. Indemnity. Licensee shall indemnify and hold PSI free and harmless from any and all liability, claims, loss, damages, causes of action (whether in tort or contract, law or equity, or otherwise), expenses, charges, assessments, fines, and penalties of any kind, including, without limitation, reasonable attorneys’ fees, expert witness fees and costs, arising by reason of the death or injury of any person, including any person who is an employee, agent, invitee, licensee, permittee, visitor, guest or contractor of Licensee, or by reason of damage to or

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destruction of any property, including property owned by Licensee or any person who is an employee, agent, invitee, permittee, visitor, or contractor of Licensee, caused or allegedly caused (1) while that person or property is in or about the Common Area in connection with the Event; (2) by some condition of the Common Area caused by the Event; (3) by some act or omission by Licensee or its agent, employee, licensee, invitee, guest, visitor or contractor or any person in, adjacent, on, or about the Common Area with the permission, consent or sufferance of Licensee in connection with the Event; (4) by any matter connected to or arising out of Licensee’s occupation and use of the Common Area in connection with the Event, or any breach or default in timely observance or performance of any obligation on Licensee’s part to be observed or performed under this License Agreement.

10. Acceptance of Event Location “As-Is”. Licensee accepts the Event Location and all other areas of Pacific Shores Center utilized for the Event (including, without limitation, roadways, driveways and parking areas) “as-is” and “with all faults” and acknowledges that PSI makes no representation or warranty as to the condition of the Event Location or any other part of Pacific Shores Center or as to its suitability for the Event. Licensee assumes all risk as to same, including, without limitation, the risk of injury and property damage for itself, its officers, employees, agents, contractors, invitees, guests and visitors and Licensee waives all claims against PSI and its Affiliates with respect to same except to the extent caused by the gross negligence or intentional misconduct of PSI or its Affiliates.

11. Attorneys’ Fees. If either party herein brings an action to enforce the terms hereof or to declare rights hereunder, the prevailing party in any such action, on trial or appeal, shall be entitled to recover its reasonable attorneys’ fees, expert witness fees and costs as fixed by Court.

12. Relation to Lease. Money due from Licensee hereunder for any failure to perform its obligations hereto shall be deemed due under the Lease.

13. List of Exhibits.

Exhibit A – Event Location

3

By:	Pacific Shores Mezzanine, LLC,
	a Delaware limited liability company,
	its sole member
	By:	Pacific Shores Junior Mezz, LLC,
		a Delaware limited liability company
		its sole member
		By:	Pacific Shores Junior Mezz Managers, LLC,
			a Delaware limited liability company,
			its sole member
			By:	Pacific Shores Development, LLC,
				a Delaware limited liability company,
				its sole member
				By:	TECHNOLOGY LAND LLC,
					a California limited liability company,
					Operating Member
					By:
						Jay Paul, Sole Managing Member

PDL BIOPHARMA, INC.

a Delaware corporation

By:

Name:

Its:

4

SCHEDULE 2

to

PACIFIC SHORES INVESTORS, LLC

LEASE

to

PDL BIOPHARMA, INC.,

a Delaware corporation

as

LESSEE

for

PREMISES

at

Pacific Shores Center

Building 9

Redwood City, California 94063

[Intentionally Deleted]

SCHEDULE 3

to

PACIFIC SHORES INVESTORS, LLC

LEASE

to

PDL BIOPHARMA, INC.,

a Delaware corporation

as

LESSEE

for

PREMISES

at

Pacific Shores Center

Building 9

Redwood City, California 94063

REMOVAL OBLIGATIONS SCHEDULE

SCHEDULE 4

to

PACIFIC SHORES INVESTORS, LLC

LEASE

to

PDL BIOPHARMA, INC.,

a Delaware corporation

as

LESSEE

for

PREMISES

at

Pacific Shores Center

Building 9

Redwood City, California 94063

PERMITTED HAZARDOUS MATERIALS

SCHEDULE 5

to

PACIFIC SHORES INVESTORS, LLC

LEASE

to

PDL BIOPHARMA, INC.,

a Delaware corporation

as

LESSEE

for

PREMISES

at

Pacific Shores Center

Building 9

Redwood City, California 94063

PDL BioPharma, Inc. List of Plans, Licenses and Permits

Plans	Inspecting Authority	Frequency
Injury Illness Prevention Plan	Cal OSHA	Anytime
Biosafety Plan	“	“
Radiation Safety Plan	“	“
Chemical Hygiene Plan	“	“
Hazard Communication Plan	“	“
Emergency Action Plan
Hazardous Materials Business Plan	Fremont Fire	Annual
AAALAC Accreditation program	AAALAC	Complaint
Licenses
CA – Business License
DHS - Radiation Use License	DHS	Anytime
Permits
Fremont City - Hazardous Materials Permits A/B/D	Fremont Fire	Annual
Alameda County - Medical waste Permits A/B/D	Ala. County	Annual
BAAQMD – Emergency Generator Permits A/B/D	AQMD	Complaint
DEA – Controlled Substances	DEA	Violation

SCHEDULE 6

to

PACIFIC SHORES INVESTORS, LLC

LEASE

to

PDL BIOPHARMA, INC.,

a Delaware corporation

as

LESSEE

for

PREMISES

at

Pacific Shores Center

Building 9

Redwood City, California 94063

FINANCIAL TESTS

In general, financial terms have their GAAP defined meaning. Revenue, EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortization), and Cash and Cash equivalents are to be derived from the financial statements in the Lessee’s most recent 10Q or 10K filings, as appropriate.

Level 1 performance numbers are sufficient to trigger rights of first refusal on buildings 7 and 8, and the right of first offer on building 6 until an additional 285,000 square feet has been leased beyond the space in buildings 9 and 10.

Level 2 performance numbers are sufficient to trigger rights of first refusal on buildings 7 and 8, and the right of first offer on building 6, if more than 285,000 square feet has already been leased beyond the space in buildings 9 and 10, but less than all of the square footage in buildings 6, 7, and 8.

Level 3 performance numbers are required to trigger Lessor’s obligations pursuant to Section 17.27 of the Lease.

Cash and cash equivalents may include marketable securities which can be converted to cash in less than 3 months.

All rights are subject to lender approval independent of the Lessee’s performance level.

	Level 1	Level 2	Level 3
Revenue	At least $100 million in each of the last four quarters	At least $150 million in each of the last four quarters	At least $150 million in each of the last four quarters
EBITDA ratio to Revenue	Ratio of EBITDA to Revenue greater than 0% in each of the last 3 quarters	Ratio of EBITDA to Revenue of at least 3% in each of the last 3 quarters	Ratio of EBITDA to Revenue of at least 5% in each of the last 3 quarters
Cash and Cash Equivalents	At least $250 million for each of the last four quarters.	At least $300 million for each of the last 4 quarters.	At least $500 million for each of last 4 quarters.

EX-10.11

Exhibit 10.11

TRIPLE NET SPACE LEASE

between

PACIFIC SHORES INVESTORS LLC,

as

LESSOR

and

PDL BIOPHARMA, INC.,

a Delaware corporation

as

LESSEE

for

PREMISES

at

Pacific Shores Center

BUILDING 10

1500 SEAPORT BOULEVARD

REDWOOD CITY, CALIFORNIA 94063

TABLE OF CONTENTS

			Page(s)
ARTICLE I PARTIES			1
	Section 1.01	Parties	1
ARTICLE II PREMISES			1
	Section 2.01	Demise of Premises	1
	Section 2.02	Common Area	1
	Section 2.03	Parking	2
	Section 2.04	Athletic Facility	2
ARTICLE III TERM			3
	Section 3.01	Lease Term	3
	Section 3.02	Early Entry	3
	Section 3.03	Option to Extend	4
ARTICLE IV RENT: TRIPLE NET LEASE			6
	Section 4.01	Base Rent	6
	Section 4.02	Rent Adjustment	6
	Section 4.03	First Payment of Rent	6
	Section 4.04	Absolute Triple Net Lease	7
	Section 4.05	Additional Rent	7
	Section 4.06	Letter of Credit	7
	Section 4.07	Operating Expenses	10
	Section 4.08	Lessee’s Right to Review Supporting Data	13

ARTICLE V USE			15
	Section 5.01	Permitted Use and Limitations on Use	15
	Section 5.02	Compliance with Laws	16
	Section 5.03	Condition of Premises at Delivery Date	16
	Section 5.04	Defective Condition at Delivery Date	17
	Section 5.05	Building Security	17
	Section 5.06	Rules and Regulations	17
ARTICLE VI MAINTENANCE, REPAIRS AND ALTERATIONS			18
	Section 6.01	Maintenance of Premises and Building	18
	Section 6.02	Maintenance of Project Common Areas	19
	Section 6.03	Alterations, Additions and Improvements	20
	Section 6.04	Covenant Against Liens	21
ARTICLE VII INSURANCE			22
	Section 7.01	Property/Rental Insurance for Premises	22
	Section 7.02	Property Insurance for Fixtures and Inventory	22
	Section 7.03	Lessor’s Liability Insurance	22
	Section 7.04	Liability Insurance Carried by Lessee	23
	Section 7.05	Proof of Insurance	23
	Section 7.06	Mutual Waiver of Claims and Subrogation Rights	23
	Section 7.07	Indemnification and Exculpation	24
	Section 7.08	Lessor as Party Defendant	24
ARTICLE VIII DAMAGE OR DESTRUCTION			25
	Section 8.01	Destruction of the Premises	25

	Section 8.02	Waiver of Civil Code Remedies	26
	Section 8.03	Damages Incurred during Repair	26
	Section 8.04	No Liability for Lessee’s Alterations or Personal Property	26
ARTICLE IX REAL PROPERTY TAXES			26
	Section 9.01	Payment of Taxes	26
	Section 9.02	Pro Ration for Partial Years	28
	Section 9.03	Personal Property Taxes	28
	Section 9.04	Right to Contest Real Property Taxes	28
ARTICLE X UTILITIES			28
	Section 10.01	Lessee to Pay	28
ARTICLE XI ASSIGNMENT AND SUBLETTING			29
	Section 11.01	Lessor’s Consent Required	29
	Section 11.02	Lessee Affiliates	29
	Section 11.03	No Release of Lessee	30
	Section 11.04	Excess Rent	30
	Section 11.05	Information to be Provided	30
	Section 11.06	Lessor’s Recapture Rights	31
ARTICLE XII DEFAULTS; REMEDIES			32
	Section 12.01	Defaults	32
	Section 12.02	Remedies	33
	Section 12.03	Default by Lessor	34
	Section 12.04	Late Charges	34
	Section 12.05	Lessor’s Right to Perform Lessee’s Obligations	35

ARTICLE XIII CONDEMNATION OF PREMISES			35
	Section 13.01	Total Condemnation	35
	Section 13.02	Partial Condemnation	35
	Section 13.03	Award to Lessee	36
ARTICLE XIV ENTRY BY LESSOR			36
	Section 14.01	Entry by Lessor Permitted	36
ARTICLE XV ESTOPPEL CERTIFICATE			37
	Section 15.01	Estoppel Certificate	37
ARTICLE XVI LESSOR’S LIABILITY			37
	Section 16.01	Limitations on Lessor’s Liability	37
ARTICLE XVII GENERAL PROVISIONS			38
	Section 17.01	Severability	38
	Section 17.02	Agreed Rate Interest on Past Due Obligations	38
	Section 17.03	Time of Essence	38
	Section 17.04	Additional Rent	38
	Section 17.05	Incorporation of Prior Agreements, Amendments and Exhibits	39
	Section 17.06	Notices	39
	Section 17.07	Waivers	40
	Section 17.08	Recording	40
	Section 17.09	Surrender of Possession; Holding Over	40
	Section 17.10	Cumulative Remedies	42
	Section 17.11	Covenants and Conditions	42
	Section 17.12	Binding Effect; Choice of Law	42

Section 17.13	Lease to be Subordinate	43
Section 17.14	Attorneys’ Fees	43
Section 17.15	Signs	43
Section 17.16	Merger	44
Section 17.17	Quiet Possession	44
Section 17.18	Easements	44
Section 17.19	Authority	44
Section 17.20	Force Majeure Delays	44
Section 17.21	Hazardous Materials	45
Section 17.22	Modifications Required by Lessor’s Lender	48
Section 17.23	Brokers	48
Section 17.24	Acknowledgment of Notices	49
Section 17.25	Right of First Offer	49
Section 17.26	Right of First Refusal	51
Section 17.27	Lessee’s Expansion Right	52
Section 17.28	Notification of Intention to Market	53
Section 17.29	List of Lease Expiration Dates	53
Section 17.30	[Intentionally omitted.]	53
Section 17.31	Condition Subsequent	53
Section 17.32	List of Exhibits	54

ARTICLE I

PARTIES

Section 1.01 Parties

This Lease, dated for reference purposes, and effective as of July 6, 2006, is made by and between PACIFIC SHORES INVESTORS LLC (“Lessor”) and PDL BIOPHARMA, INC., a Delaware corporation (“Lessee”).

ARTICLE II

PREMISES

Section 2.01 Demise of Premises

Lessor hereby leases to Lessee and Lessee leases from Lessor for the Lease Term, at the rental, and upon all of the terms and conditions set forth herein, certain space consisting of the entire one hundred sixty-four thousand seven hundred thirty-two (164,732) rentable square foot building sometimes known as “Building 10” and commonly known as 1500 Seaport Boulevard, Redwood City, California 94063 (“Building 10”), which is one of ten free standing, office and research and development Project Buildings (“Project Buildings”) on real property situated in Redwood City, County of San Mateo, State of California and commonly known as Pacific Shores Center. The Premises are more particularly described and depicted herein in Exhibit “A.” The rentable square footage of the Premises, Building 10 and other Project Buildings (the “Rentable Area”) has been determined and certified by Lessor’s architect by a method described as “dripline,” whereby the measurement encompasses the outermost perimeter of the constructed building, including every projection thereof and all area beneath each such projection, whether or not enclosed, with no deduction for any inward deviation of structure and with the measurement being made floor by floor, but beginning from the top of Building 10. The Premises, the Project Buildings and appurtenances described herein, including Common Area (defined below), and all other improvements at Pacific Shores Center together with the land on which the same are located are together designated as the project (“Project”). Lessor and Lessee acknowledge that Lessor, as landlord, and Lessee, as tenant, are also parties to that certain Triple Net Space Lease of even date herewith (the “Building 9 Lease”) whereby Lessor leases to Lessee, and Lessee leased from Lessor, Building 9 (“Building 9”) in the Project.

Section 2.02 Common Area

As of the Delivery Date (as defined in Section 3.02 below), and thereafter, during the Lease Term, Lessee shall have the non-exclusive right to use the Common Area defined herein, including but not limited to the Athletic Facility. Lessor reserves the right to modify the Common Area, including increasing or reducing the size, adding additional Project Buildings, structures or other improvements or changing the use, configuration and elements thereof in its sole discretion and to close or restrict access from time to time for repair, maintenance or construction or to prevent a dedication thereof, provided that Lessee nonetheless (i) shall have reasonable access to parking and the Premises during such activities; and (ii) such modifications, when completed, shall not unreasonably interfere with or restrict Lessee’s possession and use of the Premises. Lessor further reserves the right to establish, repeal and amend from time to time

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non-discriminatory rules and regulations for the use of the Common Area and to grant reciprocal easements or other rights to use the Common Area to owners of other property provided that no amendment to the rules and regulations shall unreasonably interfere with or restrict Lessee’s use of the Premises or the Common Area. “Common Area” means all portions of the Project other than the Project Buildings, including landscaping, sidewalks, walkways, driveways, curbs, parking lots (including striping), roadways within the Project, sprinkler systems, lighting, surface water drainage systems, an athletic facility to be available for use by Lessee’s employees (the “Athletic Facility”), as well as baseball and soccer fields, a water front park, and a perimeter walking/biking trial, and additional or different facilities as Lessor may from time to time designate or install or make available for the use by Lessee in common with others. Lessee’s use of the Common Areas shall be subject to any easements affecting the Project as of the date of this Lease. Notwithstanding anything herein to the contrary, Lessee may, following the Delivery Date but prior to the Commencement Date, use a portion of the Common Areas to be agreed upon by Lessor and Lessee for the use of a construction trailer and a construction staging and lay-down area in connection with the installation of the Tenant Improvements in the Premises, provided that Lessee’s use of such activities shall be subject to any reasonable rules and regulations therefor promulgated by Lessor. In addition, subject to the rights of the other tenants or users of the Project and the need for Lessee to execute a license agreement therefor in the form attached hereto as Schedule 1, Lessee shall have the right to use portions of the Common Areas for the hosting of outdoor meetings, which meetings may include the use of tents and the catering and/or barbeque of food for such meetings. The location, time and manner of such meetings shall be subject to the prior written consent of Lessor, which consent shall not be unreasonably withheld.

Section 2.03 Parking

Lessor shall provide Lessee with three (3) parking spaces per one thousand (1,000) square feet of area within the Premises, minus any parking spaces eliminated due to the presence of the Yard Area described in Section 2.05 below. In the event Lessor elects or is required by any law to limit or control parking at the Premises, whether by validation of parking tickets or any other method of assessment, Lessee agrees to participate in such validation or assessment program under such reasonable rules and regulations as are from time to time established by Lessor. Lessor agrees that Lessee’s access to parking shall not be unreasonably limited beyond any requirement of law by any such rules and regulations. Parking shall be free of charge throughout the Lease Term (including any extensions thereof) except as provided for in Article VI (i.e., Operating Expenses payable hereunder) for reimbursement of repair, replacement and maintenance costs and expenses, and in Article IX for payment or reimbursement of any real property taxes including governmental or public authority charges, fees or impositions of any nature hereafter imposed, except as otherwise provided herein. Nothing herein shall prevent Lessee from allowing two (2) company vans, along with up to ten (10) cars of employees of Lessee on an occasional basis, to remain in the parking spaces for the Premises on an overnight basis.

Section 2.04 Athletic Facility

Lessee and its employees shall have access to the thirty-eight thousand (38,000) square foot Athletic Facility and all of the amenities thereof at no additional cost to Lessee or its employees, except that Lessee acknowledges that the cost of operating and maintaining the Athletic Facility will be an Operating Expense as described in Section 4.07 below.

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Section 2.05 Yard Area

During the Lease Term and any extensions thereof Lessee shall have the exclusive right to use that portion of the Project immediately adjacent to Building 10 and more particularly shown on Schedule 2 attached hereto (the “Yard Area”) for truck and loading access to Building 10, and for the installation and use of chillers and cooling towers, boilers, an emergency generator, liquid oxygen O2, a LN2 tank and evaporator, a liquid CO2 tank, wastewater holding tank/pit, a Hazardous Materials storage area, compressed dry air skid and vacuum pumps, provided that all such items are installed in accordance with the terms of Section 6.03 and used in accordance with all of the terms of this Lease and relevant laws, including Environmental Laws. At Lessor’s request, Lessee shall, at Lessee’s sole expense, install Project standard screening for the Yard Area as designated by Lessor’s architect. Lessee shall be solely responsible for maintaining and repairing the Yard Area and all of the improvements therein. Lessee shall obey any rules and regulations reasonably promulgated by Lessor in connection with Lessee’s use of the Yard Area Lessor and Lessee acknowledge and agree that the Yard Area will be located in an area that otherwise would have consisted of seventeen (17) parking spaces for Lessee, and Lessee agrees to the elimination of such parking spaces without compensation or other provision to Lessee.

ARTICLE III

TERM

Section 3.01 Lease Term

The term of this Lease (“Lease Term”) shall be for fifteen (15) years, beginning on January 1, 2007 (the “Commencement Date”) and expiring, unless sooner terminated as provided for herein, on December 31, 2021 (“Expiration Date”). The parties shall execute a “Memorandum of Commencement of Lease Term” on the Commencement Date which shall be substantially in the form attached hereto as Exhibit “B”.

Section 3.02 Early Entry

Notwithstanding anything herein to the contrary, as of October 1, 2006 (the “Delivery Date”), provided that Lessee has delivered to Lessor: (1) the first month’s Rent, (2) certificates evidencing the insurance described in Article VII below, (3) the Letter of Credit Security pursuant to Section 4.06 below, and (4) any items required as of such time pursuant to the Work Letter Agreement attached hereto as Exhibit E (the “Work Letter”) between Lessor and Lessee, Lessee and Lessee’s invitees may enter the Premises to the extent reasonably necessary, at Lessee’s sole risk, for the sole purpose of installation of Lessee’s improvements, alterations, furniture, trade fixtures, equipment, telecommunications systems and other equipment thereon. Prior to the Delivery Date, Lessee shall have no right of possession or occupancy of the Premises, and Lessor reserves the right to make any use of the Premises that is not inconsistent with Lessor’s obligation to deliver the Premises to Lessee as of the Delivery Date. Lessee’s occupancy of the Premises following the Delivery Date but prior to the

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Commencement Date shall be on all of the terms and conditions of this Lease, except the obligation to pay Base Rent or as is otherwise provided for in this Section 3.02. During any time period prior to the Commencement Date that Lessee is occupying or performing work in the Premises but is not conducting Lessee’s business therein (exclusive of systems testing), Lessee shall be required to pay any utilities or other costs incurred during such period in the operation of Building 10. During any time period prior to the Commencement Date that Lessee is occupying the Premises in order to conduct its business therein, in addition to such expenses described in the preceding sentence, Lessee shall also pay all of the Operating Expenses and other Additional Rent for the Project which would have been due under this Lease as if the Commencement Date had occurred..

Section 3.03. Option to Extend.

(a) Exercise. Subject to the “Conditions to Extend” described in Section 3.03(d) below, Lessee is given two (2) options to extend the Lease Term (each, an “Option to Extend”) with respect to Building 10 for periods of five (5) years each (each, an “Extended Term”) following the date on which the initial Lease Term (or, in the case of the second Extended Term, the first Extended Term) would otherwise expire, which option may be exercised only by written notice (“Option Notice”) from Lessee to Lessor given not less than twelve (12) months nor more than fifteen (15) months prior to the end of the initial Lease Term or the first Extended Term, as relevant (“Option Exercise Date”).

(b) Extended Term Rent. In the event Lessee exercises any Option to Extend set forth herein, all the terms and conditions of this Lease shall continue to apply except that Lessee shall no longer have the future right to exercise the Option to Extend in question and the Base Rent payable by Lessee during the Extended Term shall be determined in the following manner. If Lessee exercises Lessee’s Option to Extend the Building 9 Lease at the same time as Lessee exercises Lessee’s Option to Extend hereunder, then the Base Rent due hereunder during such Extended Term shall be equal, on a per square foot basis, to the base rent due under the Building 9 Lease. If Lessee exercises Lessee’s Option to Extend hereunder, but does not exercise Lessee’s Option to Extend the Building 9 Lease, then the Base Rent due hereunder during such Extended Term shall be equal to the greater of (i) ninety-five percent (95%) of Fair Market Rent (defined below), as determined under subparagraph (c) below, or (ii) the monthly Base Rent paid by Lessee during the last year of the initial Lease Term or the first Extended Term, as relevant. “Fair Market Rent” shall mean the effective rate being charged (including periodic adjustments thereto as applicable during the period of the Extended Term, to the extent such adjustments are determined to be part of the Fair Market Rent), for space comparable to the space and level of tenant improvements in Building 9 in similar buildings in the vicinity, i.e. of a similar age and quality as Building 9, considering any recent renovations or modernization, and floor plate size or, if such comparable space is not available, adjustments shall be made in the determination of Fair Market Rent to reflect the age and quality of Building 9 and Premises as contrasted to other buildings used for comparison purposes, with similar amenities, taking into consideration: size, location, floor level, leasehold improvements or allowances provided or to be provided, term of the lease, extent of services to be provided, the time that the particular rate under consideration became or is to become effective, and any other relevant terms or conditions applicable to tenants.

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(c) Determination of Fair Market Rent.

(i) Negotiation. If Lessee so exercises the Option to Extend in a timely manner, the parties shall then meet in good faith to negotiate the Base Rent for the Premises for the Extended Term during the first thirty (30) days after the date of the delivery by Lessee of the Option Notice (the “Negotiation Period”). If, during the Negotiation Period, the parties agree on the Base Rent applicable to the Premises for the Extended Term, then such agreed amount shall be the Base Rent payable by Lessee during the Extended Term.

(ii) Arbitration. In the event that the parties are unable to agree on the Base Rent for the Premises within the Negotiation Period, then within ten (10) days after the expiration of the Negotiation Period, each party shall separately designate to the other in writing an appraiser to make this determination. Each appraiser designated shall be a member of MAI and shall have at least ten (10) years experience in appraising commercial real property in Santa Clara County. The failure of either party to appoint an appraiser within the time allowed shall be deemed equivalent to appointing the appraiser appointed by the other party, who shall then determine the Fair Market Rent for the Premises for the Extended Term. Within five (5) business days of their appointment, the two designated appraisers shall jointly designate a third similarly qualified appraiser. Within thirty (30) days after their appointment, each of the two appointed appraisers shall submit to the third appraiser a sealed envelope containing such appointed appraiser’s good faith determination of the Fair Market Rent for the Premises for the Extended Term; concurrently with such delivery, each such appraiser shall deliver a copy of his or her determination to the other appraiser. The third appraiser shall within ten (10) days following receipt of such submissions, then determine which of the two appraisers’ determinations most closely reflects Fair Market Rent, as defined in Section 3.03(b) of this Lease. The determination most closely reflecting the third appraiser’s determination shall be deemed to be the Fair Market Rent for the Premises during the Extended Term; the third appraiser shall have no rights to adjust, amend or otherwise alter the determinations made by the appraisers selected by the parties, but must select one or the other of such appraisers’ submissions. The determination by such third appraiser shall be final and binding upon the parties. Said third appraiser shall, upon selecting the determination which most closely resembles Fair Market Rent, concurrently notify both parties hereto. The parties shall share the appraisal expenses equally. If the Extended Term begins prior to the determination of Fair Market Rent, Lessee shall pay monthly installments of Base Rent equal to one hundred three and one half percent (103.5%) of the monthly installment of Base Rent in effect for the last year of the initial Lease Term or the first Extended Term, as relevant (in lieu of “holdover rent” payable under Section 17.09(b)). Once a determination is made, any over payment or under payment shall be reimbursed as a credit against, or paid by adding to, the monthly installment of Base Rent next falling due.

(d) Conditions to Extend. Notwithstanding anything herein to the contrary, Lessee shall have no right to exercise Lessee’s Option to Extend hereunder, and any Option Notice delivered by Lessee shall be void and invalid if at the time Lessee delivers such notice any of the following conditions (collectively, the “Conditions to Extend”) are not satisfied both at the time such Option Notice is delivered and at the time the Extended Term in question is to commence: (i) Lessee has not assigned this Lease or the Building 9 Lease to any party other than an Affiliate (as defined in Section 11.02), during any time in which Lessor or any affiliate

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thereof owns Building 9 and the Building 9 Lease is in effect (ii) Lessee has not sublet more than fifty percent (50%) of the Premises to anyone other than an Affiliate, (iii) Lessee physically occupies at least fifty percent (50%) of the Premises, (iv) Lessor has delivered a written notice of default under this Lease or the Building 9 Lease and the default specified therein has not yet been cured, and (v) Lessor has not delivered a written notice to Lessee that Lessee has committed a monetary default under this Lease more than three (3) times during the Lease Term and delivered a written notice to Lessee that Lessee has committed a non-monetary default under this Lease more than one (1) time during the Lease Term.

ARTICLE IV

RENT: TRIPLE NET LEASE

Section 4.01 Base Rent

Lessee shall pay to Lessor monthly Base Rent, in advance, on the first day of each calendar month of the Lease Term, commencing on the Commencement Date, in the initial amount of Two Hundred Seventy-One Thousand Eight Hundred Seven and 80/100 Dollars ($271,807.80) per month; but subject to increase pursuant to the terms of Section 4.02 below. Base Rent for any period during the Lease Term which is for less than one month shall be a pro rata portion of the monthly installment (based on the actual days in that month).

Section 4.02 Rent Adjustment

The Base Rent set forth in Section 4.01 above shall be adjusted upward at the following times and to the following amounts:

Months	Monthly Base Rent
13-24	$	281,321.07
25-36	$	291,167.31
37-48	$	301,358.17
49-60	$	311,905.70
61-72	$	322,822.40
73-84	$	334,121.19
85-90	$	345,815.43

As of the ninety-first (91st) month of the Lease Term, the Base Rent due hereunder shall adjust to the higher of: (i) Three Hundred Forty-Five Thousand Eight Hundred Fifteen and 43/100 Dollars ($345,815.43), or (ii) one hundred percent (100%) of the then existing Fair Market Rent (as determined pursuant to Sections 3.03(b) and (c)), but in no event higher than Four Hundred Thirty-Six Thousand Five Hundred Thirty-Nine and 80/100 ($436,539.80). Thereafter, the Base Rent due hereunder shall increase by escalations as determined in the Fair Market Rent determination, effective as of each subsequent anniversary of the Commencement Date.

Section 4.03 First Payment of Rent

Lessee shall pay in advance the first payment of Base Rent (for the first month of the Lease Term) in the amount of Two Hundred Seventy-One Thousand Eight Hundred Seven

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and 80/100 Dollars ($271,807.80), together with Lessee’s Share of Additional Rent due hereunder for the first month of the Lease Term, within three (3) business days after the execution of this Lease.

Section 4.04 Absolute Triple Net Lease

This Lease is what is commonly called a “Absolute Triple Net Lease,” it being understood that Lessor shall receive the Base Rent set forth in Section 4.01 free and clear of any and all expenses, costs, impositions, taxes, assessments, liens or charges of any nature whatsoever. Lessee shall pay all rent in lawful money of the United States of America to Lessor at the notice address stated herein or to such other persons or at such other places as Lessor may designate in writing not later than ten (10) days before the due date specified for same without prior demand, set-off or deduction of any nature whatsoever. It is the intention of the parties hereto that this Lease shall not be terminable for any reason by Lessee and that Lessee shall in no event be entitled to any abatement of or reduction in rent payable under this Lease, except as herein expressly provided in Articles VIII and XIII. Any present or future law to the contrary shall not alter this agreement of the parties.

Section 4.05 Additional Rent

In addition to the Base Rent reserved by Section 4.01, Lessee shall pay, beginning on the Commencement Date (or any earlier date required pursuant to Section 3.02 above) and continuing throughout the Lease Term as Additional Rent (i) 100% of amounts applicable solely to the Premises, and Lessee’s Share (as defined in Section 4.07(c) below) of amounts applicable to Building 10, the Project and the Common Area of all taxes, assessments, fees and other impositions payable by Lessee in accordance with the provisions of Article IX and insurance premiums in accordance with the provisions of Article VII, (ii) Lessee’s Share of Operating Expenses (as defined below), and (iii) any other applicable charges, costs and expenses whether or not contemplated which may arise under any provision of this Lease during the Lease Term, as the same may be extended, plus a Management Fee to Lessor equal to two percent (2%) of the Base Rent. The Management Fee is due and payable, in advance, with each installment of Base Rent. All of such charges, costs, expenses, Management Fee and all other amounts payable by Lessee hereunder, shall constitute Additional Rent, and upon the failure of Lessee to pay any of such charges, costs or expenses, Lessor shall have the same rights and remedies as otherwise provided in this Lease for the failure of Lessee to pay Base Rent.

Section 4.06 Letter of Credit

(a) Deposit of Letter of Credit Security

Lessee shall deposit with Lessor, not later than three (3) business days after the execution of this Lease, an unconditional, irrevocable letter of credit (“Letter of Credit”) on a form acceptable to Lessor and, if required, Lessor’s lender(s), and in favor of Beneficiary (as defined below) in the amount of One Million Five Hundred Thousand and 00/100 Dollars ($1,500,000.00) (the “Letter of Credit Security”). “Beneficiary,” as used herein refers to either: (x) Lessor as beneficiary, or (y) if required by Lessor’s lender(s), Lessor and Lessor’s lender(s) as co-beneficiaries under the Letter of Credit Security. The Letter of Credit Security shall: (i) be

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issued by a commercial money center bank reasonably satisfactory to Lessor with retail branches in San Francisco, California (the “Issuer”); (ii) be a standby, at-sight, irrevocable letter of credit; (iii) be payable to Beneficiary; (iv) permit multiple, partial draws, (v) provide that any draw on the Letter of Credit Security shall be made upon receipt by the Issuer of a sight draft accompanied by a letter from Lessor stating that Lessor is entitled, pursuant to the provisions of this Lease, to draw on the Letter of Credit Security in the amount of such draw; (vi) provide for automatic annual extensions, without amendment (so-called “evergreen” provision) with a final expiry date no sooner than ninety (90) days after the end of the Lease Term; (vii) provide that it is governed by the Uniform Customs and Practice for Documentary Credits (1993 revisions) International Chamber of Commerce Publication 500; and (viii) be cancelable if, and only if, Issuer delivers to Beneficiary no less than sixty (60) days advance written notice of Issuer’s intent to cancel. Lessee shall pay all costs, expenses, points and/or fees incurred by Lessee in obtaining the Letter of Credit Security.

(b) Lessor’s Right to Draw on Letter of Credit Security

The Letter of Credit Security shall be held by Lessor as security for the faithful performance by Lessee of all of the terms, covenants, and conditions of this Lease and, so long as Lessor or an affiliate thereof is the lessor under the Building 9 Lease and the Building 9 Lease is in effect, all of the terms, covenants and conditions of the Building 9 Lease, applicable to Lessee. Lessor shall have the immediate right to draw upon the Letter of Credit Security, in whole or in part and without prior notice to Lessee, other than as required under this Lease, at any time and from time to time: (i) if an Event of Lessee’s Default occurs under this Lease or, if Lessor or an affiliate thereof is the lessor under the Building 9 Lease and the Building 9 Lease is in effect, the Building 9 Lease (beyond any applicable notice and cure period), or (ii) Lessee either files a voluntary bankruptcy petition or an involuntary bankruptcy petition is filed against Lessee by an entity or entities other than Lessor, under 11 U.S.C. §101 et seq., or Lessee executes an assignment for the benefit of creditors. No condition or term of this Lease shall be deemed to render the Letter of Credit Security conditional, thereby justifying the Issuer of the Letter of Credit Security in failing to honor a drawing upon such Letter of Credit Security in a timely manner. The Letter of Credit Security and its proceeds shall constitute Lessor’s sole and separate property (and not Lessee’s property or, in the event of a bankruptcy filing by or against Lessee, property of Lessee’s bankruptcy estate) and Lessor may immediately upon any draw (and without notice to Lessee) apply or offset the proceeds of the Letter of Credit Security against: (A) any amounts payable by Lessee under the Lease that are not paid when due, after the expiration of any applicable notice and cure period; (B) all losses and damages that Lessor has suffered or may reasonably estimate that it may suffer as a result of an Event of Lessee’s Default under this Lease or the Building 9 Lease, including any damages arising under Section 1951.2 of the California Civil Code for rent due following termination of this Lease; (C) any costs incurred by Lessor in connection an Event of Lessee’s Default under this Lease (including attorney’s fees); and (D) any other amount that Lessor may spend or become obligated to spend by reason of an Event of Lessee’s Default under this Lease or the Building 9 Lease but in no event in excess of amounts to which the Lessor would be entitled under the law. If any portion of the Letter of Credit Security is so drawn upon or applied, Lessee shall, within five (5) business days after written demand therefore, deposit cash with Issuer in an amount sufficient to restore the Letter of Credit Security to its original amount. Tenant’s failure to do so shall be a Default by Lessee. It is expressly understood that Lessor shall be relying on Issuer rather than Lessee for

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the timely payment of proceeds under the Letter of Credit Security and the rights of Lessor pursuant to this Section are in addition to any rights which Lessor may have against Lessee pursuant to Article XII below.  Lessor shall not be required to keep the proceeds from the Letter of Credit Security separate from Lessor’s general funds nor be deemed a trustee of same.

(c) Replacement Letter of Credit Security

If, for any reason whatsoever, the Letter of Credit Security becomes subject to cancellation or expiration during the Lease Term, within forty-five (45) days prior to expiration of the Letter of Credit Security, Lessee shall cause the Issuer or another bank satisfying the conditions of Section 4.06(a) above to issue and deliver to Lessor a Letter of Credit Security to replace the expiring Letter of Credit Security (the “Replacement Letter of Credit Security”). The Replacement Letter of Credit Security shall be in the same amount as the original Letter of Credit Security (or such reduced amount as provided by the terms of Section 4.06(g) of this Lease) and shall be on the terms and conditions set forth in items (A) through (D) above. Failure of Lessee to cause the Replacement Letter of Credit Security to be issued forty-five (45) days prior to the then pending expiration or cancellation shall entitle Lessor to fully draw down on the existing Letter of Credit Security and, at Lessor’s election, shall be an event of default under this Lease and/or the Building 9 Lease without any relevant notice and cure period.

(d) Transfer of Beneficiary

During the Lease Term Lessor may transfer its interest in the Lease or Lessor’s lender may change. Lessor may request a change to Beneficiary under the Letter of Credit Security to the successor of Lessor and/or Lessor’s lender (the “Transferee”). Lessee agrees to cooperate and to cause Issuer, at Lessor’s cost, to timely issue a new Letter of Credit Security on the same terms and conditions as the original Letter of Credit Security, except that the new Letter of Credit Security shall be payable to the Transferee. Lessor shall surrender the existing Letter of Credit Security to Lessee simultaneously with Lessee’s delivery of the new Letter of Credit Security to Transferee.

(e) Return of the Letter of Credit Security

If Lessee fully and faithfully performs every provision of this Lease to be performed by it, the Letter of Credit Security or any balance thereof shall be returned (without interest) to Lessee (or, at Lessee’s option, to the last assignee of Lessee’s interests hereunder) within thirty (30) days after the expiration or earlier termination of the Lease and after Lessee has vacated the Premises and surrendered possession; provided that if prior to the Lease Expiration Date a voluntary bankruptcy provision is filed by Lessee, or an involuntary bankruptcy is filed against Lessee by any of Lessee’s creditors other than Lessor, under 11 U.S.C. § 101 et seq., or Lessee executes an assignment for the benefit of creditors, then to the fullest extent permitted by law Lessor shall not be obligated to return the Letter of Credit Security or any proceeds of the Letter of Credit Security until all statutes of limitations for any preference avoidance statutes applicable to such bankruptcy or assignment for the benefit of creditors have elapsed or the bankruptcy court or assignee, whichever is applicable, has executed a binding release releasing Lessor of any and all liability for the preferential transfers relating to payments made under this Lease, and Lessor may retain and offset against any remaining Letter

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of Credit Security proceeds the full amount Lessor is required to pay to any third party on account of preferential transfers relating to this Lease. Lessor agrees it will cooperate in providing Issuer with a letter of cancellation or such other reasonable documentation as Issuer requests to effect the return and extinguishment of the credit issued under the Letter of Credit Security.

(f) Acknowledgment of Parties

Lessor and Lessee (a) acknowledge and agree that in no event or circumstance shall the Letter of Credit Security or any renewal thereof or substitute therefor or any proceeds thereof be deemed to be or treated as a “security deposit” under any law applicable to security deposits in the commercial context, including, but not limited to Section 1950.7 of the California Civil Code, as such Section now exists or as it may be hereafter amended or succeeded (the “Security Deposit Laws”), (b) acknowledge and agree that the Letter of Credit Security (including any renewal thereof or substitute therefor or any proceeds thereof) is not intended to serve as a security deposit, and the Security Deposit Laws shall have no applicability or relevancy thereto, and (c) waive any and all rights, duties and obligations that any such party may now, or in the future will, have relating to or arising from the Security Deposit Laws. Lessee hereby waives the provisions of Section 1950.7 of the California Civil Code and all other provisions of law, now or hereafter in effect, which (i) establish the time frame by which a Lessor must refund a security deposit under a lease, and/or (ii) provide that a Lessor may claim from a security deposit only those sums reasonably necessary to remedy defaults in the payment of rent, to repair damage caused by a Lessee or to clean the premises, it being agreed that Lessor may, in addition, claim those sums specified in this Section 4.06 and/or those sums reasonably necessary to compensate Lessor for any loss or damage caused by Lessee’s breach of this Lease, including any damages Lessor suffers.

(g) Scheduled Reduction in Letter of Credit Security. Notwithstanding anything herein to the contrary, as of the eighth (8th) anniversary of the Commencement Date, the amount of the Letter of Credit Security shall be reduced to Seven Hundred Fifty Thousand Dollars ($750,000), provided that (i) at such time Lessor has not delivered a written notice of default by Lessee hereunder and such default has not yet been cured, and (ii) Lessor has not delivered to Lessee written notice that Lessee is in monetary default hereunder more than three (3) times and written notice that Lessee is in non-monetary default more than one (1) time during the Lease Term.

Section 4.07 Operating Expenses

(a) Definition

“Operating Expenses” shall mean and include those actual costs or expenses of the Premises, Building 10 or Project described in Articles VI, VII or IX, as well as all actual costs and expenses of every kind and nature paid or incurred by Lessor (whether obligated to do so or undertaken at Lessor’s discretion) in the ownership, operation, maintenance, repair and replacement of the Common Areas, including Common Area Project Buildings and improvements located within the Project as well as the Common Areas of Building 10. Such cost and expenses shall include, but not be limited to, costs of cleaning;

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lighting; maintaining, repairing and replacing all Common Area improvements and elements (replacing shall be deemed to include but not be limited to the replacement of light poles and fixtures, storm and sanitary sewers, parking lots, driveways and roads as well as the Building 10 elevators, stairways, floors and walls in the Common Area and Building 10, but not the Building 10 elements which are the responsibility of Lessor to maintain, repair and replace under this Lease), repairs to and maintenance of the structural and non-structural portions of the Athletic Facility; supplies, tools, equipment and materials used in the operation and maintenance of the Project; parking lot striping; removal of trash, rubbish, garbage and other refuse; painting; removal of graffiti; painting of exterior walls; landscaping; providing security to the extent Lessor determines in its sole discretion to do so (including security systems and/or systems designed to safeguard life or property against acts of God and/or criminal and/or negligent acts, and the costs of maintaining of same); personal property taxes; fire protection and fire hydrant charges (including fire protection system signaling devices, now or hereafter required, and the costs of maintaining of same); water and sewer charges; utility charges; license and permit fees necessary to operate and maintain the Project; the initial cost or the reasonable depreciation of equipment used solely in operating and maintaining the Common Areas which is expensed or amortized, respectively by Lessor in its good faith discretion using accounting practices commonly utilized in the commercial real estate industry, consistently applied and rent paid for leasing any such equipment; reasonable cost of on or off site storage space of any and all items used in conjunction with the operation, maintenance and management of the Project, including but not limited to tools, machinery, records, decorations, tables, benches, supplies and meters; the cost of and installation cost of any and all items which are installed for the purpose of reducing Operating Expenses, increasing building or public safety or which may be then required by governmental authority, laws, statutes, ordinances and/or regulations, a use privilege for the Athletic Facility equal to: (A) the product of 3,744 (Lessee’s Share of the Athletic Facility Square Footage) times the monthly Base Rent per square foot then due hereunder, plus (B) Lessee’s Share of the costs and expenses arising from the operation of same; total compensation and benefits (including premiums for workers’ compensation and other insurance) paid to or on behalf of Lessor’s employees, agents, consultants and contractors, including but not limited to full or part time on-site management or maintenance personnel, however, excluding any person with a title greater than property manager, for work performed at the Project.

Notwithstanding the above, if Lessee’s Share of the cost of any particular capital expenditure to the Project or Premises exceeds Fifty Thousand Dollars ($50,000), then such cost, together with interest thereon at the rate actually charged Lessor by any lender or, if no such interest is relevant, with interest thereon at an interest rate equal to the Bank of America prime rate plus two percent (2%), shall be amortized over its useful life, and the amount includible in Operating Expenses shall be limited to the monthly amortized cost thereof. The determination of what constitutes a capital expenditure and the useful life applicable thereto shall be made by Lessor in its good faith discretion using accounting practices commonly utilized in the commercial real estate industry, consistently applied

(b) Payment

Lessee shall pay Lessee’s Share of Operating Expenses, as Additional Rent, in monthly installments on the first day of each month in an amount set forth in a written estimate by Lessor. Within ninety (90) days after the end of each calendar year, Lessor shall

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furnish to Lessee a statement (hereinafter referred to as “Lessor’s Statement”) of the actual amount of Lessee’s Share of such Operating Expenses for such period. Within thirty (30) days after receipt thereof, Lessee shall pay to Lessor, as Additional Rent, or Lessor shall apply as a credit to Additional Rent next falling due (or if the Lease Term has expired or terminated and there remains no money due to Lessor, remit to Lessee), as the case may be, the difference between the estimated amounts paid by Lessee and the actual amount of Lessee’s Share of Operating Expenses for such period as shown by such Lessor’s Statement. Lessee’s Share of Operating Expenses for the ensuing estimation period shall be adjusted upward or downward based upon Lessor’s Statement.

(c) Lessee’s Share

For purposes hereof, “Lessee’s Share” shall mean (i) as to amounts allocable solely to Building 10 (and with respect to real property tax, also to the legal parcel in which Building 10 is located), one hundred percent (100%), and (ii) as to amounts allocable to the Project or Project Common Area, the Rentable Area of the Premises divided by the Rentable Area of all Project Buildings at the Project (irrespective of whether they are rented). Subject to being increased or decreased (in an amount Lessor shall, in good faith, determine), upon the increase or reduction in the Rentable Area of the Premises and the Project, respectively, Lessee’s Share for each of the Building 10 items shall be 100% and Lessee’s Share of Project items shall be nine and eighty five one-hundredths percent (9.85%). The Rentable Area of all Project Buildings at the Project shall not be reduced for vacancies in the ordinary course of business.

(d) Exclusions

For purposes of this Lease, the term Operating Expenses shall not include (and Lessee shall have no liability for) any of the following:

(i) any expenses incurred by Lessor for the sole benefit of Lessee, which expenses are reimbursed by Lessee pursuant to the other terms of this Lease,

(ii) any expenses incurred by Lessor for the benefit of the other tenants of the Project, but not Lessee, which expenses are in fact reimbursed by such other tenant(s),

(iii) any payments of points, interest or principal relating to any debt secured by Building 10 or the Project,

(iv) costs associated with the operation of the business of the ownership or entity which constitutes “Lessor,” as distinguished from the costs of Project operations, including, but not limited to, partnership accounting and legal matters, costs of defending any lawsuits with any mortgagee (except as the actions of Lessee may be in issue), costs of selling syndicating, financing, mortgaging or hypothecating any of Lessor’s interest in the Project, costs of any disputes between Lessor and its employee (if any) not engaged in Project operation, or outside fees paid in connection with disputes with other tenants,

(v) Legal fees, space planners’ fees, real estate brokers’ leasing commissions, and advertising expenses incurred in connection with leasing of the Project Buildings,

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(vi) Costs for which Lessor is reimbursed by its insurance carrier or any tenant’s insurance carrier,

(vii) any bad debt loss, rent loss or reserves for bad debts or rent loss,

(viii) costs, including permit, license and inspection costs, incurred with respect to the installation of tenant improvements made for new tenants in the Project or incurred in renovating or otherwise improving, decorating, painting or redecorating vacant space for tenants or other occupants of the Project,

(ix) costs of a capital nature, including, without limitation, capital improvements and replacements, capital repairs, capital equipment and capital tools, unless such costs are amortized pursuant to the terms of Subsection 4.07(a) above,

(x) any interest or late fee resulting from any failure of Lessor to pay any item of Operating Expense when it would have been due without such interest or late fee, provided, however, that nothing herein shall be deemed from precluding Lessor from passing through to Lessee as an Operating Expense any cost associated with paying Operating Expenses on any permitted installment or other periodic basis, even if such payment basis results in an increase in the Operating Expense in question,

(xi) overhead and profit increment paid to Lessor or to subsidiaries or affiliates of Lessor for such services in the Building to the extent the same exceeds the costs of such services rendered by unaffiliated third parties on a competitive basis.

It is understood that Operating Expenses shall be reduced by all cash discounts, trade discounts, or quantity discounts received by Lessor or Lessor’s managing agent in the purchase of any goods, utilities, or services in connection with the operation of the Project. In the calculation of any expenses hereunder, it is understood that Lessor will not charge Lessee more than one hundred percent (100%) of any Operating Expense due hereunder. Lessor shall use its best efforts to effect an equitable proration of bills for services rendered to Building 10 and to any other property owned by Lessor.

Section 4.08 Lessee’s Right to Review Supporting Data

(a) Exercise of Right by Lessee

Provided that Lessor has not delivered to Lessee written notice of any default by Lessee hereunder, which default has not then been cured, and provided further that Lessee strictly complies with the provisions of this Section 4.08, Lessee shall have the right to reasonably review supporting data for any portion of a Lessor’s Statement that Lessee believes may be incorrect. In order for Lessee to exercise its right under this Section 4.08, Lessee shall, within: (i) forty-five (45) days after any Lessor’s Statement is received, if Lessor includes a copy of Lessor’s general ledger for Building 10 with such Lessor’s Statement, or (ii) ninety (90) days after Lessor’s Statement is received, in all other events, deliver a written notice to Lessor specifying the portions of the Lessor’s Statement that it believes to be incorrect, and Lessee shall simultaneously pay to Lessor all amounts due from Lessee to Lessor as specified in the Lessor’s Statement, if applicable. Except as expressly set forth in subparagraph (c) below, in no event

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shall Lessee be entitled to withhold, deduct, or offset any monetary obligation of Lessee to Lessor under the Lease including, without limitation, Lessee’s obligation to make all Base Rent payments and all payments for Additional Rent, pending the completion of, and regardless of the results of, any review under this Section 4.08. The right to review granted to Lessee under this Section 4.08 may only

be exercised once for any Lessor’s Statement, and if Lessee fails to meet any of the above conditions as a prerequisite to the exercise of such right, the right of Lessee under this Section 4.08 for a particular Lessor’s Statement shall be deemed waived.

(b) Procedures for Review

Lessee acknowledges that Lessor maintains its records for Building 10 and the Project at its offices in San Francisco, and Lessee therefore agrees that any review of supporting data under this Section shall occur at such location. Any review to be conducted under this Section shall be at the sole expense of Lessee, except as otherwise provided herein, below, and shall be conducted by an independent (i.e., not then engaged by Lessee for any other purposes) firm of certified public accountants on a non-contingency fee basis. Lessee acknowledges and agrees that any supporting data reviewed under this Section shall constitute confidential information of Lessor, which shall not be disclosed to anyone other than the accountants of national standing performing the review and the principals or other employees or counsel of Lessee who receive the results of the review. Except to the extent (i) required by law, (ii) in connection with any legal proceeding concerning this Lease, or (iii) if such information or results are otherwise publicly available, the disclosure of such information or results of the review to any other person by Lessee or any person or entity who received such information from or on behalf of Lessee shall constitute a material breach of this Lease.

(c) Finding of Error

Any errors disclosed by the review of supporting data under this Section shall be promptly corrected, provided that Lessor shall have the right to cause another review of the supporting data to be made by an independent (i.e., not then engaged by Lessor for any other purposes) firm of certified public accountants of Lessor’s choice. If the results of the review of the supporting data, taking into account (if applicable) the results of any additional review caused by Lessor, reveal that Lessee has overpaid obligations for a preceding period, the amount of such overpayment shall be credited against Lessee’s subsequent installment obligations to pay its share of Additional Rent or, if the Lease has terminated or expired, in cash within thirty (30) days after the determination of overpayment is received by Lessor. In the event that such results show that Lessee has underpaid its obligations for a preceding period, the amount of such underpayment shall be paid by Lessee to Lessor with the next succeeding installment obligation of Additional Rent or, if this Lease has terminated or expired, in cash within thirty (30) days after the determination of underpayment is received by Lessee. Each party shall pay all the costs, and expenses of its chosen accounting firm; provided, however, if Lessor and Lessee determine that Operating Expenses for the Project for the year in question were less than those stated in Lessor’s Statement by more than five percent (5%), Lessor shall reimburse Lessee for the reasonable amounts paid by Lessee to third parties in connection with such review. If Lessor and Lessee determine that Operating Expenses for the Project in the year in question were not less than those stated in Lessor’s Statement by more than five percent (5%), then Lessee shall reimburse Lessor for the reasonable amounts paid by Lessor to third parties in connection with such review.

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(d) Effect of Lessee’s Default. In the event that Lessor has delivered a written notice of default to Lessee hereunder and such default then remains uncured during the pendency of a review of records under this Section, said right to review shall immediately cease and the matters originally set forth in Lessor’s Statement shall be deemed to be correct.

ARTICLE V

USE

Section 5.01 Permitted Use and Limitations on Use

(a) The Premises shall be used and occupied only for general office purposes, research and development, laboratory, biopharmaceutical research (including without limitation, vivarium and animal colony facilities for rodents only, small scale pilot fermentation and other pilot plant facilities) and other related legal uses and for no other use without Lessor’s prior written consent, which shall not be unreasonably withheld, conditioned or delayed so long as such use is lawful and does not conflict with any other provision of this Lease, including, without limitation, the restrictions set forth in the following provisions of this Section. Lessee shall not use, suffer or permit the use of the Premises in any manner that will tend to constitute waste, nuisance or unlawful acts or void any warranties that Lessor has received with respect to Building 10, provided that biological and chemical and other waste generated and disposed of in the ordinary course of business for the permitted uses in full and timely compliance with all applicable laws shall not be deemed a violation of this Section 5.01. In no event shall it be unreasonable for Lessor to withhold its consent as to uses other than those expressly permitted above which it determines would tend to materially increase the wear of the Premises or any part thereof or increase the potential liability of Lessor or decrease the marketability, financeability, leaseability or value of the Premises or Project. Lessee shall not do anything in or about the Premises which will (i) cause structural injury to Building 10 or Premises, or (ii) cause damage to any part of Building 10 or Premises except to the extent reasonably necessary for the installation of Lessee’s trade fixtures and Lessee’s Alterations, and then only in a manner and to the extent consistent with this Lease. Lessee shall not operate any equipment within Building 10 or Premises which will (A) materially damage Building 10 or the Common Area, (B) overload existing electrical systems or other mechanical equipment servicing Building 10, (C) impair the efficient operation of the sprinkler system or the heating, ventilating or air conditioning (“HVAC”) equipment within or servicing Building 10, (D) damage, overload or corrode the sanitary sewer system, or (E) damage the Common Area or any other part of the Project. Lessee shall not do any of the following in excess of the load limits for which such items are designed (based on structural reinforcements to be constructed by Lessee as part of the Tenant Improvements): attach, hand or suspend anything from the ceiling, roof, walls or columns of Building 10 or set any load on the floor. Lessee shall not operate hard wheel forklifts within the Premises. Any dust, fumes, or waste products generated by Lessee’s use of the Premises shall be contained and disposed so that they do not (1) create an unreasonable fire or health hazard, (2) damage the Premises, or (3) result in the violation of any law. Except as approved by Lessor, Lessee shall not change the exterior of Building 10, or the outside area of the Premises, or install any equipment or antennas on or make any penetrations of the exterior or roof of Building 10.

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Lessee shall not conduct, on any portion of the Premises, any sale of any kind (but nothing herein is meant to prohibit sales and marketing activities of Lessee’s products and services in the normal course of business consistent with the permitted uses), including any public or private auction, fire sale, going-out-of-business sale, distress sale or other liquidation sale, and any such sale shall be an immediate event of default hereunder without the benefit of a notice and cure period from Lessor, notwithstanding anything to the contrary in this Lease. No materials, supplies, tanks or containers, equipment, finished products or semi-finished products, raw materials, inoperable vehicles or articles of any nature shall be stored upon or permitted to remain within the outside areas of the Premises except in fully fenced and screened areas outside Building 10 which have been designed for such purpose and have been approved in writing by Lessor for such use by Lessee and for which Lessee has obtained all appropriate permits from governmental agencies having jurisdiction over such articles. Lessee shall also reimburse Lessor for any increased premiums or additional insurance which Lessor reasonably deems necessary as a result of Lessee’s use of the Premises.

Section 5.02 Compliance with Laws

Lessor represents and warrants to Lessee that Building 10 was constructed in accordance with all applicable laws, codes and regulations in effect as of the date Building 10 was built. Except for any work necessary as a result of the inaccuracy of the foregoing representation and warranty, Lessee shall, at Lessee’s cost and expense, comply promptly with all statutes, ordinances, codes, rules, regulations, orders, covenants and restrictions of record, and requirements applicable to the Premises and Lessee’s use and occupancy of same in effect during any part of the Lease Term, whether the same are presently foreseeable or not, and without regard to the cost or expense of compliance provided that any Alteration(s) required for compliance shall be subject to the provisions of this Lease. By executing this Lease, Lessee acknowledges that it has reviewed and satisfied itself as to its compliance, or intended compliance with the applicable zoning and permit requirements, hazardous materials and waste requirements, and all other statutes, laws, or ordinances relevant to the uses stated in Section 5.01, above, or the occupancy of the Premises.

Section 5.03 Condition of Premises at Delivery Date

As of the Delivery Date, any then-existing Building plumbing, lighting, heating, ventilating, air conditioning, gas, electrical and sprinkler systems, window systems, roof, roof membrane and structural elements of Building 10 shall be in water-tight condition and good working condition and repair. Except as is provided in the preceding sentence, having made such inspection of the Premises, Building 10 and Project as it deemed prudent and appropriate (including, without limitation, testing for the presence of mold), Lessee hereby accepts the Premises in their condition existing as of the date the Premises is delivered to Lessee, “AS-IS” and “WITH ALL FAULTS” subject to all applicable zoning, municipal, county and state laws, ordinances and regulations governing and regulating the use and condition of the Premises, and any covenants or restrictions, liens, encumbrances and title exceptions of record, and accepts this Lease subject thereto and to all matters disclosed thereby and by any exhibits attached hereto. Lessee acknowledges that neither Lessor nor any agent of Lessor has made any representation or warranty as to the present or future suitability of the Premises for the conduct of Lessee’s business, except as otherwise provided herein.

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Section 5.04 Defective Condition at Delivery Date

In the event that it is determined, and Lessee notifies Lessor in writing within six (6) months after the date the Premises is delivered to Lessee, that the Building systems described in Section 5.03 above were not in water-tight condition and/or good working condition and repair as of the date the Premises is delivered to Lessee, and such failure was not caused by Lessee, then it shall be the obligation of Lessor, and the sole right and remedy of Lessee, after receipt of written notice from Lessee setting forth with specificity the nature of the failed performance, to promptly, within a reasonable time and at Lessor’s sole cost, to correct such failure. Lessee’s failure to give such written notice to Lessor within six (6) months after the date the Premises were delivered to Lessee shall constitute a conclusive presumption that such Building systems are in good working condition and repair, and any required correction after that date shall be performed by the party responsible for such repair pursuant to the terms of this Lease.

Section 5.05 Building Security

Lessee acknowledges and agrees that it assumes sole responsibility for security at the Premises for its agents, employees, invitees, licensees, contractors, guests and visitors and will provide such systems and personnel for same including, without limitation, while such person(s) are using the Common Area, as it deems necessary or appropriate and at its sole cost and expense. Lessor shall have absolutely no liability whatsoever with respect to the security of Lessee’s agents, employees, invitees or contractors or their respective personal property at the Project, except to the extent that liability to such parties arises out of the intentional misconduct of Lessor or Lessor’s agents, employees, invitees or contractors. Lessee acknowledges and agrees that Lessor does not intend to provide any security system or security personnel at the Premises or Project, including, without limitation, at the Common Area, provided, however, that nothing herein shall be deemed to prevent Lessor from providing such system or personnel in the future, the cost of which will be included in those items for which Lessee pays additional rent.

Section 5.06 Rules and Regulations

Lessor may from time to time promulgate reasonable and nondiscriminatory rules and regulations applicable for the care and orderly management of the Premises, the Project and/or its Common Area. Such rules and regulations shall be binding upon Lessee upon delivery of a copy thereof to Lessee, and Lessee agrees to abide by such rules and regulations. A copy of the initial Rules and Regulations is attached hereto as Exhibit “I.” If there is a conflict between the rules and regulations and any of the provisions of this Lease, the provisions of this Lease shall prevail. Lessor shall not be responsible for the violation of any such rules and regulations by any person, including, without limitation, Lessee or its employees, agents, invitees, licensees, guests, visitors or contractors.

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ARTICLE VI

MAINTENANCE, REPAIRS AND ALTERATIONS

Section 6.01 Maintenance of Premises and Building

(a) Throughout the Lease Term, Lessee, at its sole cost and expense, shall keep, maintain, repair and replace the Premises and every part thereof (except as provided in 5.04, 6.01(b), Article VIII (Damage and Destruction), Article XIII (Eminent Domain) and also, except for uninsured maintenance, repairs or replacement costs caused solely by an act of gross negligence or intentional misconduct by Lessor, or its employees, agents or contractors during the Lease Term), maintain and repair all improvements and appurtenances in the Premises, including, without limitation, all interior walls, all doors and windows, all wall surfaces and floor coverings, all Alterations, additions and improvements installed by or on behalf of Lessee during the Lease Term, all sewer, plumbing, electrical, lighting, heating, ventilation and cooling systems and fixtures, fire sprinklers, fire safety and security systems and fixtures and all wiring and glazing, in the same good order, condition and repair as they are in on the Commencement Date, or may be improved during the Lease Term, reasonable wear and tear excepted, provided that such wear and tear could not have been reasonably prevented by best maintenance practices customarily used in the Project.

(b) Lessor, at its sole cost and expense, shall (i) repair defects, latent and patent, in Building 10 (including all exterior glass which is damaged by structural defects in exterior walls), and keep, maintain, repair and, if deemed necessary by Lessor, replace (ii) (a) supporting pillars, (b) structural walls, (c) the structural portions of Building 10 (including, but not limited to, the roof and window systems, provided that Lessee, and not Lessor, shall be responsible for washing the windows, and Lessee shall be responsible for Lessee’s Share of any costs incurred by Lessee in repairing, maintaining or replacing the roof membrane of Building 10 as an Operating Expense) and (d) foundations of Building 10. Notwithstanding the foregoing, subject to the terms of Section 7.06 hereof, if the need for such repair is caused by Lessee, Lessor shall, at Lessee’s sole cost and expense, repair same. Lessee shall give Lessor written notice of any needed repairs which are the obligation of Lessor hereunder. It shall then be the obligation of Lessor, after receipt of such notice, to perform the same within fifteen (15) business days after such notice (or, if the condition in need of repair constitutes an emergency which is causing imminent and material risk of damage or injury to persons or property at Building 10, Lessor must perform such repair within five (5) business days after receipt of such notice); provided, however, that if the nature of the repairs is such that more than fifteen (15) business days (or, in the case of the emergency repairs described above, five (5) business days) are reasonably required for performance, then Lessor shall not be deemed to be in default hereunder if Lessor commences such repairs within said fifteen (15) business day period and thereafter diligently completes them and provided further, that for purposes of this sentence “commences” includes any steps taken by Lessor to investigate, design, consult, bid or seek permit or other governmental approval in connection with such repair. Should Lessor default as provided in Section 12.03 with respect to its obligation to make any of the repairs assumed by it hereunder with respect to the Premises or Building 10, Lessee shall have the right to perform such repairs and Lessor agrees that within thirty (30) days after written demand accompanied by detailed invoice(s), it shall pay to Lessee the cost of any such repairs together with accrued interest from the date of Lessee’s payment at the Agreed Rate. Lessor shall not be liable to Lessee for any

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damage to person or property as a result of any failure to timely perform any of its obligations with respect to the repair, maintenance or replacement of the Premises, Project Buildings or Project or any part thereof, and Lessee’s sole right and remedy (together with its rights under Section 12.03 below) shall be the performance of said repairs by Lessee with right of reimbursement from Lessor of the reasonable fair market cost of said repairs, not exceeding the out of pocket sums actually expended by Lessee, together with accrued interest from the date of Lessee’s payment at the Agreed Rate, provided that nothing herein shall be deemed to create a right of setoff or withholding by Lessee of Base Rent or Additional Rent or any other amounts due herein. Lessee hereby expressly waives all rights under and benefits of Sections 1941 and 1942 of the California Civil Code or under any similar law, statute or ordinance now or hereafter in effect to make repairs and offset the cost of same against rent or to withhold or delay any payment of rent or any other of its obligations hereunder as a result of any default by Lessor under this Section 6.01(b).

(c) Lessee agrees to keep the Premises, both inside and out, clean and in sanitary condition as required by the health, sanitary and police ordinances and regulations of any political subdivision having jurisdiction and to remove all trash and debris which may be found in or around the Premises. Lessee further agrees to keep the interior surfaces of the Premises, including, without limitation, windows, floors, walls, doors, showcases and fixtures clean and neat in appearance.

(d) If Lessee refuses or neglects to commence such repairs and/or maintenance for which Lessee is responsible under this Article VI within a ten (10) business day period (or as soon as practical and in no event later than five (5) days, if the failure to initiate the repair threatens to cause further damage to the Premises) after written notice from Lessor and thereafter diligently prosecute the same to completion, then Lessor may enter the Premises (except in an emergency, upon at least 24 hours advance written notice) during Lessee’s business hours and cause such repairs and/or maintenance to be made. Lessor shall not be responsible to Lessee for any loss or damage occasioned thereby other than physical damage to the Premises caused by the negligence of Lessor or Lesson’s agents, employees or contractors which damage Lessor shall repair at its sole cost as Lessor’s sole obligation and Lessee’s sole right and remedy with respect to such damage. Lessee agrees that upon demand, it shall pay to Lessor the reasonable cost of any such repairs subject to the terms of the preceding sentence, not exceeding the amount of out-of-pocket expenses actually expended by Lessor, together with accrued interest from the date of Lessor’s payment at the Agreed Rate. Notwithstanding anything to the contrary contained herein, above, if Lessor elects to enter the Premises as permitted herein, above, it shall use commercially reasonable efforts to minimize any interference with Lessee’s business at the Premises.

Section 6.02 Maintenance of Project Common Areas

Lessor shall maintain, repair and replace all landscape, hardscape and other improvements within the Project Common Area and shall operate and manage the Athletic Facility and other Project Common Area features and facilities described in Section 2.02 including, without limitation, all landscape, hardscape and other improvements within the outside areas of Building 10 and the other Project Buildings located within the Project, including without limitation, landscaping, curbs, walkways, driveways, roadways, parking areas and

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lighting, sprinkler, drainage, sewer, plumbing systems. Notwithstanding the foregoing, subject to the terms of Section 7.06 below, any damage thereto, except for normal wear, caused by Lessee or its employees, agents, contractors, invitees or visitors shall be repaired by Lessor and the cost thereof shall be paid by Lessee within ten (10) days after presentation of Lessor’s bill for same. The cost and expense of Lessor’s obligations hereunder shall be Operating Expenses as to which Lessee shall pay Lessee’s Share pursuant to Section 4.05 (except as otherwise provided herein); provided, however, that Lessor’s obligation under this Section 6.02(b) in any instance where the damage, other than normal wear and tear, was caused by Lessor or its employees, agents or contractors shall not be recovered by Lessor from Lessee as an Operating Expense or in any other manner. Notwithstanding anything to the contrary contained herein, Lessee shall not be responsible for any cost or expense pertaining solely to another Project Building, except for costs or expenses pertaining to any Project Buildings which provide amenities for the Project or any Project Building in which Lessee is a tenant.

Section 6.03 Alterations, Additions and Improvements

No alterations, additions, or improvements (“Alterations”) shall be made to the Premises by Lessee without the prior written consent of Lessor, which Lessor will not unreasonably withhold, condition or delay; provided, however, that Lessee may make Alterations which do not affect the Building systems, exterior appearance or structural integrity of Building 10, involve penetration of either the ceiling or floor of Building 10 and which do not collectively exceed One Hundred Thousand Dollars ($100,000) in cost within any twelve (12) month period, without Lessor’s prior written consent; provided, further, that Lessee gives Lessor prior notice of such alterations (which notice shall include the estimated value of such alterations) and such alterations are otherwise performed in accordance with the terms of this Lease. As a condition to Lessor’s obligation to consider any request for consent hereunder, Lessee shall pay Lessor upon demand for the reasonable out of pocket costs and expenses of consultants, engineers, architects and others (exclusive of property management personnel for reviewing plans and specifications.. Lessor may require Lessee to remove any such Alterations at the expiration or sooner termination of the Lease Term and to restore the Premises to their prior condition pursuant to the terms of Section 17.09 hereof; provided that: (i) Lessor shall make such election, if at all, at the time consent to such Alteration is given, if such election is requested in writing of Lessor at such time by Lessee, or if Lessor’s consent to such Alteration is not required, then Lessor shall make such election within 30 days following a written request of Lessor by Lessee, and (ii) in any event, at the end of the Lease Term or earlier termination of the Lease, Lessee shall remove from the Premises the equipment listed as “Equipment To Be Removed” on Schedule 3 attached hereto (the “Removal Obligations Schedule”), and shall surrender to Lessor, and have no obligation to remove, the equipment listed as “Equipment Left In Place” on the Removal Obligations Schedule. Lessee shall furnish security or make other arrangement satisfactory to Lessor to assure payment for the completion of all Alterations work free and clear of liens. All Alterations to be made to the Premises shall be made under the supervision of a competent, California licensed architect and/or competent California licensed structural engineer (each of whom has been approved by Lessor) and shall be made in accordance with plans and specifications which have been furnished to and approved by Lessor in writing prior to commencement of work. All Alterations shall be designed, constructed and installed at the sole cost and expense of Lessee by California licensed architects, engineers, and contractors approved by Lessor in compliance with all applicable law, and in good and workmanlike manner, and shall

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have been approved in writing by Redwood City and any other applicable governmental agencies, if so required. Such approvals shall not be unreasonably withheld, conditioned or delayed by Lessor. Except as is provided for in the Removal Obligations Schedule, subject to Lessor’s right to have Lessee retain ownership and remove same, any Alteration, including, without limitation, all lighting, electrical, heating, ventilation, air conditioning and full height partitioning, drapery and carpeting installations made by Lessee, together with all property that has become an integral part of the Premises such as fume hoods which penetrate the roof or plenum area, built-in cold rooms, built-in warm rooms, deionized water systems, glass washing equipment, autoclaves, chillers, built-in plumbing, electrical and mechanical equipment and systems and any power generator and transfer switches, shall not be deemed trade fixtures and shall become the property of Lessor at the expiration or sooner termination of the Lease, unless Lessor directs otherwise. Lessee shall retain title to all furniture and trade fixtures placed on the Premises. Within thirty (30) days after completion of any Alteration, Lessee shall provide Lessor with a complete set of both hard copies and CAD drawings of “as built” plans for same.

Section 6.04 Covenant Against Liens

Lessee shall not allow any liens arising from any act or omission of Lessee to exist, attach to, be placed on, or encumber Lessor’s or Lessee’s interest in the Premises, Building 10 or Project, or any portion of either, by operation of law or otherwise. Lessee shall not suffer or permit any lien of mechanics, material suppliers, or others to be placed against the Premises, Building 10 or Project, or any portion of either, with respect to work or services performed or claimed to have been performed for Lessee or materials furnished or claimed to have been furnished to Lessee or the Premises. Lessor has the right at all times to post and keep posted on the Premises any notice that it considers necessary for protection from such liens. At least ten (10) days before beginning construction of any Alteration, Lessee shall give Lessor written notice of the expected commencement date of that construction to permit Lessor to post and record a notice of nonresponsibility. If any such lien attaches or Lessee receives notice of any such lien, Lessee shall cause the lien to be immediately released and removed of record by payment or bond. Despite any other provision of this Lease, if the lien is not released and removed within twenty (20) days after Lessor delivers notice of the lien to Lessee, Lessor may immediately take all action necessary to release and remove the lien, without any duty to investigate the validity of it. All expenses (including reasonable attorney fees and the cost of any bond) incurred by Lessor in connection with a lien incurred by Lessee or its removal shall be considered Additional Rent under this Lease and be immediately due and payable by Lessee. Notwithstanding the foregoing, if Lessee shall, in good faith, contest the validity of any such lien, claim or demand, then Lessee shall, at its sole expense, defend and protect itself, Lessor and the Premises, Building 10 and Project against the same and shall pay and satisfy any such adverse judgment that may be rendered thereon before the enforcement thereof. If Lessor shall require, Lessee shall furnish a surety bond in an amount equal to one hundred fifty percent (150%) of the amount of such contested lien, claim or demand, indemnifying Lessor against liability for the same. If Lessor elects to participate in or is made a party to any such action, Lessee shall reimburse Lessor’s reasonable attorneys’ fees and costs within ten (10) days after demand.

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ARTICLE VII

INSURANCE

Section 7.01 Property/Rental Insurance for Premises

At all times during the Lease Term, Lessor shall keep Building 10, any Tenant Improvements or Alterations made by Lessee therein and the Project insured against loss or damage by fire and those risks normally included in the term “all risk,” extended coverage, fire and casualty insurance, including, without limitation, coverage for (i) earthquake and earthquake sprinkler leakage, (ii) flood, (iii) loss of rents and extra expense for eighteen (18) months, including scheduled rent increases, (iv) boiler and machinery, and (v) fire damage legal liability, including waiver of subrogation. Lessee shall pay Lessee’s Share of any deductibles. The amount of such insurance shall not be less than 100% of replacement cost. Insurance shall include a Building Ordinance and Increased Cost of Construction Endorsement insuring the increased cost of reconstructing the Premises incurred due to the need to comply with applicable statutes, ordinances and requirements of all municipal, state and federal authorities now in force, which or may be in force hereafter. Any recovery received from said insurance policy shall be paid to Lessor and thereafter applied by Lessor to the reconstruction of the Premises in accordance with the provisions of Article VIII below. Lessee, as part of the Operating Expenses, shall reimburse Lessor for Lessee’s Share of the cost of the premiums for all such insurance in accordance with Article IV. Such reimbursement shall be made within fifteen (15) days of Lessee’s receipt of a copy of Lessor’s statement therefore. To the extent commercially available in Lessor’s reasonable business judgment, Lessor’s insurance shall have a deductible not greater than fifteen percent (15%) for earthquake and ten percent (10%) for the basic “all risk” coverage.

Notwithstanding the foregoing, Lessee may, at Lessee’s election, maintain at Lessee’s sole cost and expense a separate, additional policy of insurance insuring the Improvements or Alterations made by Lessee against loss or damage by fire and those risks normally included in the term “all risk,” extended coverage, fire and casualty insurance. Any recovery received from said insurance policy shall be paid to Lessee in accordance with the provisions of Article VIII below.

Section 7.02 Property Insurance for Fixtures and Inventory

At all times during the Lease Term, Lessee shall, at its sole expense, maintain fire and casualty insurance with “all risk” coverage which includes the same coverage as required of Lessor in Section 7.01, above, on any trade fixtures, furnishings, merchandise, equipment, artwork or other personal property, whether or not presented to Lessor for its consent in or on the Premises, whether in place as of the date hereof or installed hereafter. The amount of such insurance shall not be less than one hundred percent (100%) of the replacement cost thereof with commercially reasonable deductibles, and Lessor shall not have any responsibility nor pay any cost for maintaining any types of such insurance. Lessee shall pay all deductibles.

Section 7.03 Lessor’s Liability Insurance

During the Lease Term, Lessor shall maintain a policy or policies of commercial general liability insurance naming Lessor (and such others as designated by Lessor) against

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claims and liability for bodily injury, personal injury and property damage on or about the Premises and Project, with combined single limit coverage in an amount determined by Lessor in its sole discretion (which amount is currently Fifty Million Dollars ($50,000,000.00)); provided that if such policy is a blanket policy that covers properties (other than the Project) owned by Lessor, only that portion allocable to the Project shall be payable hereunder. Lessee, in addition to the rent and other charges provided herein, agrees to pay Lessee’s Share of the premiums for all such insurance in accordance with Article IV.

Section 7.04 Liability Insurance Carried by Lessee

At all times during the Lease Term (and any holdover period) Lessee shall obtain and keep in force a commercial general liability policy of insurance protecting Lessee, Lessor and any lender(s) whose names are provided to Lessee as additional insureds against claims and liability for bodily injury, personal injury and property damage based upon involving or arising out of ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing a single limit coverage in amount of not less than Ten Million Dollars ($10,000,000) per occurrence. The limits of said insurance required by this Lease as carried by Lessee shall not, however, limit the liability of Lessee nor relieve Lessee of any obligation hereunder. All insurance to be carried by the Lessee shall be primary to and not contributory with, any similar insurance carried by Lessor, whose insurance shall be considered excess insurance only. Lessor may require Lessee’s liability insurance policy limits to be raised to conform with requirements of Lessor’s lender and/or to bring coverage limits to levels then being generally required of new tenants within the Project.

Section 7.05 Proof of Insurance

Lessee shall furnish to Lessor prior to the Commencement Date, and during the Lease Term, at least thirty (30) days prior to the expiration date of any policy, certificates indicating that the property insurance and liability insurance required to be maintained by Lessee is in full force and effect for the twelve (12) month period following such expiration date; that Lessor has been named as an additional insured to the extent of contractual liability assumed in Section 7.07 and Section 7.08 and that all such policies will not be canceled unless thirty (30) days’ prior written notice of the proposed cancellation has been given to Lessor. The insurance shall be with insurers approved by Lessor, provided, however, that such approval shall not be unreasonably withheld so long as Lessee’s insurance carrier has a Best’s Insurance Guide rating not less than A VIII and is licensed to do business in California. Lessor shall furnish to Lessee reasonable evidence of its insurance coverage required hereunder within fifteen (15) business days after demand made therefor, however, not more than once in any calendar year.

Section 7.06 Mutual Waiver of Claims and Subrogation Rights

Lessor and Lessee hereby release and relieve the other, and waive their entire claim of recovery for loss or damage to property arising out of or incident to fire, lightning, and the other perils included in a standard “all risk” insurance policy of a type described in Sections 7.01 and 7.02 above that is carried by the waiving party (or that would have been if the waiving party had carried the insurance required hereunder), when such property constitutes the Premises or Building 10 or the Project, or is in, on or about the Premises or Building 10, whether or not

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such loss or damage is due to the negligence of Lessor or Lessee, or their respective agents, employees, guests, licensees, invitees, or contractors. Lessee and Lessor waive all rights of subrogation against each other on behalf of, and shall obtain a waiver of all subrogation rights from, all property and casualty insurers referenced above.

Section 7.07 Indemnification and Exculpation

(a) Except as otherwise provided in Section 7.07(b), Lessee shall indemnify and hold Lessor free and harmless from any and all liability, claims, loss, damages, causes of action (whether in tort or contract, law or equity, or otherwise), expenses, charges, assessments, fines, and penalties of any kind, including without limitation, reasonable attorney fees, expert witness fees and costs, arising by reason of the death or injury of any person, including any person who is an employee, agent, invitee, licensee, permittee, visitor, guest or contractor of Lessee, or by reason of damage to or destruction of any property, including property owned by Lessee or by any person who is an employee, agent, invitee, permittee, visitor, or contractor of Lessee, caused or allegedly caused (1) while that person or property is in or about the Premises; (2) by some condition of the Premises (exclusive of structural defects or disrepair that are the sole responsibility of Lessor under the terms of Section 5.04 and 6.01(b) of this Lease); (3) by some act or omission by Lessee or its agent, employee, licensee, invitee, guest, visitor or contractor or any person in, adjacent, on, or about the Premises with the permission, consent or sufferance of Lessee; or (4) by any breach or default in timely observance or performance of any obligation on Lessee’s part to be observed or performed under this Lease.

(b) Notwithstanding the provisions of Section 7.07(a) of this Lease, Lessee’s duty to indemnify and hold Lessor harmless shall not apply to any liability, claims, loss or damages, causes of action (whether in tort or contract, law or equity, or otherwise), expenses, charges, assessments, fines and penalties of any kind, including without limitation, reasonable attorney fees, expert witness fees and costs arising by reason of Lessor’s, or its employees’, agents’ or contractors’, negligence or willful act of misconduct.

(c) Lessee hereby waives all claims against Lessor for damages to goods, wares and merchandise and all other personal property in, on or about the Premises and for injury or death to persons in, on or about the Premises from any cause other than the intentionally misconduct of Lessor or Lessor’s agents, employees or contractors, Notwithstanding the provisions of Section 7.07(b) above, or any other provision of this Lease, in no event shall Lessor be liable (i) for lost profits or other consequential damages arising from any cause, or (ii) for any damage which is or could be covered by the insurance Lessee is required to carry under this Lease.

Section 7.08 Lessor as Party Defendant

If by reason of an act or omission of Lessee or any of its employees, agents, invitees, licensee, visitors, guests or contractors, Lessor is made a party defendant or a cross defendant to any action involving the Premises or this Lease, Lessee shall hold harmless and indemnify Lessor from all liability or claims of liability, including all damages, attorney fees and costs of suit.

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ARTICLE VIII

DAMAGE OR DESTRUCTION

Section 8.01 Destruction of the Premises

(a) In the event of a partial destruction of the Premises (i.e., less than fifty percent (50%) of its Rentable Area) during the Lease Term from any cause, Lessor, upon receipt of, and to the extent of, insurance proceeds paid in connection with such casualty (or the proceeds that would have been received by Lessor had Lessor maintained the insurance required of Lessor in Subsection 7.01 above, in the event Lessor fails to maintain such insurance) and the deductible from Lessee which Lessee shall pay Lessee’s Share to Lessor within thirty (30) business days after demand, shall forthwith repair the same, including without limitation all Tenant Improvements and Alterations, whether or not originally paid for or constructed by Lessor or Lessee, provided the repairs can be made within a reasonable time under state, federal, county and municipal applicable law, but such partial destruction shall in no way annul or void this Lease, (except as provided in Section 8.01(b) or 8.01(c) below) provided that Lessee shall be entitled to a proportionate credit for rent equal to rental income insurance proceeds received by Lessor (or the proceeds that would have been received by Lessor had Lessor maintained the insurance required of Lessor in subsection 7.01 above, in the event Lessor fails to maintain such insurance) and provided further that Lessee shall repair all damage and destruction to those items as to which Lessee is required to maintain fire and casualty insurance under Section 7.02 above. Lessor and Lessee each shall use diligence in making such repairs within a reasonable time period, subject to the Force Majeure provisions of Section 17.21, in which instance the time period shall be extended accordingly, and this Lease shall remain in full force and effect, with the rent to be proportionately reduced as provided above in this Section. If the Premises are damaged by any peril within six (6) months prior to the last day of the Lease Term (or, if Lessee has delivered its Option Notice pursuant to Section 3.03(a) above, within six (6) months prior to the last day of the Extended Term) and, in the reasonable opinion of the Lessor’s architect or construction consultant, the restoration of the Premises cannot be substantially completed within thirty (30) days after the date of such damage Lessor or Lessee may terminate this Lease on thirty (30) days written notice to the other party.

(b) If the Premises are damaged or destroyed by any cause to the extent of more than fifty percent (50%) of their total Rentable Area during the Lease Term, Lessor shall notify Lessee within thirty (30) days after such damage or destruction whether it will repair the same. If Lessor states that it will not, or cannot, repair, this Lease shall terminate thirty (30) business days after Lessor gives its notice.

(c) Lessee shall have the option to terminate this Lease if the Premises are affected by a casualty not caused by Lessee and the time estimated to substantially complete the restoration exceeds thirteen (13) months from the date Lessor’s architect’s opinion of the repair time is delivered to Lessee. Such termination right shall be (i) exercised by written notice to Lessor delivered within thirty (30) days after delivery to Lessee of Lessor’s architect’s opinion and (ii) irrevocable and automatically waived if not so timely exercised.

(d) In the event of a termination of the Lease pursuant to this Section 8.01, Lessor shall be entitled to any insurance proceeds received by Lessor under the policy of

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insurance maintained by Lessor under Section 7.01 as a result of the damage or destruction and Lessee shall be entitled to any insurance proceeds from any separate, additional policy obtained by Lessee as described in Sections 7.01 and/or 7.02. The respective insurable interests of Lessor and Lessee in the Lessee Improvements and Alterations shall not be affected by any termination of the Lease following an event of damage or destruction as described herein.

(e) If Lessor states that it will repair the Premises, Lessor shall, upon receipt of and to the extent of insurance proceeds paid in connection with such casualty and the deductible amount from Lessee, forthwith conduct the repair and diligently pursue the same to completion, but such destruction shall in no way annul or void this Lease except upon a termination of the Lease pursuant to this Article VIII, provided that Lessee shall be entitled to a proportionate credit for rent equal to rental income insurance proceeds received by Lessor (or the proceeds that would have been received by Lessor had Lessor maintained the insurance required of Lessor in subsection 7.01(iii) above, in the event Lessor fails to maintain such insurance).

Section 8.02 Waiver of Civil Code Remedies

Lessee hereby expressly waives any rights to terminate this Lease upon damage or destruction to the Premises, including without limitation any rights pursuant to the provisions of Section 1932, Subdivisions 1 and 2 and Section 1933, Subdivision 4, of the California Civil Code, as amended from time-to-time, and the provisions of any similar law hereinafter enacted.

Section 8.03 Damages Incurred during Repair

The Base Rent, Additional Rent and other charges due under this Lease shall not be reduced or abated by reason of any damage or destruction to the Premises (but will be subject to credit as provided in Section 8.01(a) and (b) above with respect to rental loss insurance proceeds received), and Lessor shall be entitled to all proceeds of the insurance maintained pursuant to Section 7.01 above during the period of rebuilding pursuant to Section 8.01 above, or if the Lease is terminated pursuant to Section 8.01 above. Lessee shall have no claim against Lessor, including, without limitation, for compensation for inconvenience or loss of business, profits or goodwill during any period of repair or reconstruction.

Section 8.04 No Liability for Lessee’s Alterations or Personal Property

In no event shall Lessor have any liability for, nor shall it be required to repair or restore, any injury or damage to Lessee’s Alterations or personal property or to any other personal property of Lessee in or upon the Premises, Building 10 or Project.

ARTICLE IX

REAL PROPERTY TAXES

Section 9.01 Payment of Taxes

(a) Lessee shall pay to Lessor Lessee’s Share, as an Operating Expense pursuant to Section 4.07 above, of all real property taxes, including any supplemental tax and any form of real estate tax or assessment, general, special, ordinary or extraordinary, and any license, fee, charge, excise or imposition (“real property tax”), imposed, assessed or levied on or

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with respect to the Premises and the Project Common Areas by any Federal, State, County, City or other political subdivision or public authority having the direct or indirect power to tax, including, without limitation, any improvement district or any community facilities district (including with respect to a district established for purposes of constructing the Seaport Boulevard improvements and other improvements as required in the Development Agreement or by the City of Redwood City (“Community Facility District Bond”), as against any legal or equitable interest of Lessor in the Project or against the Project or any part thereof applicable to the Project for all periods of time included within the Lease Term (as the same may be extended and during any holdover period), as well as any government or private cost sharing agreement assessments made for the purpose of augmenting or improving the quality of services and amenities normally provided by government agencies and any tax, fee, charge, imposition or excise described in subsection (b) below. Notwithstanding the foregoing, Lessee shall not be required to pay any net income taxes, franchise taxes, or any succession, estate or inheritance taxes of Lessor or any penalties due to Lessor’s late or non-payment of any real property taxes, unless such failure is caused by Lessee’s failure to pay Lessee’s Share of real property taxes due hereunder.

(b) If at any time during the Lease Term, the State of California or any political subdivision of the state, including any county, city, city and county, public corporation, district, or any other political entity or public corporation of this state, levies or assesses against Lessor a tax, fee, charge, imposition or excise on rents under the Lease, the square footage of the Premises or Project, the act of entering into this Lease, or the occupancy of Lessee, or levies or assesses against Lessor any other tax, fee, or excise, however described, including, without limitation, a so called value added, business license, transit, commuter, environmental or energy tax fee, charge or excise or imposition related to the Project as a direct substitution in whole or in part for, or in addition to, any real property taxes on the Project the same shall be included in real property taxes and paid in accordance with Section 9.01(a).

(c) Lessor shall provide Lessee with copies of all tax and assessment bills on the Premises promptly upon Lessor’s receipt of Lessee’s written request therefor. Lessor shall also promptly provide to Lessee evidence of payment upon Lessor’s receipt of Lessee’s written request therefor.

(d) With respect to taxes and assessments which may lawfully be paid in installments, for the purpose of this Section, real property tax in any period shall include only such portion of the same which is payable within such period and any interest payable thereon computed (whether or not such is the case) as if Lessor had elected to pay the same over the longest period permitted by law.

(e) If Lessor shall obtain any abatement or refund on account of any real property tax as to which Lessee shall have paid payments hereunder, Lessor shall promptly refund to Lessee Lessee’s portion of any such abatement or refund, after deducting therefrom the reasonable costs and expenses incurred by Lessor in obtaining such abatement or refund.

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Section 9.02 Pro Ration for Partial Years

If any such taxes paid by Lessee shall cover any period prior to the Commencement Date or after the Expiration Date of the Lease Term, Lessee’s Share of such taxes shall be equitably prorated to cover only the period of time within the tax fiscal year during which this Lease shall be in effect, and Lessor shall reimburse Lessee to any extent required.

Section 9.03 Personal Property Taxes

(a) Lessee shall pay prior to delinquency all taxes imposed, assessed against and levied upon trade fixtures, furnishings, equipment and all other personal property of Lessee contained in the Premises or elsewhere. When possible, Lessee shall cause said trade fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor.

(b) If any of Lessee’s personal property shall be assessed with Lessor’s real property, Lessee shall pay Lessor the taxes attributable to Lessee within thirty (30) days after receipt of a written statement setting forth the amount of such tax bill reasonably allocated to Lessee’s property.

(c) If Lessee shall fail to pay any such taxes, Lessor shall have the right to pay the same, in which case Lessee shall repay such amount to Lessor with Lessee’s next rent installment together with interest at the Agreed Rate.

Section 9.04 Right to Contest Real Property Taxes

Lessee may, at any time (unless Lessor is already doing so), and at its sole expense, contest the real property taxes due with respect to the Premises in its own name and in a manner set forth by appropriate judicial or administrative proceedings, provided that: (i) Lessee gives Lessor prior written notice of such contest, (ii) Lessee pays the real property taxes required by the applicable taxing authority while such contest is occurring, (iii) pays any and all penalties, late interest or other fines associated with any such contest and (iv) indemnifies, defends, protects and holds Lessor harmless from any and all expenses (including reasonable attorneys’ fees), causes of action, damages or liabilities associated with such contest.

ARTICLE X

UTILITIES

Section 10.01 Lessee to Pay

Lessee shall pay prior to delinquency and throughout the Lease Term, all charges for water, gas, heating, cooling, sewer, telephone, electricity, garbage, air conditioning and ventilation, janitorial service, landscaping and all other services and utilities supplied to the Premises directly to the service provider in question. The disruption, failure, lack or shortage of any service or utility with respect to the Premises, Building 10 or Project due to any cause whatsoever shall not affect any obligation of Lessee hereunder, and Lessee shall faithfully keep and observe all the terms, conditions and covenants of this Lease and pay all rent due hereunder, all without diminution, credit or deduction, provided that, to the extent the cause is the failure of

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Lessor to observe or perform an obligation of Lessor, hereunder Lessor shall initiate the cure of such failure immediately after receipt from Lessee of notice of the failure and Lessor shall thereafter diligently prosecute said cure to completion.

ARTICLE XI

ASSIGNMENT AND SUBLETTING

Section 11.01 Lessor’s Consent Required

Except as provided in Section 11.02, Lessee shall not voluntarily or by operation of law assign, transfer, mortgage, sublet, license or otherwise transfer or encumber all or any part of Lessee’s interest in this Lease or in the Premises or any part thereof, without Lessor’s prior written consent, which Lessor shall not unreasonably withhold, condition or delay. Lessor shall respond in writing to Lessee’s request for consent hereunder within fifteen (15) business days of Lessor’s receipt of Lessee’s request therefor, or within any extended time period necessary in order for Lessor to receive a response from Lessor’s lender, and any attempted assignment, transfer, mortgage, encumbrance, subletting or licensing without such consent shall be void, and shall constitute a breach of this Lease. If Lessor refuses to consent to Lessee’s request, it shall specifically state in its response to Lessee the reason(s) for denying such consent. By way of example, but not limitation, reasonable grounds for denying consent include: (i) poor credit history or insufficient financial strength of transferee, (ii) transferee’s intended use of the Premises is inconsistent with the permitted use and will materially and adversely affect Lessor’s interest. Lessee shall reimburse Lessor upon demand for Lessor’s reasonable costs and expenses (including attorneys’ fees, architect fees and engineering fees) involved in reviewing any request for consent whether or not consent is granted. Notwithstanding any other provisions of this Lease, if (i) the proposed assignee or sublessee has been required by any prior landlord, lender or governmental authority to take remedial action in connection with Hazardous Materials contaminating a property, where the contamination resulted from such party’s action or use of the property in question, (ii) the proposed assignee or sublessee is subject to any enforcement order issued by any governmental authority in connection with the use, storage, handling, treatment, generation, release or disposal of hazardous materials (including, without limitation, any order related to the failure to make a required reporting to any governmental authority), or (iii) because of the existence of a pre-existing environmental condition in the vicinity of or underlying the Project, the risk that Lessor would be targeted as a responsible party in connection with the remediation of such pre-existing environmental condition would be materially increased or exacerbated by the proposed use of Hazardous Materials by such proposed assignee or sublessee, Lessor shall have the absolute right to refuse to consent to any assignment or subletting to any such party.

Section 11.02 Lessee Affiliates

Lessee may assign this Lease, or sublet up to forty percent (40%) of the Premises, without the need for Lessor’s consent (but with written notice to Lessor prior to such transfer), to any corporation, limited liability company or partnership which controls, is controlled by, or is under common control with Lessee, or to any corporation, limited liability company or partnership resulting from the merger or consolidation with Lessee, or to any person or entity which acquires all of Lessee’s stock or all, or substantially all of the assets of Lessee as a going

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concern of the business that is being conducted on the Premises (collectively, an “Affiliate”), provided that said assignee or sublessee (i) in the event of an assignment of this Lease to an Affiliate only, has a net worth at least equal to the net worth of Lessee as of the date of this Lease, and (ii) assumes, in full, the obligations of Lessee under this Lease (or, in the case of a sublease, the portion of the Premises subject to the Lease) and provided further that the use to which the Premises will be put does not materially change. Any such assignment shall not, in any way, affect or limit the liability of Lessee under the terms of this Lease. Any portion of the Premises which is assigned or sublet to an Affiliate of Lessee shall not be included in the calculation of subleased, assigned or transferred Rentable Area for the purposes of Section 11.06. In addition, the terms of Section 11.04, below, shall not be applicable to any assignment or sublease pursuant to this Section.

Section 11.03 No Release of Lessee

Regardless of Lessor’s consent, no subletting or assignment shall release Lessee of Lessee’s obligation or alter the primary liability of Lessee to pay the rent and to perform all other obligations to be performed by Lessee hereunder. The acceptance of rent by Lessor from any other person shall not be deemed consent to any subsequent assignment or subletting. In the event of default by any assignee of Lessee or any successor of Lessee, in the performance of any of the terms hereof, Lessor may proceed directly against Lessee without the necessity of exhausting remedies against said assignee.

Section 11.04 Excess Rent

In the event Lessor shall consent to a sublease or an assignment, Lessee shall pay to Lessor with its regularly scheduled Base Rent payments, fifty percent (50%) of all sums and the fair market value of all consideration collected or received by Lessee from a sublessee or assignee which are in excess of the Base Rent and Additional Rent due and payable with respect to the subleased or assigned space pursuant to Article IV for the time period encompassed by the sublease or assignment term, after first deducting: (i) leasing commissions, and (ii) the unamortized cost (based on a straight-line amortization over the entire Lease Term) of Tenant Improvements paid for by Lessee over and above the Tenant Improvement Allowance and allocable to such subleased or assigned premises (based on the rentable square footage of the space assigned or sublet compared to the Premises).

Section 11.05 Information to be Provided

Lessee’s written request to Lessor for consent to an assignment or subletting or other form of transfer shall be accompanied by (a) the name and legal composition of the proposed transferee; (b) the nature of the proposed transferee’s business to be carried on in the Premises; (c) the terms and provisions of the proposed transfer agreement; and (d) such financial and other information as Lessor may reasonably request concerning the proposed transferee.

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Section 11.06 Lessor’s Recapture Rights

(a) Lessor’s Recapture Rights

Notwithstanding any other provision of this Article 11, in the event that Lessee proposes to sublease or assign or otherwise transfer to any person or entity not an Affiliate of Lessee any interest in this Lease or the Premises or any part thereof affecting (collectively with all other such subleases, assignments, or transfers then in effect to parties which are not Affiliates) more than fifty percent (50%) of the square footage of the Rentable Area of the Premises for more than fifty percent (50%) of the remaining Lease Term is hereafter designated “Recapture Space”), then Lessor shall have the option to recapture the Recapture Space by written notice to Lessee (“Recapture Notice”) given within ten (10) business days after Lessor receives any notice of such proposed assignment or sublease or other transfer (“Transfer Notice”). A timely Recapture Notice terminates this Lease for the Recapture Space, effective as of the date Lessee specified in the Transfer Notice, which date shall in no event be shorter than thirty (30) days from the date of the Recapture Notice. If Lessor declines or fails timely to deliver a Recapture Notice, Lessor shall have no further right under this Section 11.06 to the Recapture Space unless it becomes available again after transfer by Lessee. Lessor’s recapture rights shall be subject to the rights of any sublessee, assignee or transferee of Lessee set forth in any sublease, assignment or agreement of transfer to which Lessor has consented, but subject to the terms and conditions set forth in Lessor’s consent; any such sublease, assignment or agreement of transfer shall be assigned to Lessor as of the effective date of the recapture. Notwithstanding anything herein to the contrary, if Lessor elects to deliver a Recapture Notice and terminate the Lease as set forth above, Lessee may negate Lessor’s Recapture Notice by withdrawing its Transfer Notice by delivering written notice thereof to Lessor within five (5) business days after Lessee’s receipt of the Recapture Notice.

(b) Consequences of Recapture

To determine the new Base Rent under this Lease if Lessor recaptures the Recapture Space and Lessee does not negate Lessor’s Recapture Notice within the time periods provided therefore above, the then current Base Rent (immediately before Lessor’s recapture) under the Lease shall be multiplied by a fraction, the numerator of which is the square feet of the Rentable Area retained by Lessee after Lessor’s recapture and the denominator of which is the total square feet of the Rentable Area before Lessor’s recapture. The Additional Rent, to the extent that it is calculated on the Rentable Area of the Premises, shall be reduced to reflect Lessee’s Share based on the Rentable Areas of the Premises retained by Lessee after Lessor’s recapture. This Lease as so amended shall continue thereafter in full force and effect, except that Lessee shall be released from liability under this Lease for future Base Rent and Additional Rent with respect to the portion of the Premises subject to Lessor’s Recapture Notice. Either party may require written confirmation of the amendments to this Lease necessitated by Lessor’s recapture of the Recapture Space. If Lessor recaptures the Recapture Space, Lessor shall, at Lessor’s sole expense, construct, paint, and furnish any partitions required to segregate the Recapture Space from the remaining Premises retained by Lessee as well as arrange separate metering of utilities.

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ARTICLE XII

DEFAULTS; REMEDIES

Section 12.01 Defaults

The occurrence of any one or more of the following events shall constitute a material default and breach of this Lease by Lessee (each shall be an “Event of Lessee’s Default”):

(a) The abandonment of the Premises by Lessee or the commission of waste at the Premises or the making of an assignment or subletting in violation of Article XI, provided however, abandonment shall be considered to not occur if the Premises are maintained and occupied to the extent necessary to maintain the insurance on each and every portion of the Premises;

(b) The failure by Lessee to make any payment of rent or any other payment required to be made by Lessee hereunder, as and when due, if such failure continues for a period of five (5) business days after written notice thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a Notice to Pay Rent or Quit in the form required by applicable Unlawful Detainer statutes such Notice shall constitute the notice required by this paragraph, provided that the cure period stated in the Notice shall be five (5) business days rather than the statutory three (3) days;

(c) Lessee’s failure to provide (i) any required Replacement Letter of Credit Security as required by Section 4.06, (ii) an estoppel certificate as required by Section 15.01 or (iii) any document subordinating this Lease to a Lender’s deed of trust as required by Section 17.13, if any such failure continues for five (5) business days after written notice of the failure. In the event Lessor serves Lessee with a Notice to Perform Covenant or Quit in the form required by applicable Unlawful Detainer Statutes, such Notice shall constitute the notice required by this paragraph, provided that the cure period stated in the Notice shall be five (5) business days rather than the statutory three (3) days;

(d) The failure by Lessee to observe or perform any of the covenants, conditions or provisions of this Lease to be observed or performed by Lessee, other than described in paragraph (a) (b) or (c) above, if such failure continues for a period of fifteen (15) days after written notice thereof from Lessor to Lessee; provided, however, that if the nature of Lessee’s default is such that more than fifteen (15) days are reasonably required for its cure, then Lessee shall not be deemed to be in default if Lessee commences such cure within said fifteen (15) day period and thereafter diligently prosecutes such cure to completion;

(e) (i) The making by Lessee of any general arrangement or assignment for the benefit of creditors; (ii) the filing by Lessee of a voluntary petition in bankruptcy under Title 11 U.S.C. or the filing of an involuntary petition against Lessee which remains uncontested for a period of sixty (60) days; (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee’s assets located at the Premises or of Lessee’s interest in this Lease; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee’s assets located at the Premises or of Lessee’s interest in this Lease, provided, however, in the event that any provisions of this Section 12.01(e) is contrary to any applicable law, such provision shall be of no force or effect;

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(f) The discovery by Lessor that Lessee delivered to Lessor a financial statement that was materially false; and

(g) The occurrence of a material default and breach under any other lease between Lessee (or an Affiliate thereof) and Lessor (or an affiliate of Lessor) for premises in the Project, including but not limited to the Building 9 Lease.

Section 12.02 Remedies

If an Event of Lessee’s Default shall occur, Lessor may at any time thereafter, and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such Event of Lessee’s Default:

(a) Terminate Lessee’s right to possession of the Premises by any lawful means including by way of unlawful detainer (and without any further notice if a notice in compliance with the unlawful detainer statutes and in compliance with paragraphs (b), (c) and (d) of Section 12.01 above has already been given), in which case this Lease shall terminate and Lessee shall immediately surrender possession of the Premises to Lessor. In such event Lessor shall be entitled to recover from Lessee all damages incurred by Lessor by reason of an Event of Lessee’s Default including, but not limited to, (i) the cost of recovering possession of the Premises including reasonable attorney’s fees related thereto; (ii) the worth at the time of the award of any unpaid rent that had been earned at the time of the termination, to be computed by allowing interest at the Agreed Rate but in no case greater than the maximum amount of interest permitted by law, (iii) the worth at the time at the time of the award of the amount by which the unpaid rent that would have been earned between the time of the termination and the time of the award exceeds the amount of unpaid rent that Lessee proves could reasonably have been avoided, to be computed by allowing interest at the Agreed Rate but in no case greater than the maximum amount of interest permitted by law, (iv) the worth at the time of the award of the amount by which the unpaid rent for the balance of the Lease Term after the time of the award exceeds the amount of unpaid rent that Lessee proves could reasonably have been avoided, to be computed by discounting that amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of the award plus one per cent (1%), (v) any other amount necessary to compensate Lessor for all the detriment proximately caused by Lessee’s failure to perform obligations under this Lease, including brokerage commissions and advertising expenses, and (vi) any other amounts, in addition to or in lieu of those listed above, that may be permitted by applicable law.

(b) Maintain Lessee’s right to possession as provided in Civil Code Section 1951.4 in which case this Lease shall continue in effect whether or not Lessee shall have abandoned the Premises. In such event Lessor shall be entitled to enforce all of Lessor’s rights and remedies under this Lease, including the right to recover the rent as it becomes due hereunder.

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(c) Pursue any other remedy now or hereafter available to Lessor under the laws or judicial decisions of the state of California. Unpaid amounts of rent and other unpaid monetary obligations of Lessee under the terms of this Lease shall bear interest from the date due at the Agreed Rate.

Section 12.03 Default by Lessor

Lessor shall not be in default under this Lease unless Lessor fails to perform obligations required of Lessor within a reasonable time, but in no event later than ten (10) business days after written notice by Lessee to Lessor and to the holder of any first mortgage or deed of trust covering the Premises whose name and address shall have theretofore been furnished to Lessee in writing, specifying that Lessor has failed to perform such obligation; provided, however, that if the nature of Lessor’s obligation is such that more than ten (10) business days are reasonably required for performance then Lessor shall not be in default if Lessor commences performance within such ten (10) business day period and thereafter diligently prosecutes the same to completion. In the event Lessor does not commence performance within the ten (10) business day period provided herein, or fails to diligently prosecute such cure to completion, Lessee may perform such obligation and will be reimbursed for its expenses by Lessor together with interest thereon at the Agreed Rate within thirty (30) days following demand for such payment. Lessee waives any right to terminate this Lease or to vacate the Premises on Lessor’s default under this Lease. Lessee’s sole remedy on Lessor’s default is an action for damages or injunctive or declaratory relief. Notwithstanding the foregoing, (i) any default beyond any applicable cure period by Lessor under the terms of the Building 9 Lease shall also be a default under this Lease for any period of time during which Lessor or any affiliate thereof is also the landlord under the Building 9 Lease, and (ii) nothing herein shall be deemed applicable in the event of Lessor’s delay in delivery of the Premises, in which case Lessee’s rights and remedies shall be determined under Section 3.01 above.

Section 12.04 Late Charges

Lessee hereby acknowledges that late payment by Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed on Lessor by the terms of any mortgage or trust deed covering the Premises. Accordingly, if any installment of rent or any other sum due from Lessee shall not be received by Lessor or Lessor’s designated agent within five (5) business days after such amount is due and owing, Lessee shall pay to Lessor a late charge equal to five percent (5%) of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of late payment by Lessee. Acceptance of such late charge by Lessor shall in no event constitute a waiver of an Event of Lessee’s Default with respect to such overdue amount, nor prevent Lessor from exercising any of the other rights and remedies granted hereunder. Notwithstanding the foregoing, Lessor shall grant Lessee one (1) late payment during the first twelve (12) months of the Lease Term without late charge, provided that Lessee shall pay the applicable delinquent amount within five (5) business days following written notice from Lessor of such delinquency.

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Section 12.05 Lessor’s Right to Perform Lessee’s Obligations

All obligations to be performed or observed by Lessee under this Lease shall be performed or observed by Lessee at Lessee’s expense and without any reduction of rent. Lessor may perform or observe any obligation of Lessee for which there exists an Event of Lessee Default hereunder, without waiving Lessor’s other rights and remedies for Lessee’s failure to perform or observe any obligations under this Lease and without releasing Lessee from any such obligations. Within ten (10) days after receiving a statement from Lessor, Lessee shall pay to Lessor the amount of expense reasonably incurred by Lessor in performing or observing Lessee’s obligation.

ARTICLE XIII

CONDEMNATION OF PREMISES.

Section 13.01 Total Condemnation

If the entire Premises, whether by exercise of governmental power or the sale or transfer by Lessor to any condemnor under threat of condemnation or while proceedings for condemnation are pending, at any time during the Lease Term, shall be taken by condemnation such that there does not remain a portion suitable for occupation, this Lease shall then terminate as of the date transfer of possession is required. Upon such condemnation, all rent shall be paid up to the date transfer of possession is required, and Lessee shall have no claim against Lessor or the award for the value of the unexpired portion of this Lease Term.

Section 13.02 Partial Condemnation

If any portion of the Premises is taken by condemnation during the Lease Term, whether by exercise of governmental power or the sale or transfer by Lessor to an condemnor under threat of condemnation or while proceedings for condemnation are pending, this Lease shall remain in full force and effect except that in the event a partial taking (i) is more than thirty-three percent (33%) of the Rentable square footage of the Premises; or (ii) leaves the Premises unfit for the conduct of the business of Lessee, then Lessee shall have the right to terminate this Lease effective upon the date transfer of possession is required. Moreover, Lessor shall have the right to terminate this Lease effective on the date transfer of possession is required if more than thirty three percent (33%) of the total square footage of the Premises is taken by condemnation. Lessee and Lessor may elect to exercise their respective rights to terminate this Lease pursuant to this Section by serving written notice to the other within thirty (30) days after receipt of notice of condemnation (i.e., 30 days from the date on which Lessor received such notice from the condemning authority for purposes of calculating the 30 days with respect to Lessor, and 30 days from the date on which Lessee received a copy of such notice from Lessor for purposes of calculating the 30 days with respect to Lessee. All rent shall be paid up to the date of termination, and Lessee shall have no claim against Lessor for the value of any unexpired portion of the Lease Term. If this Lease shall not be terminated, then Base Rent after such partial taking shall be that percentage of the adjusted Base Rent specified herein, equal to the percentage which the rentable square footage of the untaken part of the Premises, immediately after the taking, bears to the rentable square footage of the entire Premises immediately before the taking. If Lessee’s continued use of the Premises requires alterations and repair by reason of a partial

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taking, all such alterations and repair shall be made by Lessor at Lessor’s expense. Lessee waives all rights it may have under California Code of Civil Procedure Section 1265.130 or otherwise, to terminate this Lease based on partial condemnation.

Section 13.03 Award to Lessee

In the event of any condemnation, whether total or partial, Lessee shall have the right to claim and recover from the condemning authority such compensation as may be separately awarded or recoverable by Lessee for loss of its business fixtures, or equipment belonging to Lessee immediately prior to the condemnation, moving expenses and loss of good will, to the extent separately awarded by the condemning authority. The balance of any condemnation award shall belong to Lessor (including, without limitation, any amount attributable to any excess of the market value of the Premises for the remainder of the Lease Term over the then present value of the rent payable for the remainder of the Lease Term) and Lessee shall have no further right to recover from Lessor or the condemning authority for any claims arising out of such taking, provided that Lessee shall have the right to make a separate claim in the condemnation proceeding, as long as the award payable to Lessor is not reduced thereby, for (i) the taking of the unamortized (using the Lease Term as the amortization period) value of the Tenant Improvements paid for by Lessee which are not removed by Lessee, (ii) reasonable removal and relocation costs for any Tenant Improvements or Alterations that Lessee has the right to remove and elects to remove (if condemnor approves the removal), and (iii) relocation costs for Lessee’s business, provided that the awarding to Lessee of the items described in (i), (ii) and (iii) above does not reduce the condemnation award that would otherwise be awarded to Lessor.

ARTICLE XIV

ENTRY BY LESSOR

Section 14.01 Entry by Lessor Permitted

Lessee shall permit Lessor and its employees, agents and contractors, if accompanied by Lessee (except in cases of emergency), to enter the Premises and all parts thereof (i) upon twenty-four (24) hours notice (or without notice in an emergency), including without limitation, Building 10 and all parts thereof at all reasonable times for any of the following purposes: to inspect the Premises; to maintain the Premises; to make such repairs to the Premises as Lessor is obligated or may elect to make; and (ii) upon twenty-four (24) hours notice to show the Premises and post “To Lease” signs for the purposes of re-letting during the last twelve (12) months of the Lease Term (provided Lessee has failed to exercise any remaining Option to Extend) to show the Premises as part of a prospective sale by Lessor or to post notices of nonresponsibility. Lessor shall have such right of entry without any rebate of rent to Lessee for any loss of occupancy or quiet enjoyment of the Premises hereby occasioned, provided, Lessor shall use commercially reasonable efforts not to interfere with Lessee’s business operations at the Premises or unreasonably interfere with Lessee’s access to, or parking at, the Project or materially increase Lessee’s obligations or decrease Lessee’s rights under this Lease. Notwithstanding anything in this Lease to the contrary, in exercising any right to undertake any renovations, alterations, additions, restoration, inspections, repairs or maintenance as set forth in this Lease, Lessor shall comply with Lessee’s reasonable security measures and operating procedures and shall minimize any disruption to Lessee..

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ARTICLE XV

ESTOPPEL CERTIFICATE

Section 15.01 Estoppel Certificate

(a) Either Lessor or Lessee shall at any time upon not less than fifteen (15) days’ prior written notice from the other execute, acknowledge and deliver to the requesting party a statement in writing (i) certifying, if true, that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying, if true, that this Lease, as so modified, is in full force and effect) and the date to which the rent and other charges are paid in advance, if any, and (ii) acknowledging, if true, that there are not, to Lessee’s (or Lessor’s, as relevant) knowledge, any uncured defaults on the part of the requesting party hereunder, or specifying such defaults if any are claimed and (iii) certifying or acknowledging, if true, such other matters as are reasonably requested by any prospective lender or buyer which are reasonably related to the loan or sale transaction. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer of the Premises.

(b) Lessee’s failure to deliver such statement within such time shall be conclusive upon Lessee (i) that this Lease is in full force and effect, without modification except as may be represented by Lessor, (ii) that there are no uncured defaults in Lessor’s performance, and (iii) that not more than one month’s rent has been paid in advance, if any, and stating whether or not to the actual knowledge of the signer of such certificate Lessee is in default in the performance of any covenant, agreement or condition contained in this Lease and, if so, specifying each such default of which the signer may have knowledge, it being intended that any such statement delivered pursuant to this Section 15.01(b) may be relied upon by any prospective assignee of Lessee’s interest in this Lease or any lender or prospective lender (or investor) or purchaser of any interest in Lessee or its assets. Any failure of Lessee to deliver an estoppel certificate as provided herein shall, at the option of Lessor, be an event of default hereunder by Lessee without the requirement of any notice or grace period, except as is provided for in Section 12.01(c) above. In addition, Lessor may charge Lessee, and Lessee shall pay to Lessor, a fee equal to Five Hundred Dollars ($500) per day for each day Lessee is late in delivering such estoppel certificate.

ARTICLE XVI

LESSOR’S LIABILITY

Section 16.01 Limitations on Lessor’s Liability

The term “Lessor” as used herein shall mean only the owner or owners at the time in question of the fee title of the Premises. In the event of any transfer of such title or interest, Lessor herein named (and in case of any subsequent transfers then the grantor) shall be relieved from and after the date of such transfer of all liability as respects Lessor’s obligations thereafter to be performed, provided that the Letter of Credit and any funds in the hands of Lessor or the then grantor at the time of such transfer, in which Lessee has an interest, shall be delivered to the

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grantee. The obligations contained in this Lease to be performed by Lessor shall, subject as aforesaid, be binding on Lessor’s successors and assigns, only during their respective periods of ownership. For any breach of this Lease by Lessor, the liability of Lessor (including all persons and entities that comprise Lessor, and any successor Lessor) and any recourse by Lessee against Lessor shall be limited to the interest of Lessor, and Lessor’s successors in interest, in and to Building 10 and, to the extent Building 9 is owned by Lessor or any affiliate thereof, Building 9, and the proceeds therefrom (including rents, insurance and condemnation proceeds). On behalf of itself and all persons claiming by, through, or under Lessee, Lessee expressly waives and releases Lessor and each member, agent and employee of Lessor from any personal liability for breach of this Lease.

ARTICLE XVII

GENERAL PROVISIONS

Section 17.01 Severability

The invalidity of any provision of this Lease as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof.

Section 17.02 Agreed Rate Interest on Past Due Obligations

Except as expressly herein provided, any amount due to either party not paid when due shall bear interest at the lesser of the Bank of America prime rate plus four percent (4%) or the maximum amount of interest allowed by law (“Agreed Rate”). Payment of such interest shall not excuse or cure any default by either party under this Lease. Despite any other provision of this Lease, the total liability for interest payments shall not exceed the limits, if any, imposed by the usury laws of the State of California. Any interest paid in excess of those limits shall be refunded to the payor by application of the amount of excess interest paid against any sums outstanding in any order that payee requires. If the amount of excess interest paid exceeds the sums outstanding, the portion exceeding those sums shall be refunded in cash to the payor by the payee. To ascertain whether any interest payable exceeds the limits imposed, any nonprincipal payment (including late charges) shall be considered to the extent permitted by law to be an expense or a fee, premium, or penalty rather than interest.

Section 17.03 Time of Essence

Time is of the essence in the performance of all obligations under this Lease.

Section 17.04 Additional Rent

Any monetary obligations of Lessee to Lessor under the terms of this Lease shall be deemed to be Additional Rent and Lessor shall have all the rights and remedies for the nonpayment of same as it would have for nonpayment of Base Rent. All references to “rent” (except specific references to either Base Rent or Additional Rent) shall mean Base Rent and Additional Rent.

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Section 17.05 Incorporation of Prior Agreements, Amendments and Exhibits

This Lease (including Exhibits A, B, C, D, E, F, G, H and I and Schedules 1, 2, 3, 4, 5 and 6) contains all agreements of the parties with respect to any matter mentioned herein. No prior agreement or understanding pertaining to any such matter shall be effective. This Lease may be modified in writing only, signed by the parties in interest at the time of the modification. Except as otherwise stated in this Lease, Lessee hereby acknowledges that neither the Lessor nor any employees or agents of the Lessor has made any oral or written warranties or representations to Lessee relative to the condition or use by Lessee of said Premises and Lessee acknowledges that Lessee assumes all responsibility regarding the Occupational Safety Health Act, the legal use and adaptability of the Premises and the compliance thereof with all applicable laws and regulations in effect during the Lease Term except as otherwise specifically stated in this Lease. Neither party has been induced to enter into this Lease by, and neither party is relying on, any representation or warranty outside those expressly set forth in this Lease.

Section 17.06 Notices

(a) Written Notice

Any notice required or permitted to be given hereunder shall be in writing and shall be given by a method described in paragraph (b) below and shall be addressed to Lessee or to Lessor at the addresses noted below, next to the signature of the respective parties, as the case may be. Either party may specify a different address for notice purposes at any time by giving written notice of such change to the other party in a manner provided herein at least ten (10) days prior to the date such change is desired to be effective. A copy of all notices required or permitted to be given to Lessor or Lessee (as applicable) hereunder shall be concurrently transmitted to such party or parties at such addresses as such party may from time to time hereafter designate by notice to the other, but delay or failure of delivery to such person shall not affect the validity of the delivery to Lessor or Lessee.

(b) Methods of Delivery

(i) When personally delivered to the recipient, notice is effective on delivery. Delivery to the person apparently designated to receive deliveries at the subject address is personally delivered if made during business hours (e.g. receptionist).

(ii) When mailed by certified mail with return receipt requested, notice is effective on receipt if delivery is confirmed by a return receipt.

(iii) When delivery by overnight delivery Federal Express/Airborne/United Parcel Service/DHL WorldWide Express with charges prepaid or charged to the sender’s account, notice is effective on delivery if delivery is confirmed by the delivery service.

(c) Refused, Unclaimed or Undeliverable Notices

Any correctly addressed notice that is refused, unclaimed, or undeliverable because of an act or omission of the party to be notified shall be considered to be effective as of the first date that the notice was refused, unclaimed, or considered undeliverable by the postal authorities, messenger, or overnight delivery service.

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Section 17.07 Waivers

No waiver of any provision hereof shall be deemed a waiver of any other provision hereof or of any subsequent breach of the same or any other provisions. Any consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of consent to or approval of any subsequent act. 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 the time of acceptance of such rent.

Section 17.08 Recording

Either Lessor or Lessee shall, upon request of the other, execute, acknowledge and deliver to the other a “short form” memorandum of this Lease for recording purposes for each of the properties on which Building 6, Building 7, Building 8, Building 9 and Building 10 are located, provided that Lessee simultaneously executes in recordable form and delivers to Lessor a quit claim deed as to is leasehold and any other interest in the Premises and hereby authorizes Lessor to date and record the same only upon the expiration or sooner termination of this Lease or, in the case of Buildings 6, 7 and 8, upon the termination of Lessee’s expansion options with respect to each such property.

Section 17.09 Surrender of Possession; Holding Over

(a) At the expiration or earlier termination of the Lease, Lessee shall remove all of Lessee’s signs (pursuant to Section 17.15) and, subject to the terms of the Removal Obligations Schedule and Section 6.03 of the Lease, shall remove all of Lessee’s equipment, trade fixtures, supplies, wall decoration and other personal property from within the Premises, Building 10 and the Common Area and shall vacate, deliver up and surrender to Lessor possession of the Premises and all improvements thereon, subject to the terms of Section 17.21 of this Lease concerning Hazardous Materials brought upon, kept, used, stored, handled, treated, generated in, or released or disposed of from the Premises by Lessee or any of Lessee’s agents, employees or contractors (collectively, “Lessee HazMat Operations”) and released of all clearances required by any governmental authorities with respect to Lessee HazMat Operations, broom clean and, in good order and condition, excepting only ordinary wear and tear (wear and tear which could have been avoided by best maintenance practices customarily used at the Project) and damage due to casualty not caused by Lessee or Lessee’s agents, employees or contractors. Except for such ordinary wear and tear and damage due to casualty not caused by Lessee’s agents, employees or contractors (collectively, the “Lessee’s Parties”), Lessee shall (i) repair all damage to the Premises, the interior and exterior of Building 10 and the Common Area caused by Lessee’s removal of its property, (ii) patch and refinish, to Lessor’s reasonable satisfaction, all penetrations made by Lessee or its agents, contactors, employees or invitees to the roof, floor, interior or exterior walls or ceiling of the Premises and Building 10, whether such penetrations were made with Lessor’s approval or not, to the extent that the equipment requiring such penetration is removed at the expiration or earlier termination of the Lease, (iii) repair or

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replace all stained or damaged ceiling tiles, wall coverings and floor coverings (unless such staining or damage was caused by the actions of Lessor or the tenant of a leased space above the Premises) to the reasonable satisfaction of Lessor, (iv) repair all damage caused by Lessee to the exterior surface of Building 10 and, where necessary, replace or resurface same. Upon expiration or sooner termination of this Lease, Lessor may reenter the Premises and remove all persons and property therefrom. If Lessee shall fail to surrender to Lessor the Premises, Building 10 and the Common Area in the condition required by this paragraph at the expiration or, if sooner terminated, within ten (10) days after sooner termination, of this Lease, Lessor may, at Lessee’s expense, remove Lessee’s signs, property and/or improvements not so removed and make such repairs and replacements not so made or hire, at Lessee’s expense, independent contractors to perform such work. Lessee shall be liable to Lessor for all reasonable costs incurred by Lessor in returning the Premises, Building 10 and the Common Area to the required condition, together with interest thereon at the Agreed Rate from the date incurred by Lessor until paid. Lessee shall pay to Lessor the amount of all costs so incurred (including, without limitation, costs of disposal, storage and insurance) together with interest at the Agreed Rate within five (5) business days from Lessor’s delivery of a statement therefor. If the Premises are not surrendered at the end of the Lease Term, Lessee shall indemnify Lessor against loss or liability resulting from delay by Lessee in so surrendering the Premises, including, without limitation, actual damages for lost rent and with respect to any claims of a successor occupant. Notwithstanding anything to the contrary contained in this Section 17.09, and subject to the terms of the Removal Obligations Schedule, Lessee shall only be required to remove those Tenant Improvements and Alterations as Lessor shall have designated at the time Lessor gave its consent to such Tenant Improvements and/or Alterations to the extent required pursuant to the terms of Section 6.03 hereof, or when consent was not required, in response to Lessee’s written request for such determination.

(b) If Lessee, with Lessor’s prior written consent, remains in possession of the Premises after expiration of the Lease Term and if Lessor and Lessee have not executed an express written agreement as to such holding over, then such occupancy shall be a tenancy from month to month at a monthly Base Rent equivalent to one hundred fifty percent (150%) of the higher of: (i) the monthly rental in effect immediately prior to such expiration, or (ii) the Fair Market Rent for the Premises, such payments to be made as herein provided for Base Rent. In the event of such holding over, all of the terms of this Lease, including the payment of Additional Rent all charges owing hereunder other than rent shall remain in force and effect on said month to month basis.

(c) At least three (3) months prior to the surrender of the Premises, Lessee shall deliver to Lessor a narrative description of the actions proposed (or required by any governmental authority) to be taken by Lessee in order to surrender the Premises (including any Alterations permitted by Lessor to remain in the Premises) at the expiration or earlier termination of the Lease Term, in accordance with the requirements of any Environmental Laws or relevant governmental authority or, in the absence thereof, the requirements of Lessor’s lender or any commercially reasonable requirements of Lessor’s environmental consultant (collectively “HazMat Requirements”) with respect to the Lessee HazMat Operations and otherwise released for unrestricted use and occupancy (the “Surrender Plan”). Such Surrender Plan shall be accompanied by a current listing of (i) all Hazardous Materials licenses and permits held by or on behalf of any Lessee’s Parties with respect to the Premises, and (ii) all Hazardous Materials

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used, stored, handled, treated, generated, released or disposed of from the Premises, and shall be subject to the review and approval of Lessor’s environmental consultant. In connection with the review and approval of the Surrender Plan, upon the request of Lessor, Lessee shall deliver to Lessor or its consultant such additional non-proprietary information concerning Lessee HazMat Operations as Lessor shall request. On or before such surrender, Lessee shall deliver to Lessor evidence that the approved Surrender Plan shall have been satisfactorily completed and all HazMat Requirements have been met and Lessor shall have the right, subject to reimbursement at Lessee’s expenses as set forth below, to cause Lessor’s environmental consultant to inspect the Premises and perform such additional procedures as may be deemed reasonably necessary to confirm that the Premises are, as of the effective date of such surrender or early termination of the Lease, in accordance with applicable HazMat Requirements. Lessee shall reimburse Lessor, as Additional Rent, for the actual, out-of-pocket expense incurred by Lessor for Lessor’s environmental consultant to review and approve the Surrender Plan and to visit the Premises and verify satisfactory completion of the same. Lessor shall have the unrestricted right to deliver such Surrender Plan and any report by Lessor’s environmental consultant with respect to the surrender of the Premises to third parties. If Lessee shall fail to prepare or submit a Surrender Plan approved by Lessor, or if Lessee shall fail to complete the approved Surrender Plan, or if such Surrender Plan, whether or not approved by Lessor, shall fail to adequately address any residual effect of Lessee HazMat Operations in, on or about the Premises in violation of HazMat Requirements, Lessor shall have the right to take such actions as Lessor may deem reasonable or appropriate to assure that the Premises and the Project are surrendered free from any residual impact from Lessee HazMat Operations, the cost of which actions shall be reimbursed by Lessee as Additional Rent.

Section 17.10 Cumulative Remedies

No remedy or election hereunder by Lessor shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity, provided that notice and cure periods set forth in Article XII are intended to extend and modify statutory notice provisions to the extent expressly stated in Section 12.01.

Section 17.11 Covenants and Conditions

Each provision of this Lease to be observed or performed by Lessee and Lessor shall be deemed both a covenant and a condition.

Section 17.12 Binding Effect; Choice of Law

Subject to any provisions hereof restricting assignment or subletting by Lessee and subject to the provisions of Article XVI, this Lease shall bind the parties, their personal representatives, successors and assigns. This Lease shall be governed by the laws of the State of California and any legal or equitable action or proceeding brought with respect to the Lease or the Premises shall be brought in San Mateo County, California except for such actions or proceedings as are required by California law to be brought in the County were the subject real property is located.

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Section 17.13 Lease to be Subordinate

Lessee agrees that this Lease is and shall be, at all times, subject and subordinate to the lien of any mortgage, deed of trust or other encumbrances which Lessor may create against the Premises, including all renewals, replacements and extensions thereof provided, however, that regardless of any default under any such mortgage, deed of trust or other encumbrance or any sale of the Premises under such mortgage, deed of trust or other encumbrance so long as, subject to all applicable notice and cure periods, Lessee timely performs all covenants and conditions of this Lease and continues to make all timely payments hereunder, this Lease and Lessee’s possession and rights hereunder shall not be disturbed by the mortgagee or beneficiary or anyone claiming under or through such mortgagee or beneficiary. Lessee shall execute any documents which are commercially reasonable (i.e., of a type customarily executed between lenders and lessees for similar loans and leases) subordinating this Lease within ten (10) business days after delivery of same by Lessor so long as the mortgagee or beneficiary agrees therein that this Lease will not be terminated if Lessee is not in default following a foreclosure, including, without limitation, any Subordination Non-Disturbance and Attornment Agreement (“SNDA”) which is substantially in the form attached hereto as Exhibit “C”. In any event, Lessor and Lessee agree that Lessee may terminate this Lease upon written notice thereof to Lessor at any time after the date that is twenty (20) business days after the date of this Lease if Lessor and Lessor’s lender have not executed and delivered an executed version of a SNDA in the substantially the form attached hereto as Exhibit “C” to Lessee. In the event that any mortgage or deed of trust is foreclosed or a conveyance in lieu of foreclosure is made for any reason, and this Lease shall terminate, Lessee shall, notwithstanding any subordination, attorn to and become the tenant of such mortgagee or beneficiary or any successor to Lessor by foreclosure or deed-in-lieu of foreclosure, at the option of such successor in interest, provided however, that any such successor shall not (i) be liable for any previous act or omission of Lessor under the Lease, (ii) be subject to any offset, defense or counterclaim which shall theretofore have accrued to the Lessee under the Lease against Lessor, or (iii) have any obligation with respect to any security deposit unless it shall have been paid over or physically delivered to such successor, or (iv) be bound by any rents paid more than one month in advance to Lessor or any prior landlord or owner. Lessee shall execute and deliver, upon reasonable prior notice from Lessor any additional documents in such form as is designated by Lessor evidencing the priority or subordination of the Lease with respect to any such lien of any such mortgage or deed of trust.

Section 17.14 Attorneys’ Fees

If either party herein brings an action to enforce the terms hereof or to declare rights hereunder, the prevailing party in any such action, on trial or appeal, shall be entitled to recover its reasonable attorney’s fees, expert witness fees and costs as fixed by the Court.

Section 17.15 Signs

Lessee may, at Lessee’s sole expense, place Lessee’s company name on the monument sign for Building 10 at a location reasonably agreed by Lessee and Lessor and otherwise subject to the terms of this Section 17.15. Lessee shall also be entitled, at Lessee’s expense, to a pro rata share of directional signage at the Project for Building 10. Lessee shall not place any sign outside the Premises (or visible from outside the Premises) without Lessor’s prior

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written consent, which consent shall not be unreasonably withheld and subject to Lessee’s obtaining approval by the City of Redwood City. Lessee, at its sole cost and expense, after obtaining Lessor’s prior written consent, shall install, maintain and remove prior to expiration of this Lease (or within ten (10) days after any earlier termination of this Lease) all signage in full compliance with (i) all applicable law, statutes, ordinances and regulations and (ii) all provisions of this Lease concerning Alterations, and (iii) Lessor’s signage policy set forth on Exhibit “D” hereto.

Section 17.16 Merger

The voluntary or other surrender of this Lease by Lessee, or a mutual cancellation thereof, or a termination by Lessor, shall not work a merger, and shall, at the option of Lessor, terminate all or any existing subtenancies or may, at the option of Lessor, operate as an assignment to Lessor of any or all of such subtenancies.

Section 17.17 Quiet Possession

Upon Lessee timely paying the rent for the Premises and timely observing and performing all of the covenants, conditions and provisions on Lessee’s part to be observed and performed hereunder, Lessee shall have quiet possession of the Premises for the entire Lease Term, subject to all of the provisions of this Lease.

Section 17.18 Easements

Lessor reserves to itself the right, from time to time, to grant such easements, rights and dedications that Lessor deems necessary or desirable, and to cause the recordation of Parcel Maps and conditions, covenants and restrictions, so long as such easements, rights, dedications, Maps and conditions, covenants and restrictions do not unreasonably interfere with or diminish the use of the Premises or parking rights granted hereunder, including access thereto, by Lessee. Lessee shall sign any of the aforementioned or other documents, and take such other actions, which are reasonably necessary or appropriate to accomplish such granting, recordation and subordination of the Lease to same, upon request of Lessor, and failure to do so within ten (10) business days after a written request to do so shall constitute a material breach of this Lease, provided that Lessor shall reimburse Lessee for Lessee’s reasonable out-of-pocket expenses (including reasonable attorneys’ fees) necessarily incurred in the performance of Lessee’s obligations under this Section 17.18.

Section 17.19 Authority

Each individual executing this Lease on behalf of a corporation, limited liability company or partnership represents and warrants that he or she is duly authorized to execute and deliver this Lease on behalf of such entity, and that this Lease, once fully executed, shall be binding upon said entity in accordance with its terms.

Section 17.20 Force Majeure Delays

In any case where either party hereto is required to do any act (other than the payment of money), delays caused by or resulting from Acts of God or Nature, war, civil

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commotion, fire, flood or other casualty, labor difficulties, shortages of labor or materials or equipment, government regulations, delay by government or regulatory agencies with respect to approval or permit process, unusually severe weather, or other causes beyond such party’s reasonable control, the time during which such act shall be completed, shall be deemed to be extended by the period of such delay, whether such time be designated by a fixed date, a fixed time or a “reasonable time.”

Section 17.21 Hazardous Materials

(a) Definition of Hazardous Materials and Environmental Laws

“Hazardous Materials” means any (a) substance, product, waste or other material of any nature whatsoever which is or becomes listed regulated or addressed pursuant to the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. sections 9601, et seq. (“CERCLA”); the Hazardous Materials Transportation Act (“HMTA”) 49 U.S.C. section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. section 6901, et seq. (“RCRA”); the Toxic Substances Control Act, 15 U.S.C. sections 2601, et seq. (“TSCA”); the Clean Water Act, 33 U.S.C. sections 1251, et seq.; the California Hazardous Waste Control Act, Health and Safety Code sections 25100, et seq.; the California Hazardous Substances Account Act, Health and Safety Code sections 26300, et seq.; the California Safe Drinking Water and Toxic Enforcement Act, Health and Safety Code sections 25249.5, et seq.; California Health and Safety Code sections 25280, et seq.; (Underground Storage of Hazardous Substances); the California Hazardous Waste Management Act, Health and Safety Code sections 25170.1, et seq.; California Health and Safety Code sections 25501. et seq. (Hazardous Materials Response Plans and Inventory); or the Porter Cologne Water Quality Control Act, California Water Code sections 13000, et seq., all as amended, or any other federal, state or local statute, law, ordinance, resolution, code, rule, regulation, order or decree regulating, relating to or imposing liability (including, but not limited to, response, removal and remediation costs) or standards of conduct or performance concerning any hazardous, toxic or dangerous waste, substance or material, as now or at any time hereafter may be in effect (collectively, “Environmental Laws”); (b) any substance, product, waste or other material of any nature whatsoever whose presence in and of itself may give rise to liability under any of the above statutes or under any statutory or common law theory based on negligence, trespass, intentional tort, nuisance, strict or absolute liability or under any reported decisions of a state or federal court, (c) petroleum or crude oil, including but not limited to petroleum and petroleum products contained within regularly operated motor vehicles and (d) asbestos.

(b) Lessor’s Representations and Disclosures

Lessor represents that it has provided Lessee with a description of the Hazardous Materials on or beneath the Project as of the date hereof attached hereto as Exhibit “I” and incorporated herein by reference and that except as described in the documents identified in Exhibit “F,” Lessor has no actual knowledge of any Hazardous Materials at the Project. Lessee acknowledges receipt of the attached Exhibit “F”, which Lessor has provided pursuant to California Health & Safety Code Section 25359.7 which requires:

“Any owner of nonresidential real property who knows, or has reasonable cause to believe, that any release of hazardous substances has come to be located on or beneath that real property shall, prior to the sale, lease or rental of the real property by that owner, give written notice of that condition to the buyer, lessee or renter of the real property.”

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(c) Use of Hazardous Materials

Lessee shall not cause or permit any Hazardous Materials to be brought upon, kept or used in, on or about the Project by Lessee or Lessee’s Parties without Lessor’s prior written consent, except that Lessee may, without the need for Lessor’s prior written consent, bring on, keep at and use in, on or about the Premises those Hazardous Materials described in Schedule 4 attached hereto or any similar Hazardous Materials used for substantially the same purposes in substitution thereof in compliance with applicable Environmental Laws, even if they are Hazardous Materials. All such Hazardous Materials will be used, kept and stored by Lessee in a manner that complies with all applicable Environmental Laws. Lessee shall, at all times, use, keep, test, store, handle, transport, treat or dispose all such Hazardous Materials in or about the Project in compliance with all applicable HazMat Requirements. Lessee shall remove Hazardous Materials used or brought onto the Project during the Lease Term from the Project prior to the expiration or earlier termination of the Lease in accordance with any applicable HazMat Requirements and the Surrender Plan approved by Lessor.

(d) Lessee’s Environmental Indemnity

Lessee agrees to indemnify, defend, protect and hold Lessor harmless from any liabilities, losses, claims, damages, penalties, fines, attorney fees, expert fees, court costs, remediation costs, investigation costs, or other expenses resulting from or arising out of the use, storage, treatment, transportation, release, presence, generation, or disposal of Hazardous Materials on, from or about the Project, and/or subsurface or ground water from an act or omission of Lessee (or Lessee’s successor-in-interest), its agents, employees, invitees, vendors or contractors.

(e) Lessee’s Obligation to Promptly Remediate

If the presence of Hazardous Materials on the Premises after the Commencement Date results from an act or omission of Lessee (or Lessee’s successor-in-interest), its agents, employees, invitees, vendors, contractors, guests, or visitors results in contamination of the Project or any water or soil beneath the Project in violation of applicable HazMat Requirements, Lessee shall promptly take all action necessary or appropriate to test, investigate and remedy that contamination, at its sole cost and expense, provided that Lessor’s consent to such action shall first be obtained, which consent shall not be unreasonably withheld, conditioned or delayed.

(f) Notification

Lessor and Lessee each agree to promptly notify the other of any communication received from any governmental entity concerning Hazardous Materials or the violation or alleged violation of Environmental Laws that relate to the Project. In addition,

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Lessee shall promptly provide to Lessor copies of any approvals or disapprovals received from any relevant governmental agency in connection with permits, licenses or periodic or episodic testing or remediation of the Premises by Lessee required by HazMat Requirements, including but not limited to the plans, permits and licenses described in Schedule 5 attached hereto or any other such plans, permits and licenses instead performed by Lessee pursuant to HazMat Requirements. Without limiting the foregoing, Lessee shall deliver to Lessor any applications for decommissioning the Premises pursuant to HazMat Requirements at the same time such application is delivered to the relevant governmental agency. Lessor shall have the opportunity to participate in, and comment on, any such decommission or surrender plan application and the final version of such plan shall be subject to Lessor’s written approval.

(g) Testing.

Lessor shall have the right to conduct tests of the Premises at any time that Lessor seeks to sell or refinance the Premises, or if Lessor has reasonable grounds to believe that Hazardous Materials may exist at the Premises in violation of the terms of this Lease. Such test shall be performed in order to determine whether any contamination of the Premises or the Project has occurred as a result of Lessee’s use. Lessee shall be required to pay the reasonable cost of such tests of the Premises if they are performed due to Lessor’s reasonable grounds to believe that Hazardous Materials may exist at the Premises in violation of the terms of this Lease (Lessor shall pay the costs of such tests in the event of a sale or refinancing); provided, however, that if Lessee conducts its own tests of the Premises using third party contractors and test procedures acceptable to Lessor which tests are certified to Lessor, Lessor shall accept such tests in lieu of such tests to be paid for by Lessee. In connection with such testing, upon the request of Lessor, Lessee shall deliver to Lessor or its consultant such non-proprietary information concerning the use of Hazardous Materials in or about the Premises by Lessee or any Lessee Parties. If contamination has occurred in violation or excess of the HazMat Requirements for which Lessee is liable under this Section 17.21, Lessee shall pay all costs to conduct such tests. If no such contamination is found, Lessor shall pay the costs of such tests. Lessee shall, at its sole cost and expense, promptly and satisfactorily remediate any environmental conditions identified by such testing in accordance with HazMat Requirements. Lessor’s receipt of or satisfaction with any environmental assessment in no way waives any rights which Lessor may have against Lessee. Notwithstanding anything herein to the contrary, within thirty (30) days prior to the Expiration Date or any earlier date on which the Lease terminates, Lessee shall, at Lessee’s sole expense, deliver to Lessor a phase II environmental audit of the Premises showing the environmental condition of the Premises and the completion of Lessee’s Surrender Plan for the Premises.

(h) Dispute Resolution. Notwithstanding anything herein to the contrary, if Lessor requires Lessee to perform any testing, clean-up or remediation of Hazardous Materials, or if Lessor requires Lessee to modify Lessee’s use of Hazardous Materials at the Premises in a manner or in amounts other than as is required by Environmental Laws pursuant to either this Section 17.21 or Section 17.09(c) above, and Lessee believes that Lessor’s requirements are not commercially reasonable, then if Lessee provides Lessor with written notice thereof (the “Dispute Notice”) within fifteen (15) business days of the date on which Lessor first informs Lessee in writing of such requirement, then such dispute shall be remedied pursuant to the terms of this Subparagraph 17.22(h). If such a dispute exists, Lessor and Lessee shall meet within ten

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(10) business days after the date of the Dispute Notice and attempt in good faith to resolve the dispute. If, despite such meeting, the parties cannot resolve the dispute, each of Lessor and Lessee shall separately designate to the other in writing an environmental expert to determine if the requirement in question is commercially reasonable. Each environmental expert designated shall have at least ten (10) years experience in performing environmental audits of real property in San Mateo County and shall be paid by the party choosing such expert. The failure of either party to appoint an environmental expert within the time allowed shall be deemed equivalent to appointing the environmental expert appointed by the other party, who shall then determine whether the requirement in question is commercially reasonable. The two (2) environmental experts shall then each prepare a written proposal of what a commercially reasonable environmental requirement for the activity in question. If the two (2) environmental experts are unable to agree on whether the requirement in question is commercially reasonable, or, in lieu thereof, to come to agreement on a commercially reasonable environmental requirement for the issue in question, within fifteen (15) business days of their appointment, the two designated environmental experts shall jointly designate a third similarly qualified environmental expert. The third environmental expert shall within ten (10) business days following its appointment, then determine which of the two environmental experts’ determinations most closely reflects an appropriate, commercially reasonable requirement with respect to the Hazardous Materials issue in question. The third environmental expert shall have no rights to adjust, amend or otherwise alter the determinations made by the environmental experts selected by the parties, but must select one or the other of such experts’ submissions. The determination by such third environmental expert shall be final and binding upon the parties. Said third environmental expert shall, upon selecting the determination, concurrently notify both parties hereto. The parties shall share the expenses of the third environmental expert equally.

(i) Survival.

Lessee’s obligations pursuant to this Section 17.21 shall survive the expiration or earlier termination of this Lease.

Section 17.22 Modifications Required by Lessor’s Lender

If any lender of Lessor requests a modification of this Lease that will not increase Lessee’s cost or expense or materially and adversely change Lessee’s rights and obligations hereunder, this Lease shall be so modified and Lessee shall execute whatever documents are required by such lender and deliver them to Lessor within ten (10) days after the request.

Section 17.23 Brokers

Lessor and Lessee each represents to the other that it has had no dealings with any real estate broker or agent in connection with the negotiation of this Lease, except for Cornish & Carey Commercial, in the case of Lessor, and Cornish & Carey Commercial in the case of Lessee (collectively, the “Brokers”) and that they know of no other real estate broker or agent who is entitled to a commission or finder’s fee in connection with this Lease. Each party shall indemnify, protect, defend, and hold harmless the other party against all claims, demands, losses, liabilities, lawsuits, judgments, and costs and expenses (including reasonable attorney fees) for any leasing commission, finder’s fee, or equivalent compensation alleged to be owning on

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account of the indemnifying party’s dealings with any real estate broker or agent other than the Brokers. The terms of this Section 17.23 shall survive the expiration or earlier termination of the Lease.

Section 17.24 Acknowledgment of Notices

Lessor has provided and Lessee hereby acknowledges receipt of the Notices attached as Exhibits “G” and “H” hereto, concerning the presence of certain uses and operations of neighboring parcels of land.

Section 17.25 Right of First Offer.

(a) Grant.

Subject to the terms of this Section 17.25, Lessor grants to Lessee during the Right of First Offer Term a continuing right of first offer (“Right of First Offer”) to lease any space which is available for lease located in Building 6 in the Project (“Available Space”). For the purposes of this Section 17.25, such space shall not be deemed available for lease, and this Right of First Offer shall not apply, if the space in question is already leased to a tenant thereof who leases or re-leases such space pursuant to any then-existing or future agreement to extend the term of its lease or expand the size of its premises between Lessor and such tenant.

(b) Term.

The term of the Right of First Offer (“Right of First Offer Term”) shall commence on the Commencement Date of this Lease and shall terminate on the expiration or earlier termination of this Lease.

(c) Covenants of Lessor.

Subject to the conditions precedent established by subsection (e) below, if at any time during the Right of First Offer Term Lessor decides to offer any Available Space for lease to the general public, Lessor shall first provide Lessee with a written notice (“Offer Notice”) detailing (i) the rent at which said Available Space is being offered, (ii) the rentable square footage and location thereof, (iii) the date the Available Space will become available and (iv) all other material economic terms upon which Lessor proposes to lease the Available Space to Lessee. If Lessee does not deliver an Acceptance Notice (as defined below) in response to such Offer Notice and Lessor subsequently decides to offer the Available Space for lease to the general public at a lesser rental rate than was described in the initial Offer Notice, then Lessor shall send Lessee a subsequent Offer Notice and the terms of this Section 17.25 shall apply again to such subsequent Offer Notice.

(d) Exercise of Lessee’s Right of First Offer.

Subject to the conditions precedent established by subsection (e) below, Lessee may exercise Lessee’s Right of First Offer to lease all (but not less than all) of the Available Space described in the Offer Notice by providing Lessor with written notice (“Acceptance Notice”) thereof within ten (10) business days of Lessor’s delivery to Lessee of the Offer Notice.

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If Lessee does not exercise its Right of First Offer within said ten (10) business day period, Lessor shall be relieved of Lessor’s obligation to lease the Available Space mentioned in the Offer Notice to Lessee and the provisions of this Section 17.25 shall not apply to Lessor.

(e) Conditions to Right of First Offer.

Notwithstanding anything to the contrary in this Section 17.25, Lessor shall have no obligation to provide Lessee with an Offer Notice, and Lessee shall have no right to exercise Lessee’s Right of First Offer, if: (i) Lessor has delivered a written notice to Lessee that Lessee is in default hereunder or under the Building 9 Lease and such default has not yet been cured either: (a) at the time Lessor seeks to lease the Available Space in question, or at the time Lessee seeks to give Lessor an Acceptance Notice, whichever, is relevant, or (b) upon the date Lessee seeks to take possession of the Available Space referenced in the Offer Notice, (ii) Lessee has assigned this Lease or sublet more than fifty percent (50%) of the rentable space located in the Premises to a party other than an Affiliate, (iii) Lessee then occupies less than fifty percent (50%) of the Premises, (iv) Lessee has received more than three (3) written notices of monetary default and more than one (1) written notice of a non-monetary default from Lessor during the Lease Term or under the Building 9 Lease during the “Lease Term” of that lease, (v) as of the date of such Offer Notice, Lessee does not meet the financial tests set forth in Schedule 6 attached hereto, or (vi) Lessor’s lender does not consent to Lessee’s expansion into the Available Space.. Lessee’s Right of First Offer shall be personal to Lessee and Lessee’s Affiliate and shall not be transferable with any assignment of this Lease or subletting of the Premises.

(f) Terms for Right of First Offer.

In the event that Lessee exercises Lessee’s Right of First Offer, Lessee’s occupancy of the Available Space taken shall be on all of the same terms and conditions described in the Offer Notice. In such event, Lessee’s Share due hereunder shall also be adjusted accordingly.

(g) New Lease.

Lessor and Lessee hereby agree to execute a new lease for such Available Space in the same form and, except for the business terms of the Offer Notice and terms made necessary as a result of the different space, having the same content as this Lease (“New Lease”) prior to Lessee’s occupancy of the Available Space in question. The New Lease shall specify, among other things, the Rent, date of occupancy, increase in Lessee’s Share and square footage of the Available Space taken in connection with Lessee’s exercise of Lessee’s Right of First Offer, and shall otherwise be on the terms of this Lease, except for whatever changes are required in connection with any differing uses of the Available Space by Lessee. If Lessee does not execute such a New Lease within ten (10) business days after the date on which Lessor provides Lessee with a form of New Lease as described in this Subsection (g), then, at Lessor’s option, Lessee’s right to lease the Available Space on the terms referenced in the Offer Notice shall be void and terminated, provided that such termination shall not affect Lessee’s ongoing rights pursuant to the terms of this Section 17.25.

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Section 17.26 Right of First Refusal.

(a) Grant.

Subject to the terms of this Section 17.26, Lessor grants to Lessee during the Right of First Refusal Term a continuing right of first refusal (“Right of First Refusal”) to lease any space which is available for lease in either Building 7 or Building 8 in the Project (“Available ROFR Space”). For the purposes of this Section 17.26, such space shall not be deemed available for lease, and this Right of First Refusal shall not apply, if the space in question is already leased to a tenant thereof who leases such space pursuant to any then-existing or future agreement to extend the term of its lease or expand the size of its premises between Lessor and such tenant.

(b) Covenants of Lessor.

Subject to the conditions precedent established by subsection (d) below, if at any time during the Lease Term Lessor receives an offer which Lessor is willing to accept from a bona fide third party to lease any space in the Available ROFR Space, Lessor shall first provide Lessee with a written notice (“Refusal Offer Notice”) detailing (i) the rent at which said Available ROFR Space is to be leased to the third party, (ii) the rentable square footage and location thereof, (iii) the date the Available ROFR Space will become available and the term of the proposed lease and (iv) all other material economic terms upon which Lessor is willing to lease the Available ROFR Space in question to such third party.

(c) Exercise of Lessee’s Right of First Refusal.

Subject to the conditions precedent established by subsection (d) below, Lessee may exercise Lessee’s Right of First Refusal to lease all (but not less than all) of the Available ROFR Space described in the Refusal Offer Notice by providing Lessor with written notice (“ROFR Acceptance Notice”) thereof within five (5) business days of Lessor’s delivery to Lessee of the Refusal Offer Notice. If Lessee does not exercise its Right of First Refusal within said five (5) business day period, Lessor shall be relieved of Lessor’s obligation to lease the Available ROFR Space mentioned in the Refusal Offer Notice, to Lessee and the provisions of this Section 17.26 shall not apply to Lessor. If the transaction described in the ROFR Offer Notice is not consummated, then, prior to entering into a new lease for the Available ROFR Space, Lessor shall repeat the process described in this Section 17.26.

(d) Conditions to Right of First Refusal.

Notwithstanding anything to the contrary in this Section 17.26, Lessor shall have no obligation to provide Lessee with a Refusal Offer Notice, and Lessee shall have no right to exercise Lessee’s Right of First Refusal, if: (i) Lessor has delivered to Lessee a written notice that Lessee is in default hereunder and such default has not yet been cured either: (a) at the time Lessor seeks to lease the Available ROFR Space in question, or at the time Lessee seeks to give Lessor an ROFR Acceptance Notice, whichever, is relevant, or (b) upon the date Lessee seeks to take possession of the Available ROFR Space referenced in the Refusal Offer Notice, (ii) Lessee has assigned this Lease or sublet more than fifty percent (50%) of the rentable space located in the Premises to a party other than an Affiliate, (iii) Lessee then occupies less than fifty percent

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(50%) of the Premises, (iv) Lessee has received more than three (3) written notices of monetary default and one (1) written notice of non-monetary default from Lessor during the Lease Term or under the Building 9 Lease during the “Lease Term” of that lease, (v) at the time of the Refusal Offer Notice Lessee fails to meet the financial tests set forth in Schedule 6 attached hereto, or (vi) Lessor’s lender does not consent to Lessee’s expansion into the Available Space.. Lessee’s Right of First Refusal shall be personal to Lessee and Lessee’s Affiliate and shall not be transferable with any assignment of this Lease or subletting of the Premises.

(e) Terms for Right of First Refusal.

In the event that Lessee exercises Lessee’s Right of First Refusal, Lessee’s occupancy of the Available ROFR Space taken shall be on all of the same terms and conditions described in the Refusal Offer Notice. In such event, Lessee’s Share due hereunder shall also be adjusted accordingly.

(f) New Lease.

Lessor and Lessee hereby agree to execute a new lease for such Available ROFR Space in the same form and, except for the business terms of the ROFR Offer Notice and terms made necessary as a result of the different space, having the same content as this Lease (“ROFR Lease”) prior to Lessee’s occupancy of the Available ROFR Space in question. The ROFR Lease shall specify, among other things, the Rent, date of occupancy, increase in Lessee’s Share and square footage of the Available ROFR Space taken in connection with Lessee’s exercise of Lessee’s Right of First Refusal, and shall otherwise be on the terms of this Lease, except for whatever changes are required in connection with any differing uses of the Available ROFR Space by Lessee. If Lessee does not execute such a ROFR Lease within ten (10) business days after the date on which Lessor provides Lessee with a form of ROFR Lease as described in this Subsection (f), then, at Lessor’s option, Lessee’s right to lease the Available ROFR Space on the terms referenced in the ROFR Offer Notice shall be void and terminated, provided that such termination shall not affect Lessee’s ongoing rights pursuant to the terms of this Section 17.26.

Section 17.27 Lessee’s Expansion Right. If, during the Lease Term, Lessee desires to lease additional space in the Project but there is no such space then available for lease in the Project, and if Lessor (and Lessor’s lender) determines, in its sole and absolute discretion, that it would not adversely affect the Project and Lessor determines, in Lessor’s sole and absolute discretion, that Lessor can construct an additional building in the Project, then, at Lessee’s written request, Lessor shall use Lessor’s good faith efforts to gain the necessary governmental approvals for, and shall construct, such an additional building for Lessee’s use. The size, location and date of availability of such building, and the economic terms on which Lessor shall lease such building to Lessee, shall be subject to the mutual agreement of the Lessor and Lessee. Further, Lessor shall have no obligations whatsoever to Lessee under this Section 17.27 if at the time of Lessee’s request for such building Lessee does not meet the relevant financial tests set forth in Schedule 6 attached hereto or has received a written notice of default hereunder or under the Building 9 Lease and such default has not yet been cured. The terms of this Section 17.27 shall only be operative at any time that Pacific Shores Investors, LLC or any affiliate thereof owns the entire Project, and upon the sale or other transfer of this Project or any portion thereof the terms of this Section 17.27 shall be rendered null and void and of no further effect, and the Lessor shall then have no further obligations to the Lessee hereunder whatsoever.

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Section 17.28 Notification of Intention to Market. If Lessor shall decide to market the Project for sale, Lessor shall provide Lessee with marketing materials therefore at the same time and in a similar manner as Lessor provides such materials to the general public. Nothing herein shall be deemed to create an obligation of Lessor to sell the Project or enter into negotiations for the sale of the Project with Lessee or keep Lessee informed of the status of any such negotiations with a third party for the sale of the Project. The parties acknowledge and agree that nothing herein shall be deemed to create any sort of an option, right of first refusal, right of first offer, right of first negotiation or any other type of option or right of Lessee to purchase the Project or any portion thereof. The obligation of Lessor hereunder is limited solely to notifying Lessee of Lessor’s marketing of the Project for a potential sale, and Lessor reserves the right to sell the Project, or not sell it at all, on any terms and conditions that Lessor shall deem appropriate, in Lessor’s sole and absolute discretion. Lessee agrees to keep the notification delivered to it by Lessor hereunder strictly and completely confidential, and shall not disclose such notification to anyone whatsoever. The terms of this Section 17.28 shall only be operative at any time that Pacific Shores Investors, LLC or any affiliate thereof owns the entire Project, and upon the sale or other transfer of this Project or any portion thereof the terms of this Section 17.28 shall be rendered null and void and of no further effect, and the Lessor shall then have no further obligations to the Lessee hereunder whatsoever.

Section 17.29 List of Lease Expiration Dates. Upon written request therefor by Lessee, Lessor shall deliver to Lessee a list of then current expiration dates (not taking into account any extension or expansion rights that may or may not be exercised by the tenants of the Project) of the current leases of space in the portion of the Project then owned by Lessor, which list shall also describe the size and location of the space in question. Nothing herein shall be deemed to create an obligation of Lessor to lease such space to Lessee or enter into negotiations for the lease of such space to Lessee or keep Lessee informed of the status of any space for lease in the Project. The parties acknowledge and agree that nothing in this Section 17.29 shall be deemed to create any sort of an option, right of first refusal, right of first offer, right of first negotiation or any other type of option or right of Lessee to lease space the Project or any portion thereof. The obligation of Lessor hereunder is limited solely to delivering to Lessee a list of the expiration dates of existing leases of space in the Project.

Section 17.30 [Intentionally omitted.]

Section 17.31 Condition Subsequent. Notwithstanding anything to the contrary herein, Lessor and Lessee acknowledge and agree that the effectiveness of this Lease is conditioned upon Lessee’s exercise of Lessee’s option to lease the Premises and the Building 9 Premises (as defined therein) pursuant to the terms of that certain Amended and Restated Option to Lease dated June 15, 2006 (the “Option Agreement”) between Lessor, as optionor, and Lessee, as optionee. Notwithstanding Lessor and Lessee’s execution of this Lease, if Lessee fails to exercise such option by July 5, 2006, or if the Option Agreement is terminated pursuant to its terms, then this Lease and all of the obligations of the parties hereunder shall terminate and be null and void, and any amount prepaid by Lessee to Lessor hereunder shall be promptly repaid to Lessee.

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Section 17.32 List of Exhibits

EXHIBIT A:	Premises
EXHIBIT B:	Memorandum of Commencement of Lease Term and Schedule of Base Rent
EXHIBIT C	SNDA
EXHIBIT D	Signage Exhibit
EXHIBIT E	Work Letter Agreement
EXHIBIT F	Hazardous Materials Disclosure
EXHIBIT G:	Notice to Tenants
EXHIBIT H:	Notice to Tenants
EXHIBIT I:	Rules and Regulations
SCHEDULE 1	License Agreement
SCHEDULE 2	Yard Area
SCHEDULE 3	Removal Obligations Standard
SCHEDULE 4	Permitted Hazardous Materials
SCHEDULE 5	Plans, Licenses and Permits
SCHEDULE 6	Financial Tests

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LESSOR AND LESSEE EACH HAS CAREFULLY READ AND HAS REVIEWED THIS LEASE AND BEEN ADVISED BY LEGAL COUNSEL OF ITS OWN CHOOSING AS TO EACH TERM AND PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOWS ITS INFORMED AND VOLUNTARY CONSENT THERETO. EACH PARTY HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS AND CONDITIONS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES.

Executed at Redwood City, California, as of the reference date.

(Signatures continued on next page)

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LESSOR:	ADDRESS:
	c/o Jay Paul Company
PACIFIC SHORES INVESTORS, LLC,	350 California Street, Suite 1905
a Delaware limited liability company	San Francisco, CA 94104-1432

By:	Pacific Shores Mezzanine, LLC, a Delaware limited liability company, its sole member
	By:	Pacific Shores Junior Mezz, LLC, a Delaware limited liability company its sole member
		By:	Pacific Shores Junior Mezz Managers, LLC, a Delaware limited liability company its sole member
			By:	Pacific Shores Development, LLC, a Delaware limited liability company, its sole member
				By:	TECHNOLOGY LAND LLC, a California limited liability company, Operating Member
					By:	/s/ Jay Paul
						Jay Paul, Sole Managing Member

LESSEE:		ADDRESS:
PDL BIOPHARMA, INC., a Delaware corporation		(Before Commencement Date)
		34801 Campus Drive
By:	/s/ Mark McDade	Freemont, California 94555
	Mark McDade	Attention: Ms. Laurie Torres, VP Human
	(Type or Print Name)	Resources
Its:	Chief Executive Officer	(After Commencement Date)
		Pacific Shores Center
		Building 10
		1500 Seaport Boulevard
		Redwood City, CA 94063

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With a copy to:

Silicon Valley Law Group

25 Metro Drive, Suite 600

San Jose, California 95110

Attn: Lucy A. Lofrumento, Esq.

57

EXHIBIT A

to

PACIFIC SHORES INVESTORS, LLC

LEASE

to

PDL BIOPHARMA, INC.,

a Delaware corporation

LESSEE

for

PREMISES

at

Pacific Shores Center

Building 10

Redwood City, California 94063

REAL PROPERTY LEGAL DESCRIPTION,

SITE PLAN AND PREMISES FLOOR PLAN

(See Building Description and Depiction of Property attached)

A-1

EXHIBIT A

LEGAL DESCRIPTION

Real property in the City of Redwood City, County of San Mateo, State of California described as follows:

Lot 10 and 10P as shown on the certain Map of Pacific Shores Center filed July 21, 2000 in Book 130 of Maps, pages 66-74, San Mateo County Records.

A-2

Site Plan

EXHIBIT B

to

PACIFIC SHORES INVESTORS, LLC

LEASE

to

PDL BIOPHARMA, INC.,

a Delaware corporation

as

LESSEE

for

PREMISES

at

Pacific Shores Center

Building 10

Redwood City, California 94063

MEMORANDUM OF

COMMENCEMENT OF LEASE TERM

Pursuant to Article III, Section 3.01, paragraph (a) of the above-referenced Lease, the parties to said Lease agree to the following:

The Commencement Date of the Lease                      and the Lease Term commenced on said date. The Expiration Date for the initial Lease Term is                     .

The date for commencement of Base Rent for the Premises is                     .

The date for commencement of Additional Rent, including, without limitation, Operating Expenses is                     .

Attached hereto as a part hereof is a true and correct schedule of Base Rent. The total Rentable Area of the Premises is an agreed                      rentable square feet.

Each person executing this Memorandum certifies that he or she is authorized to do so on behalf of and as the act of the entity indicated. Executed as of                     , 200    , at Redwood City (San Mateo County), California.

B-1

“Lessor”
PACIFIC SHORES INVESTORS, LLC a Delaware limited liability company
By:	Pacific Shores Mezzanine, LLC, a Delaware limited liability company, its sole member
	By:	Pacific Shores Junior Mezz, LLC, a Delaware limited liability company its sole member
		By:	Pacific Shores Junior Mezz Managers, LLC, a Delaware limited liability company, its sole member
			By:	Pacific Shores Development, LLC, a Delaware limited liability company, its sole member
				By:	TECHNOLOGY LAND LLC, a California limited liability company, Operating Member
					By:
						Jay Paul, Sole Managing Member

“Lessee”
PDL BIOPHARMA, INC., a Delaware corporation
By:
	(Type or Print Name)
Its:

B-2

EXHIBIT C

to

PACIFIC SHORES INVESTORS, LLC

LEASE

to

PDL BIOPHARMA, INC.,

a Delaware corporation

as

LESSEE

for

PREMISES

at

Pacific Shores Center

Building 10

Redwood City, California 94063

SNDA

SUBORDINATION, NONDISTURBANCE

AND ATTORNMENT AGREEMENT

NOTICE: THIS SUBORDINATION AGREEMENT RESULTS IN YOUR OPTION AGREEMENT, BUILDING 9 LEASE AND BUILDING 10 LEASE BECOMING SUBJECT TO AND OF LOWER PRIORITY THAN THE LIEN OF THE DEED OF TRUST (DEFINED BELOW).

THIS AGREEMENT is dated for reference as of the      day of                     , 2006, and is made between WELLS FARGO BANK, N.A., as Trustee for the Registered Holders of Credit Suisse First Boston Mortgage Securities Corp., Commercial Mortgage Pass-Through Certificates Series 2004-TFL2 (“Mortgagee”), PACIFIC SHORES INVESTORS, LLC, a Delaware limited liability company (“Lessor”), and PROTEIN DESIGN LABS, INC., a Delaware corporation (“Lessee”).

RECITALS

A. Lessor currently owns the Pacific Shores Center in Redwood City, California, which project includes that certain approximately 283,015 square foot building located at 1400 Seaport Boulevard and related real property referred to herein as the “Building 9 Premises”, and that certain approximately 164,732 square foot building located at 1500 Seaport Boulevard and related real property referred to herein as “Building 10 Premises.”

B. Lessor and Lessee have entered into (a) that certain Triple Net Space Lease for the Building 9 Premises (“Building 9 Lease”), and (b) that certain Triple Net Space Lease for the Building 10 Premises (“Building 10 Lease”).

C. Mortgagee is the current holder of a loan made by Column Financial, Inc. to Lessor and secured by a deed of trust (the “Deed of Trust”) encumbering the real property of which the Building 9 Premises and the Building 10 Premises form a part (the “Property”), and the parties desire to set forth their agreement as hereinafter set forth.

C-1

NOW, THEREFORE, in consideration of the premises and of the sum of ONE DOLLAR ($1.00) by each party in hand paid to the other, the receipt of which is hereby acknowledged, the parties hereby agree as follows:

1. The Building 9 Lease and the Building 10 Lease are and shall be subject and subordinate to the Deed of Trust insofar as it affects the Property, and to all of Mortgagee’s rights thereunder, including all renewals, modifications, consolidations, replacement and extensions of the Deed of Trust, to the full extent of amounts secured thereby and interest thereon.

2. Subject to the terms and conditions of Paragraph 3 of this agreement, Lessee agrees that it will attorn to and recognize any purchaser at a foreclosure sale under the Deed of Trust, any transferee who acquires the Property by deed in lieu of foreclosure, and the successors and assigns of such purchasers (the applicable party taking title is referred to as the “New Owner”), as its landlord for the unexpired balance (and any extensions, if exercised) of the term of said leases upon the same terms and conditions set forth in the Building 9 Lease and the Building 10 Lease.

3. Regardless of any default under any such mortgage, deed of trust or other encumbrance or any sale of the Property under such mortgage, deed of trust or other encumbrance, the Building 9 Lease and the Building 10 Lease and Lessee’s rights thereunder, shall not be disturbed by the mortgagee or beneficiary or anyone claiming under or through such mortgagee or beneficiary; provided, however that nothing contained herein shall prevent Mortgagee from naming Lessee in any foreclosure or other action or proceeding initiated in order for Mortgagee to avail itself of and complete any such foreclosure or other remedy, so long as such joinder does not result in a termination of the Building 9 Lease and/or the Building 10 Lease, or diminish Lessee’s rights and privileges under the Building 9 Lease or the Building 10 Lease. After acquisition of title by a New Owner, Building 9 Lease and the Building 10 Lease shall be a direct agreement(s) between Lessee and the New Owner. Lessee shall be obligated to perform for the New Owner under the Building 9 Lease and the Building 10 Lease and the New Owner shall assume the obligations of the Lessor under the Building 9 Lease and the Building 10 Lease, including without limitation any extension thereof pursuant to the terms of the Building 9 Lease and the Building 10 Lease, in accordance with the terms of the applicable document(s), subject to Section 4 below.

4. If any New Owner succeeds to the interest of Lessor under the Building 9 Lease or the Building 10 Lease, the New Owner shall not be:

(a) liable for any act or omission of any prior lessor (including Lessor); provided, that nothing herein shall release the lessor under the Building 9 Lease or the Building 10 Lease from the obligation to perform maintenance or repair obligations or limit New Owner’s obligations under said leases to correct any conditions in violation of the New Owner’s obligations as lessor under the

Building 9 Lease or the Building 10 Lease provided that Lessee provides such New Owner with written notice of such default and opportunity to cure pursuant to Section 6 below; or

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(b) liable for the return of any security deposit under either the Building 9 Lease or the Building 10 Lease not actually received by Mortgagee or the New Owner; or

(c) subject to any offsets or claims which Lessee might have against any prior lessor (including Lessor); or

(d) bound by any rent or additional rent which Lessee might have paid under the Building 9 Lease or the Building 10 Lease for more than the current month to any prior lessor (including Lessor) unless such monies have been actually received by New Owner; or

(e) bound by any amendment or modification of the Building 9 Lease or the Building 10 Lease (including an agreement to terminate the Building 9 Lease or the Building 10 Lease, other than as expressly contained in the Building 9 Lease or the Building 10 Lease) made without its consent.

5. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their successors and assigns.

6. Lessee agrees to give Mortgagee notice of any default by Lessor under the Building 9 Lease and the Building 10 Lease (if and when executed by the parties). Lessee further agrees that if Lessor shall have failed to cure such default within the time provided for in the Building 9 Lease or the Building 10 Lease, then Mortgagee shall have an additional thirty (30) days within which to cure such default or if such default cannot be cured within that time, then such additional time as may be necessary if within such thirty (30) days Mortgagee has commenced and is diligently pursuing the remedies necessary to cure such default (including, but not limited to, commencement of legal proceedings, if necessary to effect such cure) in which event neither the Building 9 Lease nor the Building 10 Lease shall be terminated while such remedies are being so diligently pursued. Lessee shall accept performance by Mortgagee of any term, covenant, condition or agreement to be performed by Lessor under the Building 9 Lease or the Building 10 Lease with the same force and effect as though performed by Lessor.

7. In the event Mortgagee succeeds to the interest of Lessor in the Property, Lessee’s rights against Mortgagee, as lessor, shall be limited to Mortgagee’s interest in the Property, and Lessee shall have no recourse with regard to any other assets of Mortgagee.

8. Any notices which a party may be obligated or elect to give hereunder shall be sufficient if sent by certified mail, return receipt requested, postage prepaid or by Federal Express or other established overnight courier addressed as follows:

If to Mortgagee: Wells Fargo Bank, N.A., as Trustee for the Registered Holders of Credit Suisse First Boston Mortgage Securities Corp., Commercial Mortgage Pass-Through Certificates Series 2004-TFL2 c/o Wachovia Securities, Commercial Real Estate Services 8739 Research Drive-URP4 Charlotte, NC 28288-1075 (28262-1075 for overnight deliveries) Attn: Alex Aguilar Fax: 704-715-0036

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with a copy to:	Alston & Bird LLP 101 South Tryon Street, Suite 4000 Charlotte, NC 28280-4000 Attn: James A.L. Daniel, Jr., Esq. Fax: 704-444-1776
If to Lessee:	PDL BioPharma, Inc. 34801 Campus Drive Fremont, California 94555 Attention: Laurie Torres, VP Human Resources Facsimile: (510) 574-1661
With a copy to:	Silicon Valley Law Group 25 Metro Drive, Suite 600 San Jose, California 95110 Attention: Lucy Lofrumento, Esq. Facsimile: (408) 573-5701

Any such notice shall be deemed delivered on the earlier to occur of (a) receipt or (b) the date of delivery, refusal or non-delivery indicated on the return receipt if sent by certified mail. The above addresses may be changed by the persons identified above from time to time designated by written notice given as herein required; provided that no notice of a change of address shall be effective until actual receipt of such notice.

9. In the event of the bringing of any action or suit by any party or parties hereto against another party or parties hereunder alleging a breach of any of the covenants, conditions, agreements or provisions of this Agreement, the prevailing party or parties shall recover all reasonable costs and expenses of suit, including without limitation, reasonable attorneys’ fees, consultants fees and fees of expert witnesses.

10. This Agreement shall be governed by and construed in accordance with the laws of the State of California.

11. This Agreement may be executed in one or more counterparts, each of which shall be deemed original, and all of which together shall constitute one and the same instrument.

12. Neither Mortgagee nor its designee or nominee shall become liable under the Building 9 Lease and Building 10 Lease, unless and until Mortgagee or its designee or nominee becomes, and then only with respect to periods in which Mortgagee or its designee or nominee remains, the owner of the Property.

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13. Lessee acknowledges that Lessor has assigned (or will assign) to Mortgagee its right, title and interest in the Building 9 Lease and the Building 10 Lease and to the rents, issues and profits of the Property pursuant to the Deed of Trust, and that Lessor has been granted the license to collect such rents provided no Event of Default has occurred under, and as defined in, the Deed of Trust. Lessee agrees to pay all rents and other amounts due under the Building 9 Lease and the Building 10 Lease directly to Mortgagee upon receipt of written demand by Mortgagee following an Event of Default, and Lessor hereby consents thereto and agrees that Lessee shall be released and discharged of all liability to Lessor for any such payments made to Mortgagee. The assignment of the Building 9 Lease and the Building 10 Lease to Mortgagee, or the collection of rents by Mortgagee pursuant to such assignment, shall not obligate Mortgagee to perform Lessor’s obligations under the Building 9 Lease and/or the Building 10 Lease.

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written.

PDL BIOPHARMA, INC., a Delaware corporation
By:
Name:
Title:
WELLS FARGO BANK, N.A., as Trustee for the Registered Holders of Credit Suisse First Boston Mortgage Securities Corp., Commercial Mortgage Pass-Through Certificates Series 2004-TFL2
By:	WACHOVIA BANK NATIONAL ASSOCIATION, solely in its capacity as Master Servicer
By:
Name:
Title:

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The undersigned Lessor hereby consents to the foregoing Subordination, Non-Disturbance and Attornment Agreement and confirms the facts stated in the foregoing Subordination, Non-Disturbance and Attornment Agreement.

LESSOR:
PACIFIC SHORES INVESTORS, LLC, a Delaware limited liability company
By:	Pacific Shores Mezzanine, LLC, a Delaware limited liability company, its sole member
	By:	Pacific Shores Junior Mezz, LLC, a Delaware limited liability company its sole member
		By:	Pacific Shores Junior Mezz Managers, LLC, a Delaware limited liability company, its sole member
			By:	Pacific Shores Development, LLC, a Delaware limited liability company, its sole member
				By:	TECHNOLOGY LAND LLC, a California limited liability company, Operating Member
					By:
						Jay Paul, Sole Managing Member

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ACKNOWLEDGMENTS

STATE OF CALIFORNIA	)
	)	ss.:
COUNTY OF	)

On                              , 2006, before me,                      the undersigned, a notary public in and for said state, personally appeared                     , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument.

WITNESS my hand and official seal.

            Notary Public

STATE OF CALIFORNIA	)
	)	ss.:
COUNTY OF	)

On                              , 2006, before me,                      the undersigned, a notary public in and for said state, personally appeared                     , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument.

WITNESS my hand and official seal.

            Notary Public

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STATE OF CALIFORNIA	)
	)	ss.:
COUNTY OF	)

On                              , 2006, before me,                              the undersigned, a notary public in and for said state, personally appeared                             , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument.

WITNESS my hand and official seal.

            Notary Public

STATE OF CALIFORNIA	)
	)	ss.:
COUNTY OF	)

On                              , 2006, before me,                              the undersigned, a notary public in and for said state, personally appeared                             , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument.

WITNESS my hand and official seal.

            Notary Public

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EXHIBIT D

TO

PACIFIC SHORES INVESTORS, LLC

LEASE

TO

PDL BIOPHARMA, INC.

as

LESSEE

For

Pacific Shores Center

Building 10

1500 Seaport Boulevard

Redwood City, California 94063

SIGNAGE EXHIBIT

SINGLE TENANT BUILDINGS

Each tenant of a single tenant Building will be permitted (subject to compliance with Section 17.15 of the Lease) to place one sign to be located near the entrance to the parking lot associated with Building 10 (“Monument”). The exact size, design, color, location and materials of the Monument, and of the Lessee’s sign on the Monument, will be determined by Lessor in its sole and absolute discretion, provided that Lessor will not unreasonably withhold its consent to a tenant sign which employs a design and color commonly used by such tenant for marketing purposes so long as it fits within the space allocated by Lessor, and so long as it is in keeping with the overall design scheme of the Project. Each such tenant will also be permitted (subject to compliance with Section 17.15 of the Lease) to place one sign on the exterior surface of Building 10. Lessor reserves the right to allow different or additional signage anywhere in the Project, provided that, so long as Lessor may lawfully do so, Lessor will not reduce the size of space allocated on the Monument to a size smaller than that permitted as of the commencement date of the Lease, unless the size of the premises subject to the lease decreases from its size as of the lease commencement date or unless Lessor provides alternate signage of reasonably equivalent visibility. All signs shall comply with all applicable government laws and regulations and with the Pacific Shores Signage Master Plan (City of Redwood City Design Review Submittal dated November 11, 2000).

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EXHIBIT E

To

PACIFIC SHORES INVESTORS, LLC.

LEASE

to

PDL BIOPHARMA, INC.,

For

PREMISES

at

1500 Seaport Drive

Building 10

Redwood City, California

WORK LETTER AGREEMENT FOR LESSEE IMPROVEMENTS
AND INTERIOR SPECIFICATION STANDARDS

This Work Letter Agreement (“Work Letter”) shall set forth the terms and conditions relating to the construction of Lessee Improvements within the Premises. This Work Letter is essentially organized chronologically and is intended to address the issues of the construction of Lessee Improvements at the Premises, in sequence, as such issues will arise during the actual construction of the Premises. All references in this Work Letter to Articles or Sections of “the Lease” shall mean the relevant portions of the above referenced Lease to which this Work Letter is attached as Exhibit “E,” and all references in this Work Letter to Sections of “this Work Letter” shall mean the relevant portions of Sections 1 through 5 of this Work Letter. “Lessor” herein shall have the same meaning as “Lessor” in the Lease and “Lessee” herein shall have the same meaning as “Lessee” in the Lease.

SECTION I

DELIVERY OF THE BASE BUILDING

1.1 Delivery by Lessor. On the Delivery Date, following the full execution and delivery of the Lease and this Work Letter by Lessor and Lessee, Lessor shall deliver Building 10 to Lessee, and Lessee shall accept Building 10 from Lessor in accordance with the terms and conditions of the Lease.

SECTION 2

LESSEE IMPROVEMENTS

2.1 Lessee to Construct. At Lessee’s sole cost and expense, including payment to Landlord of an amount equal to One Hundred and Fifty Thousand Dollars ($150,000) (the “Construction Management Fee”) as an oversight fee, Lessee shall construct certain interior improvements in conformance with the Approved Working Drawings described below (“Lessee Improvements”) and subject to all the terms and conditions of the Lease and this Work Letter. Regardless of whether the Lessee Improvements are completed by the Commencement Date, said

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Commencement Date shall not be extended, even if the Lessee Improvements are not completed by such date. The Construction Management Fee is to be paid in four (4) equal payments of Thirty-Seven Thousand Five Hundred Dollars ($37,500) each. The first of such payments shall be paid on the Delivery Date and the remaining three (3) payments shall be made on the 90^th, 180^th and 270^th day after the Delivery Date.

2.2 Lessee Improvement Allowance. Lessor shall provide a lessee improvement allowance (the “Lessee Improvement Allowance”) in the amount of Two Million One Hundred Eighteen Thousand Three Hundred and 00/100 Dollars ($2,118,300.00) to be used by Lessee solely for improving the Premises pursuant to the Design Drawings (as defined in Section 3.2 below). The Lessee Improvement Allowance shall be used towards the costs of Lessee Improvement Allowance Items (defined below) and Lessor shall be under no obligation to fund costs relating to furniture, equipment, including, without limitation, screening or viewing equipment, trade fixtures, moving expenses and other personal property. In no event shall Lessor be obligated to make disbursements of Lessor’s funds pursuant to this Work Letter in a total amount which exceeds the cost of the Lessee Improvement Allowance Items. All such improvements shall be subject to all of the terms of this Exhibit E. The Lessee Improvement Allowance must be used on or before November 1, 2007 or any unused portion of the Lessee Improvement Allowance shall be waived and forfeit as to Lessee. Also, if the actual cost of such improvements is less than the amount of the Allowance, the unused portion of the Allowance shall be forfeited by Lessee.

2.3 Disbursement of the Lessee Improvement Allowance.

2.3.1 Lessee Improvement Allowance Items. Except as otherwise set forth in this Work Letter, the Lessee Improvement Allowance shall be disbursed by Lessor (pursuant to Lessor’s disbursement process as described below) for costs of the demolition, design and construction of the Lessee Improvements, including the following items and costs (collectively, the “Lessee Improvement Allowance Items”):

2.3.1.1 payment of fees of the “Architect,” and the “Engineers,” as those terms are defined in Section 3.1 of this Work Letter and any fees paid by Lessee to a project manager and other construction and/or design consultants as well as all other reasonable, actual and documented out-of-pocket costs reasonably expended by Lessor or Lessee in connection with the construction of the Lessee Improvements;

2.3.1.2 the payment of plan check, permit and license fees relating to construction of the Lessee Improvements;

2.3.1.3 the cost of construction of the Lessee Improvements, including, without limitation, contractor’s fees and general conditions, costs of materials and services, testing and inspection costs, costs of trash removal, demolition, utility hook-up charges, hoist fees, parking fees and utilities usage;

2.3.1.4 the cost of any changes to the Construction Drawings or Lessee Improvements required by the applicable laws; and

2.3.1.5 sales and use taxes, gross receipts taxes and Title 24 fees.

2.3.2 Disbursement of the Lessee Improvement Allowance. During the design and construction of the Lessee Improvements, Lessor shall make monthly disbursements of the Lessee Improvement Allowance for Lessee Improvement Allowance Items for the benefit of

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Lessee and shall authorize the release of monies for the benefit of Lessee pursuant to the disbursement process set forth below. On or before the twenty-fifth (25th) day of each month (a “Submittal Date”), Lessee shall deliver to Lessor: (i) an application and certification ( the “Payment Application”) for payment of the “Contractor,” as that term is defined in Section 4.1 of this Work Letter (or reimbursement to Lessee if Lessee has already paid the Contractor or other person or entity entitled to payment) or Lessee, as

applicable in the form of AIA Document G702 with AIA G703 backup; (ii) appropriate executed progress mechanics’ lien releases which comply with the applicable provisions of California Civil Code Section 3262(d), and unconditional releases (with respect to payments previously made); and (iii) other information and documentation reasonably requested in good faith by Lessor or Lessor’s lender. On or before the date occurring thirty (30) days after the Submittal Date, and assuming Lessor receives all of the information described in items (i) through (iii), above, Lessor shall deliver a check to Lessee made payable to Lessee or if Lessee elects, to the Contractor, subcontractor, Architect, Engineer or consultant designated by Lessee for payment, up to the amount of the Lessee Improvement Allowance, in an amount equal to Lessor’s Share of the Payment Application. As used herein, the term “Lessor’s Share” shall mean eight and one half percent (8.50%). Notwithstanding the foregoing, with respect to fees and expenses of the Architect or Engineers or any other pre-construction items for which the payment scheme set forth in items (i) and (ii) of the immediately preceding sentence is not applicable but which fees, expenses and items are expressly included in Subsection 2.3.1 (above) as “Lessee Improvement Allowance Items” (collectively, the “Non-Construction Allowance Items”), Lessor shall make disbursements of the Lessee Improvement Allowance therefor on a monthly basis in an amount equal to Lessor’s Share of such Non-Construction Allowance Items following Lessor’s receipt of invoices and other reasonable evidence that Lessee has incurred the cost for the applicable Non-Construction Allowance Items, (unless Lessor has received a preliminary notice in connection with such costs, in which event conditional lien releases must be submitted in connection with such costs) and such other information and documentation reasonably required by Lessor or Lessor’s lender.

2.4 Lessee Improvement Specifications. Lessor has established specifications (the “Specifications”) for Building 10 standard components to be used in the construction of any non-laboratory Lessee Improvements in the Premises. The Specifications are set forth on Schedule One hereto. The quality of any non-laboratory Lessee Improvements in the Premises shall be equal to or of greater quality than the quality of the Specifications. Lessor may make changes to the Specifications for the non-laboratory Lessee Improvements from time to time which changes shall not be retroactive.

2.5 Improvements Letter of Credit.

2.5.1 Deposit of Improvements Letter of Credit Security

Lessee shall deposit with Lessor in accordance with the terms of Section 4.2.1 of this Work Letter an unconditional, irrevocable Improvements Letter of Credit (“Improvements Letter of Credit”) on a form acceptable to Lessor and, if required, Lessor’s lender(s), and in favor of Beneficiary (as defined below) in the amount of Fifteen Million and 00/100 Dollars ($15,000,000.00) (the “Improvements Letter of Credit Security”). “Beneficiary,” as used herein refers to either: (x) Lessor as beneficiary, or (y) if required by Lessor’s lender(s), Lessor and Lessor’s lender(s), as directed by Lessor, as co-beneficiaries under the Improvements

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Letter of Credit Security. The Improvements Letter of Credit Security shall: (i) be issued by a commercial money center bank reasonably satisfactory to Lessor with retail branches in San Francisco, California (the “Issuer”); (ii) be a standby, at-sight, irrevocable Improvements Letter of Credit; (iii) be payable to Beneficiary; (iv) permit multiple, partial draws , (v) provide that any draw on the Improvements Letter of Credit Security shall be made upon receipt by the Issuer of a sight draft accompanied by a letter from Lessor stating that Lessor is entitled, pursuant to the provisions of this Lease, to draw on the Improvements Letter of Credit Security in the amount of such draw; (vi) provide for automatic annual extensions, without amendment (so-called “evergreen” provision) with a final expiry date no sooner than March 31, 2007; (vii) provide that it is governed by the Uniform Customs and Practice for Documentary Credits (1993 revisions) International Chamber of Commerce Publication 500; and (viii) be cancelable if, and only if, Issuer delivers to Beneficiary no less than sixty (60) days advance written notice of Issuer’s intent to cancel. Lessee shall pay all costs, expenses, points and/or fees incurred by Lessee in obtaining the Improvements Letter of Credit Security.

2.5.2 Lessor’s Right to Draw on Improvements Letter of Credit Security

The Improvements Letter of Credit Security shall be held by Lessor as security for the completion by Lessee of the Lessee Improvements described in the Approved Working Drawings. Lessor shall have the immediate right to draw upon the Improvements Letter of Credit Security, in whole or in part and without prior notice to Lessee, other than as required under this Lease, at any time and from time to time: (i) if Lessee stops work on the Lessee Improvements for a period of time in excess of sixty (60) days, (ii) the Lessee Improvements are not completed and the Improvements Letter of Credit Security will expire in less than forty-five (45) days, or (iii) Lessee either files a voluntary bankruptcy petition or an involuntary bankruptcy petition is filed against Lessee by an entity or entities other than Lessor, under 11 U.S.C. §101 et seq., or Lessee executes an assignment for the benefit of creditors. No condition or term of this Lease shall be deemed to render the Improvements Letter of Credit Security conditional, thereby justifying the Issuer of the Improvements Letter of Credit Security in failing to honor a drawing upon such Improvements Letter of Credit Security in a timely manner. The Improvements Letter of Credit Security and its proceeds shall constitute Lessor’s sole and separate property (and not Lessee’s property or, in the event of a bankruptcy filing by or against Lessee, property of Lessee’s bankruptcy estate) and Lessor may immediately upon any draw (and without notice to Lessee) use, apply or retain the proceeds of such draw to compensate Lessor for any loss or damage which Lessor suffers by reason of Lessee’s failure to perform the terms, covenants, or conditions of this Work Letter applicable to Lessee (including, but not limited to, damages recoverable under Civil Code § 1951.2), but in no event in excess of amounts to which the Lessor would be entitled under the law. It is expressly understood that Lessor shall be relying on Issuer rather than Lessee for the timely payment of proceeds under the Improvements Letter of Credit Security and the rights of Lessor pursuant to this Section are in addition to any rights which Lessor may have against Lessee pursuant to Article XII of the Lease. Lessor shall not be required to keep the proceeds of any draw upon the Improvements Letter of Credit Security separate from Lessor’s general funds nor be deemed a trustee of same.

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2.5.3 Replacement Improvements Letter of Credit Security

If, for any reason whatsoever, the Improvements Letter of Credit Security becomes subject to cancellation or expiration while such Improvements Letter of Credit Security is required to be posted during the Lease Term, within forty-five (45) days prior to expiration of the Improvements Letter of Credit Security, Lessee shall cause the Issuer or another bank satisfying the conditions of Section 2.5.1 above to issue and deliver to Lessor a Improvements Letter of Credit Security to replace the expiring Improvements Letter of Credit Security (the “Replacement Improvements Letter of Credit Security”). The Replacement Improvements Letter of Credit Security shall be in the same amount as the original Improvements Letter of Credit Security. Failure of Lessee to cause the Replacement Improvements Letter of Credit Security to be issued forty-five (45) days prior to the then pending expiration or cancellation shall entitle Lessor to fully draw down on the existing Improvements Letter of Credit Security and, at Lessor’s election, shall be an event of default under this Lease without any relevant notice and cure period.

2.5.4 Transfer of Beneficiary

During the Lease Term Lessor may transfer its interest in the Lease or Lessor’s lender may change. Lessor may request a change to Beneficiary under the Improvements Letter of Credit Security to the successor of Lessor and/or Lessor’s lender (the “Transferee”). Lessee agrees to cooperate and to cause Issuer, at Lessor’s cost, to timely issue a new Improvements Letter of Credit Security on the same terms and conditions as the original Improvements Letter of Credit Security, except that the new Improvements Letter of Credit Security shall be payable to the Transferee. Lessor shall surrender the existing Improvements Letter of Credit Security to Lessee simultaneously with Lessee’s delivery of the new Improvements Letter of Credit Security to Transferee.

2.5.5 Return of the Improvements Letter of Credit Security

Once Lessee has completed the Lessee Improvements described in the Approved Working Drawings, the Improvements Letter of Credit Security or any balance thereof drawn upon and held (and not used or applied) by Lessor at the time shall be returned (without interest) to Lessee (or, at Lessee’s option, to the last assignee of Lessee’s interests hereunder) no later than the earlier to occur of the following: (i) ninety-one (91) days after Lessee or Lessor files a Notice of Completion (as described in Section 4.3 hereof) or (ii) thirty (30) days after Lessee has delivered to Lessor final, unconditional lien releases for all of the Lessee Improvements, along with all of the documentation required of Lessee pursuant to Section 4.3 of this Work Letter; provided that if prior to the Lease Expiration Date a voluntary bankruptcy provision is filed by Lessee, or an involuntary bankruptcy is filed against Lessee by any of Lessee’s creditors other than Lessor, under 11 U.S.C. § 101 et seq., or Lessee executes an assignment for the benefit of creditors, then to the fullest extent permitted by law Lessor shall not be obligated to return the Improvements Letter of Credit Security or any proceeds of the Improvements Letter of Credit Security until all statutes of limitations for any preference avoidance statutes applicable to such bankruptcy or assignment for the benefit of creditors have elapsed or the bankruptcy court or assignee, whichever is applicable, has executed a binding release releasing Lessor of any and all liability for the preferential transfers relating to payments

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made under this Lease, and Lessor may retain and offset against any remaining Improvements Letter of Credit Security proceeds the full amount Lessor is required to pay to any third party on account of preferential transfers relating to this Lease. Lessor agrees it will cooperate in providing Issuer with a letter of cancellation or such other reasonable documentation as Issuer requests to effect the return and extinguishment of the credit issued under the Improvements Letter of Credit Security.

2.5.6 Acknowledgment of Parties

Lessor and Lessee (a) acknowledge and agree that in no event or circumstance shall the Improvements Letter of Credit Security or any renewal thereof or substitute therefor or any proceeds thereof be deemed to be or treated as a “security deposit” under any law applicable to security deposits in the commercial context, including, but not limited to Section 1950.7 of the California Civil Code, as such Section now exists or as it may be hereafter amended or succeeded (the “Security Deposit Laws”), (b) acknowledge and agree that the Improvements Letter of Credit Security (including any renewal thereof or substitute therefor or any proceeds thereof) is not intended to serve as a security deposit, and the Security Deposit Laws shall have no applicability or relevancy thereto, and (c) waive any and all rights, duties and obligations that any such party may now, or in the future will, have relating to or arising from the Security Deposit Laws. Lessee hereby waives the provisions of Section 1950.7 of the California Civil Code and all other provisions of law, now or hereafter in effect, which (i) establish the time frame by which a Lessor must refund a security deposit under a lease, and/or (ii) provide that a Lessor may claim from a security deposit only those sums reasonably necessary to remedy defaults in the payment of rent, to repair damage caused by a Lessee or to clean the premises, it being agreed that Lessor may, in addition, claim those sums specified in this Section 2.5 and/or those sums reasonably necessary to compensate Lessor for any loss or damage caused by Lessee’s breach of this Lease, including any damages Lessor suffers.

SECTION 3

CONSTRUCTION DRAWINGS

3.1 Preparation of Drawings. Lessee shall retain an architect/space planner reasonably approved by Lessor (the “Architect”) and engineering consultants reasonably approved by Lessor (the “Engineers”) to prepare all plans and engineering working drawings relating to the structural, mechanical, electrical, plumbing, HVAC, life safety, sprinkler and any other work to be conducted in the Premises. The plans and drawings to be prepared by Architect and the Engineers hereunder shall be referenced collectively as the “Construction Drawings.” All Construction Drawings shall comply with drawing content and specifications determined by Lessor, and shall be subject to Lessor’s reasonable approval, which Construction Drawings shall contain the information listed on Schedule Two attached hereto. Lessee and Architect shall verify, in the field, the dimensions and conditions as shown on the relevant portions of the base building plans, and Lessee and Architect shall be solely responsible for the same, and Lessor shall have no responsibility in connection therewith. Lessor’s review of the Construction Drawings, as set forth in this Section 3, shall be for its sole purpose and shall not imply Lessor’s review of the same, or obligate Lessor to review the same, for quality, design, Code compliance or other like matters. Accordingly, notwithstanding that any Construction Drawings are

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reviewed by Lessor or its space planner, architect, engineers and consultants, and notwithstanding any advice or assistance which may be rendered to Lessee by Lessor or Lessor’s space planner, architect, engineers, and consultants, Lessor shall have no liability whatsoever in connection therewith and shall not be responsible for any omissions or errors contained in the Construction Drawings, and Lessee’s waiver and indemnity set forth in Section 7.07(a) of the Lease shall specifically apply to the Construction Drawings.

3.2 Design Drawings. Lessee shall supply Lessor with four (4) copies signed by Lessee of its design development drawings for the Premises. The design development drawings which shall be 50% complete (the “Design Drawings”) shall include, to the extent then currently available, all major elements of design for the Premises including a layout and designation of all offices, rooms and other partitioning, their intended use, equipment specifications and location, mechanical, electrical and plumbing design, general finishes, access and egress, structural modifications (if any), including supporting structural calculations, fire alarm and fire protection, any modifications to the building exterior, roof screen design (based on project standard) and layout, including line of site study for any equipment that extends above roof screen, equipment yard layout including equipment specifications and location. Lessor may request clarification or more specific drawings for special use items not included in the Design Drawings. Lessor shall advise Lessee within ten (10) business days after Lessor’s receipt of the Design Drawings for the Premises if the same is reasonably unsatisfactory or incomplete in any respect. If Lessee is so advised, Lessee shall cause the Design Drawings to be revised to correct any deficiencies or other matters Lessor may reasonably require and submit the revised Design Drawings to Lessor for its approval no later than five (5) business days after Lessor delivers its advice. If Lessor makes any objections to the Design Drawings, and provided such objections are reasonable, Lessee shall revise the Design Drawings and cause such objections to be remedied in the revised Design Drawings. Within five (5) business days after Lessor receives the revised Design Drawings, Lessor shall approve or reasonably disapprove such revised Design Drawings. This procedure shall be repeated until the Design Drawings is finally approved by Lessor and written approval has been delivered to and received by Lessee. Lessor’s failure to advise timely shall be deemed approval.

3.3 Final Working Drawings. Lessee shall promptly cause the Architect and the Engineers to complete the architectural and engineering drawings for the Premises, and whenever Architect has compiled a set of architectural, structural, mechanical, electrical or plumbing working drawings with complete specifications in a form to be used to obtain permits for the work specified in such drawings (in each case, a “Final Working Drawings”), Lessee shall submit to Lessor for Lessor’s approval, four (4) copies signed by Lessee of such Final Working Drawings. The Final Working Drawings shall substantially reflect the intent of the Design Drawings approved by Lessor. Lessor shall advise Lessee within ten (10) business days after Lessor’s receipt of any Final Working Drawings for the Premises if the same is reasonably unsatisfactory or incomplete in any respect. If Lessor makes any objections to the Final Working Drawings, and provided such objections are reasonable, Lessee shall revise the Final Working Drawings and cause such objections to be remedied in the revised Final Working Drawings. Within five (5) business days after Lessor receives the revised Final Working Drawings, Lessor shall approve or reasonably disapprove such revised Final Working Drawings. This procedure shall be repeated until the Final Working Drawings is finally approved by Lessor and written approval has been delivered to and received by Lessee. Lessor’s failure to advise timely shall be deemed approval. In addition, if the Final Working Drawings are modified, amended or supplemented in

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any way after Lessor’s approval thereof, or if Lessee prepares a separate set of Final Working Drawings in order to receive applicable permits with respect to any element of the Lessee Improvements, this procedure shall be repeated until such amended or additional Final Working Drawings are finally approved by Lessor and written approval has been delivered to and received by Lessee.

3.4 Approved Working Drawings. The Final Working Drawings, as approved by Lessor, are hereinafter referred to as the “Approved Working Drawings.” Lessee shall obtain all applicable permits from the City of Redwood City necessary to complete the tenant improvements in substantial conformance with the Approved Working Drawings. Lessee hereby agrees that neither Lessor nor Lessor’s consultants shall be responsible for obtaining any building permit or certificate of occupancy for the Premises and that obtaining the same shall be Lessee’s responsibility; provided, however, that Lessor shall cooperate with Lessee in a timely manner in executing permit applications and performing other ministerial acts reasonably necessary to enable Lessee to obtain any such permit or certificate of occupancy. No changes, modifications or alterations in the Approved Working Drawings which will require a permit or other governmental approval may be made without the prior written consent of Lessor, which consent may not be unreasonably withheld, conditioned or delayed.

SECTION 4

CONSTRUCTION OF THE LESSEE IMPROVEMENTS

4.1 Lessee’s Selection of Contractors.

4.1.1 The Contractor. A general contractor shall be retained by Lessee to construct the Lessee Improvements pursuant to a written construction contract (“Construction Contract”). Such general contractor (“Contractor”) shall be selected by Lessee subject to Lessor’s consent, which consent shall not be unreasonably withheld, conditioned or delayed provided that such contractor is a California licensed contractor with a successful track record of constructing first class Lessee improvements in first class office buildings and has never been involved in a material dispute with Lessor.

4.1.2 Lessee’s Agents. All subcontractors performing mechanical, electrical, plumbing, fire alarm, fire sprinkler, structural and exterior wall work used by Lessee must be approved in writing by Lessor, which approval shall not be unreasonably withheld or conditioned and shall either be given or denied within five (5) business days of Lessor’s receipt of request therefor. Notwithstanding anything herein to the contrary, Lessee may submit to Lessor a list of potential Contractors and subcontractors for the Lessee Improvements for pre-approval by Lessor. So long as Lessee uses a Contractor or subcontractor approved by Lessor from such list, no further consent of Lessor to the use of such person or entity shall be necessary. Lessee shall utilize the subcontractor who completed the original construction of the Premises curtain wall system, exterior glass and GFRC panels for any modification of those building systems. If Lessor does not approve any of Lessee’s proposed subcontractors, Lessee shall submit other proposed subcontractors for Lessor’s written approval. Such approved subcontractors, along with all laborers, materialmen and suppliers are collectively referred to herein, along with the Contractor, as the “Lessee’s Agents.” Notwithstanding the foregoing, Lessee shall retain subcontractors, laborers, materialmen and suppliers of good reputation with the requisite skills, qualifications and experience in connection with any work to be performed in the Premises.

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4.2 Construction of Lessee Improvements by Lessee’s Agents.

4.2.1 Construction Contract, Cost Budget. Within two (2) business days of its execution by Lessee and Contractor, Lessee shall deliver to Lessor a copy of the Construction Contract, along with a budget for the construction of the Lessee Improvements. Prior to the earlier to occur of: (i) two (2) business days after execution by Lessee and Contractor of the Construction Contract, or (ii) the date on which Lessee receives any permits necessary to commence to build the Lessee Improvements, Lessee shall deliver to Lessor, the Improvements Letter of Credit Security.

4.2.2 Lessee’s Agents.

4.2.2.1 Lessor’s General Conditions for Lessee’s Agents and Lessee Improvement Work. Lessee’s and Lessee’s Agent’s construction of the Lessee Improvements shall comply with the following: (i) the Lessee Improvements shall be constructed in accordance with the Approved Working Drawings; and (ii) Lessee shall abide by and cause all of Lessee’s Agents to abide by all rules made by Lessor’s Building manager with respect to the use of freight, loading dock and service elevators, storage of materials, coordination of work with the contractors of other Lessees, and any other matter in connection with this Work Letter, including, without limitation, the construction of the Lessee Improvements. Subject to the terms of Section 7.06 of the Lease, Lessee shall reimburse Lessor within ten (10) business days after demand, for all costs of repair and cleanup incurred by Lessor for damage to the Project, the Premises, Building 10 or any contents thereof (including, without limitation Furniture) caused by Lessee or Lessee’s Agents or debris, litter or other materials or matter left within the premises at any time.

4.2.2.2 Indemnity. Lessee’s indemnity of Lessor as set forth in Section 7.07(a) of the Lease shall also apply with respect to any and all costs, losses, damages, injuries and liabilities related in any way to any act or omission of Lessee or Lessee’s Agents, or anyone directly or indirectly employed by any of them, or in connection with Lessee’s non-payment of any amount arising out of the Lessee Improvements and/or Lessee’s disapproval of all or any portion of any request for payment. Such indemnity by Lessee, as set forth in Section 7.07(a) of the Lease, shall also apply with respect to any and all costs, losses, damages, injuries and liabilities related in any way to Lessor’s performance of any ministerial acts reasonably necessary (i) to permit Lessee to complete the Lessee Improvements, and (ii) to enable Lessee to obtain any building permit or certificate of occupancy for the Premises.

4.2.2.3 Requirements of Lessee’s Agents. Each of Lessee’s Agents shall guarantee to Lessee and for the benefit of Lessor that the portion of the Lessee Improvements for which it is responsible shall be free from any defects in workmanship and materials for a period of not less than one (1) year from the date of completion thereof. Each of Lessee’s Agents shall be responsible for the replacement or repair, without additional charge, of all work done or furnished in accordance with its contract that shall become defective within one (1) year after the completion of the work performed by such contractor or subcontractors. The correction of such work shall include, without additional charge, all additional expenses and damages incurred in connection with such removal or replacement of all or any part of the Lessee Improvements, and/or Building, and/or Furniture and/or Common Areas that may be damaged or disturbed

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thereby. All such warranties or guarantees as to materials or workmanship of or with respect to the Lessee Improvements shall be contained in the contract and shall be written such that such guarantees or warranties shall inure to the benefit of both Lessor and Lessee, as their respective interests may appear, and can be directly enforced by either. Lessee covenants to give to Lessor any assignment or other assurances which may be necessary to effect such right of direct enforcement.

4.2.2.4 Insurance Requirements.

4.2.2.4.1 General Coverages. Lessee’s Contractor shall carry worker’s compensation insurance covering all of their respective employees, and shall also carry commercial general liability insurance, including property damage, all with limits, in form and with companies as are required to be carried by Lessee as set forth in Section 7.04 of the Lease.

4.2.2.4.2 Special Coverages. Lessor shall carry “Builder’s Risk” insurance covering the construction of the Lessee Improvements, it being understood and agreed that the Lessee Improvements shall be insured by Lessor pursuant to Section 7.01 of the Lease immediately upon completion thereof. Lessee shall carry extended coverage endorsements as may be reasonably required by Lessor including, but not limited to, the requirement that all of Lessee’s Agents shall carry excess liability insurance, each in amounts not less than $1,000,000 per incident, $2,000,000 in aggregate, and in form and with companies as are required to be carried by Lessee as set forth in Section 7.05 of the Lease. Lessor and Lessee shall each deliver evidence of the insurance required hereunder to the other upon demand therefor.

4.2.2.4.3 General Terms. Certificates for all insurance carried pursuant to this Section 4.2.2.4 shall be delivered to Lessor before the commencement of construction of the Lessee Improvements and before the Contractor’s equipment is moved onto the Project. All such policies of insurance must contain a provision that the company writing said policy will give Lessor thirty (30) days prior written notice of any cancellation or lapse of the effective date or any reduction in the amounts of such insurance. In the event that the Lessee Improvements are damaged by any cause during the course of the construction thereof, Lessee shall immediately repair the same at Lessee’s sole cost and expense, but subject to reimbursement under the Builder’s Risk Insurance.. The Contractor and each of its subcontractors shall maintain all of the foregoing insurance coverage in force until the Lessee Improvements are fully completed and accepted by Lessor. All policies carried under this Section 4.2.2.4 shall insure Lessor and Lessee, as their interests may appear, as well as Contractor and its subcontractors. All insurance, except Workers’ Compensation, maintained by Contractor and its subcontractors shall preclude subrogation claims by the insurer against anyone insured thereunder. Such insurance shall provide that it is primary insurance as respects the Lessor and that any other insurance maintained by Lessor is excess and noncontributing with the insurance required hereunder. The requirements for the foregoing insurance shall not derogate from the provisions for indemnification of Lessor by Lessee under Section 4.2.2.2 of this Work Letter.

4.2.3 Governmental Compliance. The Lessee Improvements shall comply in all respects with the following: (i) the Code and other state, federal, city or quasi-governmental laws, codes, ordinances and regulations, as each may apply according to the rulings of the

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controlling public official, agent or other person; (ii) applicable standards of the American Insurance Association (formerly, the National Board of Fire Underwriters) and the National Electrical Code; and (iii) building material manufacturer’s specifications.

4.2.4 Inspection by Lessor. Lessor shall have the right to inspect the Lessee Improvements at all reasonable times, provided however, that Lessor’s failure to inspect the Lessee Improvements shall in no event constitute a waiver of any of Lessor’s rights hereunder nor shall Lessor’s inspection of the Lessee Improvements constitute Lessor’s approval of the same. Should Lessor reasonably disapprove any portion of the Lessee Improvements, Lessor shall notify Lessee in writing of such disapproval and shall specify the items disapproved. Any defects or deviations in, and/or disapproval by Lessor of, the Lessee Improvements shall be rectified by Lessee at no expense to Lessor, provided however, that in the event Lessor determines that a defect or deviation exists or disapproves of any matter in connection with any portion of the Lessee Improvements and such defect, deviation or matter might adversely affect the mechanical, electrical, plumbing, heating, ventilating and air-conditioning or life-safety systems of Building 10, the structure or exterior appearance of Building 10, Lessor may take such action as Lessor deems reasonably necessary, at Lessee’s expense and without incurring any liability on Lessor’s part, to correct any such defect, deviation and/or matter, including, without limitation, causing the cessation of performance of the construction of the Lessee Improvements until such time as the defect, deviation and/or matter is corrected to Lessor’s satisfaction.

4.2.5 Meetings. Commencing upon the delivery of the Premises to Lessee, Lessee shall hold periodic meetings at a reasonable time with the Architect and the Contractor regarding the progress of the preparation of Construction Drawings and the construction of the Lessee Improvements. Lessee shall provide Lessor with reasonable advance notice of all such meetings to enable Lessor’s representative to attend and participate.

4.3 Notice of Completion; Copy of Record Set of Plans. Within ten (10) days after completion of construction of the Lessee Improvements, Lessee shall cause a Notice of Completion to be recorded in the office of the Recorder of the County of San Mateo in accordance with Section 3093 of the Civil Code of the State of California or any successor statute, and shall furnish a copy thereof to Lessor upon such recordation. If Lessee fails to do so, Lessor may execute and file the same on behalf of Lessee as Lessee’s agent for such purpose, at Lessee’s sole cost and expense. Concurrent with Lessor’s delivery of Building 10 to Lessee, Lessor shall deliver to Lessee a “record set” of “as-built” drawings for the building shell. At the conclusion of construction, (i) Lessee shall cause the Architect and Contractor (A) to prepare a “record set” of “as-built” drawings, (B) to certify to the best of their knowledge that the “record-set” of mylar “as-built” drawings are true and correct, which certification shall survive the expiration or termination of this Lease, and (C) deliver to Lessor two (2) printed sets and one (1) electronic set in CAD format on CD of such record drawings within sixty (60) days following issuance of a final permit accepting the work of Lessee Improvements or similar final sign-off, and (ii) Lessee shall deliver to Lessor a copy of all warranties, guaranties, and operating manuals and information relating to the improvements, equipment, and systems in the Premises.

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SECTION 5

MISCELLANEOUS

5.1 Lessee’s Representative. Lessee has designated Bruce Laprade as its sole representative with respect to the matters set forth in this Work Letter, who shall have full authority and responsibility to act on behalf of the Lessee as required in this Work Letter.

5.2 Lessor’s Representative. Lessor has designated Janette Sammartino as its sole representatives with respect to the matters set forth in this Work Letter, who, until further notice to Lessee, shall have full authority and responsibility to act on behalf of the Lessor as required in this Work Letter.

5.3 Time of the Essence in This Lessee Work Letter. Unless otherwise indicated, all references herein to a “number of days” shall mean and refer to calendar days. If any item requiring approval is timely disapproved by Lessor, the procedure for preparation of the document and approval thereof shall be repeated until the document is approved by Lessor.

5.4 Lessee’s Lease Default. Notwithstanding any provision to the contrary contained in this Lease, if any material default as described in Section 12.01 of Lease or failure by Lessee to timely observe or perform an obligation under this Work Letter has occurred at any time on or before the substantial completion of the Lessee Improvements, then (i) in addition to all other rights and remedies granted to Lessor pursuant to the Lease, Lessor shall have the right to cause Contractor to cease the construction of the Lessee Improvements (in which case, Lessee shall be responsible for any further delay in the substantial completion of the Lessee Improvements caused by such work stoppage), and (ii) all other obligations of Lessor under the terms of this Work Letter shall be forgiven until such time as such default is cured pursuant to the terms of the Lease (in which case, Lessee shall be responsible for any delay in the substantial completion of the Lessee Improvements caused by such inaction by Lessor), and (iii) the date on which payment of Base Rent is to commence under the Lease shall not be affected.

5.5 Lessee’s Agents. All subcontractors, laborers, materialmen, and suppliers retained directly by Lessee shall conduct their activities in and around the Project, the Premises, Building 10 or any contents thereof in a harmonious relationship with all other subcontractors, laborers, materialmen and suppliers at the Project and the Premises.

5.6 Change Orders. No material changes, modifications or alterations in the Approved Working Drawings in the Lessee Improvement work pursuant thereto (collectively referred to as “Change Orders”) shall be made by Lessee without the prior written consent of Lessor, which consent shall not be unreasonably withheld or delayed. Lessor will respond to Lessee’s submission of all requests for Change Orders for Lessor approval within three (3) business days from Lessor’s actual receipt. All requests for Change Orders shall be made in writing. Once approved in writing, such Change Orders shall become a part of the Approved Working Drawings. For purposes of this Section 5.6, a Change Order shall be deemed “material” if such Change Order will require a permit or other governmental approval or if it affects the structural elements of Building 10.

5.7 Assumption of the Risk. Lessee accepts, assumes and shall be solely responsible for all risks for the construction and installation of the Lessee Improvements other than for risks resulting from the gross negligence or willful misconduct of Lessor or Lessor’s employees, agents, contractors or subcontractors or risks covered by Builder’s Risk Insurance.

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5.8 No Partnership. Nothing in this Agreement shall cause Lessor and Lessee to be partners or joint venturers.

5.9 Hazardous Materials. If the construction of the Lessee Improvements or Lessee’s move into the Premises will involve the use of Hazardous Materials, Lessee shall comply with Lessor’s rules and regulations concerning such Hazardous Materials.

5.10 Schedules. Attached hereto and incorporated herein by reference are the following schedules:

Schedule One to Exhibit “C” - B Abbreviated Specifications

Schedule Two to Exhibit “C” - B Construction Drawing Requirements

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SCHEDULE ONE

TO

EXHIBIT E

TO

PACIFIC SHORES INVESTORS, LLC

LEASE

TO

PDL BIOPHARMA, INC

FOR

Pacific Shores Center

Building 10

1500 Seaport Boulevard

Redwood City, California

INTERIOR SPECIFICATION STANDARDS

ABBREVIATED BUILDING STANDARDS

For Pacific Shores

Note: The Tenant Improvements shall be Class “A” and, their quality must be at a minimum, per the following standards:

GENERAL OFFICE

CUSTOM CABINETRY

SCOPE: All materials and labor for the construction and installation of Cabinetry and all related accessories per WIC Standards.

A.	Trade Standards: Woodworking Institute of California (WIC) latest edition Section 15 and 16 for plastic laminated casework and plastic laminated countertops. Color of plastic laminate to be selected by Architect
B.	All cabinetry to be constructed to “Custom-Grade” Specifications. Cabinetry to be flush overlay construction.
C.	Plastic Laminate: High Pressure thermoset laminated plastic surfacing material to equal or surpass NEMA LD3, Nevamar, WilsonArt or approved equal.

1. Countertops, shelf-tops, splashes, and edges: Grade GP 50, 0.050 inches thick.

2. All other exposed vertical surfaces: Grade GP 28, 0.028 inches thick

3. Semi-exposed backing sheet: Grade CL 20, 0.020 inches thick

4. Concealed backing sheet: Grade BK 20, 0.020 inches thick

D.	Adhesives: Bond surfaces to Type 11 as recommend by Plastic Laminate Manufacturer.
E.	Hinges: Heavy-duty concealed self-closing hinges. Amount of hinges per Door per WIC. Stanley or approved equal
F.	Door and Drawer Pulls: Wire-pull with 4-inch centers; Dull Chrome finish; Stanley 4483 or approved equal.
G.	Drawer slides: Heavy-duty grade with ball-bearings. Stanley, Klein, or approved equal
H.	Door Catches: Heavy-duty commercial friction type.

1. Recessed Adjustable Shelf Standards: Aluminum or zinc-plated recessed type; Knape & Vogt with clips or approved equal.

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I. Base and Wall Cabinets including doors: 3/4-inch thick medium density particleboard:

1. Conceal all fastenings.

2. Provide clear spaces as required for mechanical and electrical fittings

3. Plastic laminate and self-edge all shelves.

4. Provide 3/4-inch thick doors and drawer faces.

5. Unless indicated otherwise, all shelving to be adjustable.

6. Provide back and ends on all cabinets.

7. All exposed cabinet faces to be plastic-laminated.

J. Countertops and Shelving: 3/4-inch thick medium density particleboard. Backsplash to be 3/4 inches thick, glued and screwed into top with scribed edges. Joints in countertop to be not closer than 24 inches from sinks. Joints shall be shop fitted, splined, glued and mechanically fastened.

K. Installation of Cabinetry shall be per WIC instructions, Custom Grade.

WOOD DOORS

SCOPE: All materials and labor necessary for the installation of Wood Doors, required accessories and preparations for hardware.

A.	Non-rated Wood Doors: 1-3/4 inch thick, flush, solid core, plain sliced Birch veneer with Birch edge. Cores may be either of the following: Glued block Hardwood Core per NWMA or Particleboard Core per NWMA. Manufacturer: Algoma, Weyerhaeuser, or approved equal.
B.	Fire-rated Wood Doors: 1-3/4 inch thick, flush, solid core, plain sliced Birch face veneer with Birch Edge with mineral core per rating. Manufacturer: Algoma, Weyerhaeuser, or approved equal. Doors shall have a permanent UL label.
C.	Vision Panels (where applies): Fire rated vision panel where required. Set in square metal stop to match metal doorstops as provided by doorframe manufacturer.
D.	Doors shall be 8’- 0” x 3’-0” leafs typical.

ALUMINUM DOOR AND WINDOW FRAMES

SCOPE: All materials and labor necessary for the installation of Aluminum Door Frames.

A.	Frame Manufacturers: Raco, or Ragland Manufacturing Company, Inc.
B.	Door Frames: Non-rated and 20-minute label, Raco “Trimstyle” frame with Trim 700 (3/8 inch by 1- 1/2 inch) with no exposed fasteners.
C.	Finish, Door and Window Frame Extrusions, Wall Trim:

1.	Painted and oven-cured with “Duralaq” finish.
2.	Color: Clear.
3.	Finish shall meet or exceed requirements of AAMA Specifications 603.

4. Coat inside of frame profile with bituminous coating to a thickness of 1/16 inch where in contact with dissimilar materials.

DOOR HARDWARE

SCOPE: All materials and labor for the installation of all Door Hardware, locksets, closers, hinges, miscellaneous door hardware.

A. Swinging Door Lockset and Cylinder: Schlage “L” series with lever handle with 6 pin cylinder.

B. Keyway: Furnish blank keyways to match existing master-key system. Match existing keyways.

C. Finishes: Satin Chrome, 626 finish. Paint closers to match.

D. Kickplates: 16 gauge stainless steel; 10 inches high: width to equal door width less 2 inches.

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HARDWARE SCHEDULE

Hardware Group A (Typical, rated, single door)

1	Lockset	Schlage	L9050PD
1 1/2 pair	Butt Hinges	Hager	BB1279
1	Closer	Norton	700 Series
1	Stop	Quality	(332 @ carpet)
1	Smoke Seal	Pemko

Hardware Group B (Typical, rated, closet/service door)

1	Lockset	Schlage	L9080PD
11/2 pair	Butt Hinges	Hager	BB1279
1	Closer	Norton	700 Series w/ hold-open
1	Stop	Quality	(332 @ carpet)
1	Smoke Seal	Pemko

Hardware Group C (Typical, non-rated door)

1	Lockset	Schlage	L9050PD
1 1/2 pair	Butt Hinges	Hager	BB1279
1	Stop	Quality	(332 @ carpet)

Hardware Group D (Typical, non-rated, closet/service door)

1	Lockset	Schlage	L9080PD
1 1/2 pair	Butt Hinges	Hager	BB1279
1	Stop	Quality	(332 @ carpet)

Hardware Group E (Card-access door)

1	Electric Lockset	Schlage	L9080PDGU
1 1/2 pair (2 pr @ 8’ door)	Butt Hinges	Hager	BB1279 — NRP
1	Electric Butt	Hager
1	Closer	Norton	700 Series w/ hold-open
1	Stop	Quality	(332 @ carpet)

Hardware Group F (Typical, double door)

1	Electric Lockset	Schlage	L9050PD
3 pair	Butt Hinges	Hager	BB1270
1	Auto Flush Bolt	Glyn Johnson	FB-8
1	Dustproof Strike	Glyn Johnson	DP2
2	Closer	Norton	7700 Series
2	Stop	Quality	(332 @ carpet)
1	Astragal	Pemko
1	Coordinator	Glyn Johnson
1	Smoke Seal	Pemko

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GLAZING

SCOPE: All materials and labor for the installation of Glass.

A. Manufacturers: PPG Industries, or Viracon, Inc. See glazing schedule below.

B. Shop prepares all glazing. Edges to have no chips or fissures.

C. Glazing Materials:

1.	Safety Glass: ASTM C1048, fully tempered with horizontal tempering, Condition A uncoated, Type 1 transparent flat, Class 1 clear, Quality q3 glazing select, conforming to ANSI Z97.1
2.	Mirror Glass: Clear float type with copper and silver coating, organic overcoating, square polished edges, 1/4-inch thick,
3.	Wire Glass: Clear, polished both sides, square wire mesh of woven stainless steel wire 1/2 inch x 1/2 inch grid; 1/4 inch thick.
4.	Tempered Glass: 1/4 inch thick, no tong marks. UL rated for 1 -hour rating.
5.	Spacers: Neoprene.
6.	Tape to be poly-iso-butylene.

D. Schedule:

1.	Type A: 1/4-inch thick mirror, annealed, heat strengthened, or full tempered as required.
2.	Type B: 1/4 inch thick clear float glass, annealed, heat strengthened, or full tempered as required.
3.	Type C: 1/4-inch thick wire glass plate, square pattern “Baroque”

LIGHT GAUGE METAL FRAMING

SCOPE: All materials and labor necessary for the installation of metal framing and related accessories.

A. Structural Studs: 14 gauge punched channel studs with knurled screw-type flanges, prime-coated steel. Manufacturer: United States Gypsum SJ or approved equal. Submit cut-sheet of material.

B. Partition Studs: 20 gauge studs with key-hole shaped punch-outs at 24 inches on center. Manufacturer: United States Gypsum ST or approved equal.

C. Fasteners for Structural Studs: Metal screws as recommended by metal system manufacturer. Weld at all structural connection points.

D. Reinforce framed door and window openings with double studs at each jamb (flange-to-flange and weld) and fasten to runners with screws and weld. Reinforce head with 14 gauge double stud same width as wall. Screw and weld.

E. Provide all accessories as required to fasten metal-framing per manufacturers recommendations.

F. Provide and install flat-strapping at all structural walls (walls with concrete footings beneath the walls). Minimum bracing shall be 25% of structural walls shall be braced with flat-strapping per Manufacturers recommendations. Weld at all strap ends and at all intermediate studs.

G. Provide foundation clips at 4’-0” on center at structural walls. Anchor with 1/2 inch diameter by 10 inch long anchor bolts.

H. Non-structural interior partitions shall be anchored with power-driven fasteners at 4’-0” on center at the concrete slab.

ACOUSTIC CEILING SYSTEM

SCOPE: All materials and labor for the installation of the Acoustic Ceiling System including T-Bar system, Acoustic Ceiling Panels, Suspension wiring and fastening devices and Glued-down Ceiling Panels.

A. Manufacturer: Armstrong, or approved equal. Exposed T-bar system; factory painted; steel construction; rated for intermediate duty.

D. Acoustical Tile: “Second Look”, conforming to the following:

1. Size: 24 x 48 inches.

2. Thickness: 3/4 inches.

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3. Composition: Mineral.

4. NRC Range: .55 to .60.

5. STC Range: 35 to 39.

6. Flame Spread: ASTME84,0-25. UL Label, 25 or under.

7. Edge: Tegular, Lay-in.

8. Surface Color: White.

9. Surface Finish: Factory-applied washable vinyl latex paint.

G. Installation to be per ASTM C636 structural testing. Lateral support for each 96 square feet of ceiling flared at 45 degrees in 4 directions.

H. Provide clips for panel uplift restraints at all panels, 2 per panel.

GYPSUM WALLBOARD

SCOPE: Provide all materials and labor for the installation of Gypsum Wallboard including all accessories and finishes.

A. Standard Gypsum Wallboard: ASTM C36;. Ends square cut, tapered edges.

B. Fire Resistant Gypsum Wallboard: ASTM C36, 5/8 inches thick Type X. Ends square cut, tapered edges. See Drawings for locations.

C. Moisture-resistant gypsum wallboard: ASTM C630-90.

D. Joint-reinforcing Tape and Joint Compound: ASTM C475, as manufactured by or recommended by wallboard manufacturer. Minimum 3 coat application for a smooth finish.

E. Corner Bead: Provide at all exposed outside corners;

F. L-shaped edge trim: Provide at all exposed intersections with different materials.

G. All work shall be done in accordance with the USG recommended method of installation.

1. Finish: smooth.

PAINTING

A. Paint Manufacturers: ICI, Dunn-Edwards Corporation, Kelly Moore.

B. Paint colors shall be selected by the Architect.

C. Painting Schedule: Provide for 4 different color applications

1. P-1: “Field”. Color to be selected.

2. P-2: “Accent”. Color to be selected.

3. P-3: “Accent”. Color to be selected.

4. P-4: “Accent”. Color to be selected.

D. Interior Gypsum Wallboard:

1. Primer: Vinyl Wall Primer/Sealer.

2. 1 stand 2nd Coat: Eggshell Acrylic Latex.

E. Metal Framing:

1. Primer: Red Oxide, shop-primed (for non-galvanized) if exposed.

F. Wood Work, Wood Doors:

1. Two coats of transparent finish. Sand lightly between coats with steel wool.

INSULATION

A. R-15 in exterior walls.

B. R-25 on Roof.

C. Sound batts in conference, restroom and lobby walls.

E-18

ROOF EQUIPMENT

A. Stainless steel mechanical platform and associated access stairs and guard rail system

B. EIFS roof screen to match detail of exterior GFRC Panel.

FULL HEIGHT GLAZED PARTITION

A. ¹/4” glazed partition, in building standard aluminum frame

FINISHES

A. Vinyl Composite Tile: Armstrong stonetex, 12” x 12”

B. Resilient Base: Burke rubber wall base, 4” top set or cove, as appropriate for VCT or carpet.

C. Window Coverings: Miniblinds, Levelor, color: TBD

D. Carpet:

Option 1:	Designweave, Windswept Classic 30 oz. (Direct glue installation) or equal
Option 2: (cut pile) Upgrade	Designweave, Tempest Classic 32 oz. (Direct glue installation) or equal.
Option 3: (cut pile) Upgrade	Designweave, Sabre Classic, 38 oz. (Direct glue installation) or equal.

KITCHEN FIXTURES

A. Sink: Ekkay stainless steel, GECR-2521-L&R, 20 gauge, 25”w x 21  ¹/4” D x 5 3/8” D, ADA compliant.

B. Kitchen Faucet: American Standard, Silhouette Single control, #4205 series, spout 9  ³/4”.

KITCHEN APPLIANCES

A. Dishwasher:

Option 1:	GE GSD463DZWW, 24’W x 24  3/4” D x 34-35” H, 9 gallons/wash
Option 2:	Bosch, SHU5300 series, 5.4 gallons/wash-with water heater

B. Refrigerator:

Full Size: GE, “S” series top-mount, TBX16SYZ, 16.4 cubic feet, recessed, recessed handles, 28” W x 29 1/8” D x 66  ³/4” H, white, optional factory installed ice-maker.

Under-counter:

Option 1:	U-Line, #29R, 3.5 cubic feet, white
Option 2:	U-Line, Combo 29FF, Frost Free with factory installed icemaker, 2.1 cubic feet, white

C. Microwave: GE, Spacemaker II JEM25WY, Midsize, 9 cubic feet, 800 watts, 23 13/16” W x 11 13/16”D x 12 5/16” H

Option 1:	Under counter Mounting Kit, #4AD19-4
Option 2:	Accessory Trim Kit # JXB37WN, 26 1/8” W X 18 1/4” H (built-in application)

D. Garbage Disposal: ISE #77,  3/4” horsepower

E. Water Heater: To be selected by DES.

E-19

PUBLIC SPACES

FRONT BUILDING LOBBY

Walk Off Matts:	Design Materials, Sisel, Calcetta #68. Natural, 100% coir
Floor Tile:	3/8” x 18” x 18” Stone or Marble set in mortar bed in recessed slab as approved by Owner
Transition Strips:	5/16” x 1  1/2” x random length strips, cherry wood flooring
Corridor Carpeting:	Carpet over pad, Atlas, New Vista or as approved by Owner
Lobby Ceiling:	Suspended gypsum board ceiling, Painted
Building Lobby: Pendant Fixture	Akarl shades hanging #J1-9  3/4” x 5’-2” or equal as approved by owner.
Stairs & Mezzanine Railing:	P & P Railing, Modesto with custom cherry guard rail Rep: Oliver Capp (805) 241-8810. Hand and guard railing P & P Railings, Modesto stainless steel railing with horizontal spirals and custom cherry guard rail cap by others, fittings dark gray metallic or equal as approved by Owner.

BACK BUILDING LOBBY & EMERGENCY STAIRS

Walk Off Matts:	Design Materials, Sisal, Calcutta #68, Natural, 100% coir.
Treads & Landings:	Carpet covered concrete, as approved by Owner
Stringers, Risers & Handrails	Painted steel stringer, eggshell finish enamel.
Ceiling:	Suspended gypsum board ceiling.

ELEVATORS

Cars:	(1) 3800 lb, (1) 3500 lb 150 ft/min by Otis
Elevator Doors:	Stainless Steel
Elevator Interior Paneling:	Cherry veneer with stainless steel reveals and railing
Elevator Floor:	Slate 3/8” x 18” x 18” tile as approved by Owner.

RESTROOMS

Counter tops:	Stone/marble or equal as approved by Owner
Walls at Lavatories:	Eggshell finish, latex paint, Benjamin Moore
Floor at Toilets:	2” x 2” matte porcelain ceramic floor tiles, thin set, Dal-tile.
Walls at Toilets:	2” x 2” matte porcelain ceramic floor tiles, thin set, Dal-tile.
Ceiling:	Suspended gypsum board ceiling.

E-20

Toilet compartments:

A.	Manufactured floor-anchored metal toilet compartments and wall-hung urinal screens.
B.	Approved Manufacturer, Global Steel Products Corp, or approved equal.
C.	Toilet Partitions: Stainless Steel finish.
D.	Hardware: Hinges: Manufacturer’s standard self-closing type that can be adjusted to hold door open at any angle up to 90 degrees. Latch and Keeper: Surface-mounted latch unit, designed for emergency access, with combination rubber-faced door strike and keeper. Coat Hook: Combination hook and rubber-tipped bumper. Door Pull: Manufacturer’s standard.

Ceramic Tile

A.	Manufacturer: Dal-Tile or approved equal.
B.	Size: 4-1/4” x 4-1/4” for walls, 8 x 8 for floors,  3/4” liner strip as accent.
C.	Glaze: Satin glaze for walls, unglazed tile for floors.
D.	Color: As selected by Architect.
E.	Accessories: Base, corners, coved cap and glazed to match
F.	Wall and floor installation: per applicable TCA
G.	Waterproof Membrane: Chloraloy or approved equal.
H.	Tile Backer Board: 1/2 inch thick wonderboard
I.	Grout: Commercial Portland Cement Grout; Custom Building Products or approved equal
J.	Mortar: Latex-Portland cement mortar; Custom Building Products or approved equal.

RESTROOM:

Toilet:	Kohler/American Standard, commercial quality.
Urinal:	Kohler/American Standard, commercial quality.
Lavatory:	Kohler/American Standard, undercounter.
Lavatory Faucet:	Kroin handicap lavatory faucet #HV1LH, polished chrome.
Soap Dispenser Counter:	Bobrick, 8226, Lavatory mounted for soaps, 34 fl oz.
Toilet accessories:

A.	Manufacturer: Bobrick Washroom Equipment, or approved equal.
B.	Schedule: Model numbers used in this schedule are Bobrick (134) unless otherwise noted.
C.	Combination Paper Towel Dispenser/Waste Receptacle: Recessed, Model B-3944, one per restroom #7151 and 7152, and two per restroom #7050 and 7061.
D.	Feminine Napkin Vendor: Recessed, combination napkin/tampon vendor, Model B-3500, with 25 cent operation, one per each women’s toilet room.

E-21

E.	Soap Dispenser: Lavatory mounted dispenser, Model B-822, one per each lavatory.
F.	Toilet Paper Dispenser: Surface-mounted, Model JRT, JR Escort, “In-Sight” by Scott Paper Company, one per stall.
G.	Toilet Seat Cover Dispenser: Recessed, wall-mounted, Model B-301, one per stall.
H.	Sanitary Napkin Disposal: Recessed, wall-mounted, Model B-353, one per each women’s handicapped and odd stall.
I.	Sanitary Napkin Disposal: Partition-mounted, Model B-354 (serves two stalls).
J.	Grab Bars: Horizontal 36”, B6206-36: 42”, B62-6-42: one per each handicapped stall.
K.	Mop/Broom Holders: B223-24 (one per janitor closet).
L.	Paper Towel Dispensers: Recessed mounted, Model B-359, one at side wall adjacent to sink.

TENANT CORRIDORS

Walls:	Eggshell finish, latex paint, Benjamin Moore.
Floors:	Level loop carpet over pad with 4” resilient base as approved by Owner.
Ceiling:	24” x 24” x  3/4” thick fine fissured type mineral fiber, Armstrong Cirus acoustical tile (beveled regular edge) in a 24” x 24” Donn Fineline suspended grid, white finish.
Water Fountain:	Haws Model #1114 Stainless Steel #4.
Cross Corridor Smoke Detector:	3’-6” x full height, 20 minute rated, pocket assembly, on magnetic hold opens.
Corridor Wall Sconce	Carpyen “Berta” 35cm x 33 cm, engraved curved opaque glass, 2 x 7-9W, #G-23.or equal as approved by owner

ELECTRICAL

A.	50 foot candles at working surface.
B.	3 Bulb 2x4 parbolic fixtures
C.	1/2 20 Amp circuit for each hard wall office
D.	Electrical Devices: Recessed wall mounted devices with plastic cover plate. Color: white, multi-gang plate 80400 Series duplex wall outlets.
E.	Telephone/Data Outlets: Recessed wall mounted, Standard 2x4 wall box with  3/4” EMT conduit from box to sub out above ceiling walls pull string, cabling, terminations and cover-plates, color: white, provided by tenant’s vendor. Tenant shall furnish telephone backboard.

F. Light Switches: Dual level rocker type, mounted at standard locations, with plastic cover plate, 5325-W cover plate single switch B0401-W, double switch B0409-W. Decors by Leviton, colors: white, and will comply with Title 24 Energy Codes. Decors by Leviton.

E-22

MECHANICAL

A. VAV Reheat system — design/build. Each floor to have a minimum of thirty zones. Provide reheat boxes on all zones on top floor and at all exterior zones on lower floor. System shall meet T-24 for ventilation. Design shall be for 73 deg. Ambient interior temperature and 2 ¹/2 watts per sq. ft. min.

FIRE SPRINKLER SYSTEM

As required by NFPA & factory mutual standard hazard, seismically braced.

END

E-23

SCHEDULE TWO

TO

EXHIBIT E

TO

PACIFIC SHORES INVESTORS, LLC

LEASE

TO

PDL BIOPHARMA

FOR

Pacific Shores Center

Building 10

1500 Seaport Boulevard

Redwood City, California

CONSTRUCTION DRAWINGS REQUIREMENTS

I.	Floor Plans Showing:
	1.	Location and type of all partitions.
	2.	Location and type of all doors. Indicate hardware and provide keying schedule.
	3.	Location and type of glass partitions, windows, and doors. Indicate framing and reference full-height partitions.
	4.	Locations of telephone equipment room.
	5.	Critical dimensions necessary for construction, with indication of required clearances.
	6.	Location and types of all electrical items: outlets, switches, telephone outlets and lighting.
	7.	Location and type of equipment that will require special electrical requirements. Provide manufacturers’ specifications for use and operation, including heat output.
	8.	Location, weight per square foot, and description of any heavy equipment or filing system.
	9.	Requirements for special air-conditioning or ventilation.
	10.	Location and type of plumbing.
	11.	Location and type of kitchen equipment.
	12.	Location, type and color of floor covering, wall covering, paint and finishes.
II.		Details Showing
	1.	All millwork with verified dimensions of all equipment to be built in.
	2.	Corridor entrance.
	3.	Bracing or support of special walls, glass partitions, etc., if desired. If not included with the plans, Tenant’s engineer will design all support or bracing required at Tenant’s expense.

E-24

III. Additional Information

1. Provide Landlord with Title 24 energy calculations.

E-25

EXHIBIT F

to

PACIFIC SHORES INVESTORS, LLC

LEASE

to

PDL BIOPHARMA, INC.,

as

LESSEE

for

PREMISES

at

Pacific Shores Center

Building 10

Redwood City, California 94063

HAZARDOUS MATERIALS DISCLOSURE

Lessor has provided Lessee, and Lessee acknowledges that it has received and pursuant to Section 17.22(b) of the Lease, reviewed same, a copy of each of those certain documents entitled: (i) PHASE I, ENVIRONMENTAL SITE ASSESSMENT, PACIFIC SHORES CENTER, REDWOOD CITY, CALIFORNIA, Prepared for: The Jay Paul Company, San Francisco, California, Prepared by: IRIS ENVIRONMENTAL, Oakland, California, December 20, 1999, Job No. 99-122A; and (ii) PHASE II, ENVIRONMENTAL SITE ASSESSMENT, PACIFIC SHORES CENTER, 1000 SEAPORT BOULEVARD, REDWOOD CITY, CALIFORNIA, Prepared for: The Jay Paul Company, San Francisco, California, Prepared by: IRIS ENVIRONMENTAL, Oakland, California, January 14, 1999, Job No. 99-122-B

LESSEE
PDL BIOPHARMA, INC., a Delaware corporation
By:
	(Type or print name)
Its:
By:
	(Type or print name)
Its:

F-1

EXHIBIT G

to

PACIFIC SHORES INVESTORS, LLC

LEASE

to

PDL BIOPHARMA, INC.,

a Delaware corporation

as

LESSEE

for

PREMISES

at

Pacific Shores Center

Building 10

Redwood City, California 94063

NOTICE TO TENANTS AND TRANSFEREES OF

CURRENT OR FUTURE USES OF ADJACENT PORT PROPERTY

Notice is hereby given to all lessees, tenants and transferees of land or interests in land located within Pacific Shores Center of the presence or potential future presence of Port related industrial activities on Port property adjacent to and west of Pacific Shores Center. All recipients of this notice should be aware of the following facts:

1. The parcel of Port property adjacent to Pacific Shores Center to the northwest shown on the Exhibit J-Figure One attached hereto (the “Port Parcel”) is now or may be developed for Port related maritime and industrial uses similar to those occupying other properties along the west side of Seaport Boulevard and to the west of Pacific Shores Center.

2. Such Port related maritime and industrial activities are those which are permitted by the general industrial zoning of the City of Redwood City and may include heavy industrial land uses, including uses which involve the receipt, transport, storage or management of hazardous wastes, aggregates, cement, gravel and similar materials, including the outdoor storage and handling of such materials.

3. Pacific Shores Center Limited Partnership, on behalf of itself, its successors and assigns, has recognized, accepted and approved such uses of the Port Parcel subject to the utilization of Best Available

Management Practices in the development and use of the Port Parcel. Best Available Management Practices are defined on Schedule One to Exhibit G attached hereto.

4. Despite the use of Best Available Management Practices on the Port Parcel by the Port and its lessees and licensees and despite Pacific Shores Center Limited Partnership’s efforts to ensure compatibility between such uses and those in Pacific Shores Center, it is possible that such uses will cause emissions into the air of dust or other particulate matter, or noise or odorous substances which may be offensive to or be perceived as a nuisance by occupants of Pacific Shores Center.

G-1

5. Pursuant to covenants made by Pacific Shores Center Limited Partnership on behalf of its successors and assigns, tenants and lessees, the tenants, lessees and transferees of Pacific Shores Center Limited Partnership have approved and accepted such neighboring uses subject to their utilization of Best Available Management Practices.

6. Any actions to enjoin the continuation of such uses or to recover any damages to persons or property related to their operations are subject to a requirement for prior notice found in recorded covenants by Pacific Shores Center Limited Partnership. The following language is excerpted from such covenants:

“In the event that either party hereto believes that the other has failed to perform any covenant made herein in favor of the other, at least ten (10) days prior to the commencement of any action to enforce the covenants hereunder or to recover damages for the breach thereof, that party who believes that a failure to perform has occurred (the “Complaining Party”) shall give written notice (the “Notice”) to the party alleged not to have performed the covenant (the “Non-Complaining Party”) of the specific nature of the alleged failure and of the intent of the Complaining Party to take action to remedy the breach by the Non-Complaining Party. In the event that the nature of the alleged failure to perform is such that the same cannot reasonably be cured within ten (10) days after receipt of the Notice (the “Notice Period”), the Non-Complaining Party shall not be deemed to be in violation of its covenants and no action shall be commenced by the Complaining Party if, within the Notice Period, the Non-Complaining Party commences such cure and thereafter diligently and continuously prosecutes the same to completion within a reasonable time. Provided, however, that the Complaining Party shall not be precluded from recovering any actual damages suffered by reason of the alleged failure to perform prior to or after delivery of the Notice, whether or not such failure is thereafter cured.”

G-2

FIGURE ONE TO EXHIBIT G

to

PACIFIC SHORES INVESTORS, LLC

LEASE

to

PDL BIOPHARMA, INC.,

a Delaware corporation

as

LESSEE

for

PREMISES

at

Pacific Shores Center

Building 10

Redwood City, California 94063

G-3

G-4

SCHEDULE ONE TO EXHIBIT G

to

PACIFIC SHORES INVESTORS, LLC

LEASE

to

PDL BIOPHARMA, INC.,

a Delaware corporation

as

LESSEE

for

PREMISES

at

Pacific Shores Center

Building 10

Redwood City, California 94063

G-5

DEFINITION OF “BEST AVAILABLE MANAGEMENT PRACTICES”

(Exchange Parcel and New Road Access)

“Best Available Management Practices (“BAMP”) means the following:

1. Compliance with all laws, rules and regulations, and operating permits, whether Federal, state or local, applicable to the uses of the Exchange Parcel and industrial operations thereon, including without limitation all laws, rules and regulations and operating permits applicable to emissions into the air of gases, substances and particulate matter, the generation or release of odors or odorous substances into the air, and the generation of noise.

2. Initiation and maintenance of reasonable precautions to minimize emission and transport of dust from the Exchange Parcel and the New Road Access onto the Project Site. As used herein the term “reasonable precautions” shall mean the use of materials, techniques and equipment reasonably available at the time of commencement of a use or operation and designed to minimize emissions during predictably adverse climatic conditions common in the area (collectively, ‘‘initial measures”) plus the addition of one or more of the following additional measures if not already in use and if initial measures prove inadequate to achieve minimization of emission and transport of dust onto the Project Site:

(a) Paving of surfaces used for active operations where the absence of such paving causes emission and transport of dust onto the Project Site;

(b) Installation of wind fences to a height of not less than 20 feet with 50% porosity around areas of open storage and areas of active dust-generating uses causing emission and transport of dust onto the Project Site;

(c) Use of storage silos, open-ended enclosures or water spray equipment for the outdoor storage and handling of materials, such as rock, concrete, soil, mineral substances, and similar materials, causing emission and transport of dust onto the Project Site;

(d) Installation of enclosures or use of water or foam spray bars both above and below the belt surface of all conveyors used for loading and unloading materials, causing emission and transport of dust onto the Project Site; and

3. Initiation of a reasonable, regularly scheduled sweeping program for the New Road Access to minimize accumulation of dust and dirt and/or installation of dust traps, wheel washers or other methods of minimizing the tracking of dust onto the Road Access Area and resulting emission and transport of dust onto the Project Site.

G-6

EXHIBIT H

to

PACIFIC SHORES INVESTORS, LLC

LEASE

to

PDL BIOPHARMA, INC.,

a Delaware corporation

as

LESSEE

for

PREMISES

at

Pacific Shores Center

Building 10

Redwood City, California 94063

NOTICE TO PACIFIC SHORES TENANTS, LESSEES, SUCCESSORS, ASSIGNS AND

TRANSFEREES REGARDING CURRENT OR FUTURE USES OF ADJACENT RMC

LONESTAR AND PORT PROPERTY

Notice is hereby given to all tenants, lessees, successors, assigns and transferees of land or interest in land located within the Pacific Shores Center of the presence or potential future presence of maritime and industrial activities on RMC Lonestar and Port of Redwood City property west and adjacent to Pacific Shores Center. Recipients of this notice should be aware of the following:

1. The RMC Lonestar property and parcels of port property adjacent to and west of Pacific Shores Center are shown on the map attached to this notice. The RMC Lonestar and Port properties are now devoted to, or will be developed for, maritime and industrial uses.

2. These maritime and industrial uses are those which are permitted by the “Heavy Industry” General Plan designation and general industrial zoning of the City of Redwood City. These uses include, by way of example and not limitation, uses involving the receipt, transport, storage, handling, processing or management of aggregates, cement, concrete, asphalt, soil or other landscaping materials, recyclable metals and plastics, recyclable concrete and asphalt, chemicals, petroleum products, hazardous wastes, and similar materials, including indoor storage, mixing and handling of these materials.

3. These uses may cause, on either a regular or intermittent basis, air emissions, including without limitation, dust and other particulates, odors, vibrations, loud noises, and heavy truck, rail or marine vessel traffic. These uses may have visual, aesthetic or other aspects that may be offensive or perceived as a nuisance by occupants of Pacific Shores Center.

H-1

EXHIBIT I

to

PACIFIC SHORES INVESTORS, LLC

LEASE

to

PDL BIOPHARMA, INC.,

a Delaware corporation

as

LESSEE

for

PREMISES

at

Pacific Shores Center

Building 10

Redwood City, California 94063

RULES AND REGULATIONS

1. Lessee and Lessee’s employees shall not in any way obstruct the sidewalks, entry passages, pedestrian passageways, driveways, entrances and exits to the Project or the Building, and they shall use the same only as passageways to and from their respective work areas.

2. Any sash doors, sashes, windows, glass doors, lights and skylights that reflect or admit light into the Common Area of the Project shall not be covered or obstructed by the Lessee. Water closets, urinals and wash basins shall not be used for any purpose other than those for which they were constructed, and no rubbish, newspapers, food or other substance of any kind shall be thrown into them. Except in connection with ordinary and customary interior decorating, Lessee shall not mark, drive nails, screw or drill into, paint or in any way deface the exterior walls, roof, foundations, bearing walls or pillars without the prior written consent of Lessor, which consent may be withheld in Lessor’s sole discretion. The reasonable and actual, out-of-pocket expense of repairing any breakage, stoppage or damage resulting from a violation of the foregoing rule shall be borne by Lessee.

3. No awning or shade shall be affixed or installed over or in the windows or the exterior of the Premises except with the consent of Lessor, which consent may not be unreasonably withheld, conditioned or delayed.

4. Lessee shall not do anything in the Premises, or bring or keep anything therein, which will in any way increase the risk of fire or the rate of fire insurance or which shall conflict with the regulations of the fire department or the law or with any insurance policy on the Premises or any part thereof, or with any rules or regulations established by any administrative body or official having jurisdiction, and it shall not use any machinery therein, even though its installation may have been permitted, which may cause any unreasonable noise, jar, or tremor to the floors or walls, or which by its weight might injure the floors of the Premises.

I-1

5. Lessor may reasonably limit weight, size and position of all safes, fixtures and other equipment used in the Premises. If Lessee shall require extra heavy equipment, Lessee shall notify Lessor of such fact and shall pay the cost of structural bracing to accommodate it. All damage done to the Premises or Project by installing, removing or maintaining extra heavy equipment shall be repaired at the expense of Lessee.

6. Lessee and Lessee’s officers, agents and employees shall not make nor permit any loud, unusual or improper noises that unreasonably interfere with other lessees or those having business with them, nor bring into or keep within the Project any animal or bird or any bicycle or other vehicle, except such vehicle as Lessor may from time to time permit and guide dogs.

7. No machinery of any kind will be allowed in the Premises without the written consent of Lessor, which consent may not be unreasonably withheld, conditioned or delayed. This shall not apply, however, to customary office equipment or trade fixtures or package handling equipment.

8. All freight must be moved into, within and out of the Project only during such reasonable hours and according to such reasonable regulations as may be posted from time to time by Lessor.

9. Except as provided in the Lease, no aerial or satellite dish or similar device shall be erected on the roof or exterior walls of the Premises, or on the grounds, without in each instance, the written consent of Lessor, which consent may not be unreasonably withheld, conditioned or delayed. Any aerial so installed without such written consent shall be subject to removal without notice at any time.

10. All garbage, including wet garbage, refuse or trash shall be placed by the Lessee in the receptacles appropriate for that purpose and only at locations prescribed by the Lessor.

11. Lessee shall not burn any trash or garbage at any time in or about the Premises or any area of the Project.

12. Lessee shall observe all security regulations issued by the Lessor and comply with instructions and/or directions of the duly authorized security personnel for the protection of the Project and all tenants therein, except to the extent such regulations unreasonably and materially limit Lessee’s right of access to the Premises and Project’s parking facilities or prohibit Lessor from entering “Secured Areas,” all as provided in the Lease.

13. Any requirements of the Lessee will be considered only upon written application to Lessor at Lessor’s address set forth in the Lease.

14. No waiver of any rule or regulation by Lessor shall be effective unless expressed in writing and signed by Lessor or its authorized agent.

I-2

15. Lessor reserves the right to exclude or expel from the Project any person who, in the reasonable judgment of Lessor, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of the law or the rules and regulations of the Project.

17. Lessor reserves the right at any time to change or rescind any one or more of these rules and regulations or make such other and further reasonable, non-discriminatory rules and regulations as in Lessor’s judgment may from time to time be necessary for the operation, management, safety, care and cleanliness of the Project and the Premises, and for the preservation of good order therein, as well as for the convenience of other occupants and tenants of the Project. Lessor shall not be responsible to Lessee or the any other person for the non-observance or violation of the rules and regulations by any other tenant or other person. Lessee shall be deemed to have read these rules and have agreed to abide by them as a condition to its occupancy of the Premises. Notwithstanding anything to the contrary contained herein, Lessor agrees that the rules and regulations for the Project shall not be (i) modified or enforced in any way by Lessor so as to unreasonably and materially interfere with Lessee’s permitted use set forth in this Lease or Lessee’s access to the Premises or Project parking facility, or (ii) discriminatorily enforced against Lessee and not against other tenants of the Project.

18. Lessee shall abide by any additional rules or regulations which are ordered or requested by any governmental or military authority.

19. In the event of any conflict between these rules and regulations, or any further or modified rules and regulations from time to time issued by Lessor, and the Lease provisions, the Lease provisions shall govern and control.

I-3

SCHEDULE 1

to

PACIFIC SHORES INVESTORS, LLC

LEASE

to

PDL BIOPHARMA, INC.,

a Delaware corporation

as

LESSEE

for

PREMISES

at

Pacific Shores Center

Building 10

Redwood City, California 94063

PACIFIC SHORES CENTER

COMMON AREA LICENSE AGREEMENT

This License Agreement (“Agreement”) is dated for reference purposes and entered into by and between Pacific Shores Investors LLC (“PSI”) and PDL BioPharma, Inc. (“Licensee”) as of                     , 200  .

R E C I T A L S

A. Licensee leases Building      at Pacific Shores Center pursuant to a written Lease (“Lease”) and Licensee desires to utilize a portion of the Pacific Shores Center Common Area for                                  (“Event”) on                     , 200   during the hours of          p.m. to          p.m. (“Event Period”); and

B. PSI is willing to grant a temporary license to Licensee for the Event during the Event Period and on that portion of the Pacific Shores Center Common Area depicted on Exhibit A hereto (“Event Location”) on the terms and conditions set forth below.

1

AGREEMENT

1. Recitals. The recitals set forth above are true and correct and incorporated into this Agreement.

2. License Granted. PSI hereby grants to Licensee a revocable, temporary license to use the Event Area for the Event during the Event Period on all of the terms and conditions hereof (“License”).

3. Contractors. All contractors hired by Licensee to assist with the event shall be subject to the prior written approval of PSI, which approval shall not be unreasonably withheld.

4. Security. Licensee shall provide security for the Event and for at least one hour prior to and one hour after the Event Period and assumes all risk for the safety of Event participants.

5. Signage. Subject to the prior written approval of PSI as to location, size and materials, Licensee may place signage on the Common Area to direct attendees to the Event. Licensee shall remove and dispose of all such signage within          (    ) hours after the expiration of the Event Period.

6. Clean Up. Licensee shall initiate clean up of the Event Location and all other affected areas of Pacific Shores Center immediately upon expiration of the Event Period and complete such cleanup, such that no evidence of the Event remains, no later than          (    ) hours after the expiration of the Event Period.

7. Damage. Licensee agrees to pay to PSI the cost of repair of any damage arising from or in connection with the Event within five (5) business days after written demand for same.

8. Insurance. Licensee shall maintain in place at all times during the Event Period the insurance required to be maintained by Licensee (as Lessee) under Article VII of the Lease.

9. Indemnity. Licensee shall indemnify and hold PSI free and harmless from any and all liability, claims, loss, damages, causes of action (whether in tort or contract, law or equity, or otherwise), expenses, charges, assessments, fines, and penalties of any kind, including, without limitation, reasonable attorneys’ fees, expert witness fees and costs, arising by reason of the death or injury of any person, including any person who is an employee, agent, invitee,

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licensee, permittee, visitor, guest or contractor of Licensee, or by reason of damage to or destruction of any property, including property owned by Licensee or any person who is an employee, agent, invitee, permittee, visitor, or contractor of Licensee, caused or allegedly caused (1) while that person or property is in or about the Common Area in connection with the Event; (2) by some condition of the Common Area caused by the Event; (3) by some act or omission by Licensee or its agent, employee, licensee, invitee, guest, visitor or contractor or any person in, adjacent, on, or about the Common Area with the permission, consent or sufferance of Licensee in connection with the Event; (4) by any matter connected to or arising out of Licensee’s occupation and use of the Common Area in connection with the Event, or any breach or default in timely observance or performance of any obligation on Licensee’s part to be observed or performed under this License Agreement.

10. Acceptance of Event Location “As-Is”. Licensee accepts the Event Location and all other areas of Pacific Shores Center utilized for the Event (including, without limitation, roadways, driveways and parking areas) “as-is” and “with all faults” and acknowledges that PSI makes no representation or warranty as to the condition of the Event Location or any other part of Pacific Shores Center or as to its suitability for the Event. Licensee assumes all risk as to same, including, without limitation, the risk of injury and property damage for itself, its officers, employees, agents, contractors, invitees, guests and visitors and Licensee waives all claims against PSI and its Affiliates with respect to same except to the extent caused by the gross negligence or intentional misconduct of PSI or its Affiliates.

11. Attorneys’ Fees. If either party herein brings an action to enforce the terms hereof or to declare rights hereunder, the prevailing party in any such action, on trial or appeal, shall be entitled to recover its reasonable attorneys’ fees, expert witness fees and costs as fixed by Court.

12. Relation to Lease. Money due from Licensee hereunder for any failure to perform its obligations hereto shall be deemed due under the Lease.

13. List of Exhibits.

Exhibit A – Event Location

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By:	Pacific Shores Mezzanine, LLC, a Delaware limited liability company, its sole member
	By:	Pacific Shores Junior Mezz, LLC, a Delaware limited liability company its sole member
		By:	Pacific Shores Junior Mezz Managers, LLC, a Delaware limited liability company, its sole member
			By:	Pacific Shores Development, LLC, a Delaware limited liability company, its sole member
				By:	TECHNOLOGY LAND LLC, a California limited liability company, Operating Member
					By:
						Jay Paul, Sole Managing Member

PDL BIOPHARMA, INC.
a Delaware corporation

By:

Name:

Its:

4

SCHEDULE 2

to

PACIFIC SHORES INVESTORS, LLC

LEASE

to

PDL BIOPHARMA, INC.,

a Delaware corporation

as

LESSEE

for

PREMISES

at

Pacific Shores Center

Building 10

Redwood City, California 94063

YARD AREA

SCHEDULE 3

to

PACIFIC SHORES INVESTORS, LLC

LEASE

to

PDL BIOPHARMA, INC.,

a Delaware corporation

as

LESSEE

for

PREMISES

at

Pacific Shores Center

Building 10

Redwood City, California 94063

REMOVAL OBLIGATIONS SCHEDULE

SCHEDULE 4

to

PACIFIC SHORES INVESTORS, LLC

LEASE

to

PDL BIOPHARMA, INC.,

a Delaware corporation

as

LESSEE

for

PREMISES

at

Pacific Shores Center

Building 10

Redwood City, California 94063

PERMITTED HAZARDOUS MATERIALS

SCHEDULE 5

to

PACIFIC SHORES INVESTORS, LLC

LEASE

to

PDL BIOPHARMA, INC.,

a Delaware corporation

as

LESSEE

for

PREMISES

at

Pacific Shores Center

Building 10

Redwood City, California 94063

PDL BioPharma, Inc. List of Plans, Licenses and Permits

Plans	Inspecting Authority	Frequency
Injury Illness Prevention Plan	Cal OSHA	Anytime
Biosafety Plan	“	“
Radiation Safety Plan	“	“
Chemical Hygiene Plan	“	“
Hazard Communication Plan	“	“
Emergency Action Plan
Hazardous Materials Business Plan	Fremont Fire	Annual
AAALAC Accreditation program	AAALAC	Complaint
Licenses
CA – Business License
DHS - Radiation Use License	DHS	Anytime
Permits
Fremont City - Hazardous Materials Permits A/B/D	Fremont Fire	Annual
Alameda County - Medical waste Permits A/B/D	Ala. County	Annual
BAAQMD – Emergency Generator Permits A/B/D	AQMD	Complaint
DEA – Controlled Substances	DEA	Violation

SCHEDULE 6

to

PACIFIC SHORES INVESTORS, LLC

LEASE

to

PDL BIOPHARMA, INC.,

a Delaware corporation

as

LESSEE

for

PREMISES

at

Pacific Shores Center

Building 10

Redwood City, California 94063

FINANCIAL TESTS

In general, financial terms have their GAAP defined meaning. Revenue, EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortization), and Cash and Cash equivalents are to be derived from the financial statements in the Lessee’s most recent 10Q or 10K filings, as appropriate.

Level 1 performance numbers are sufficient to trigger rights of first refusal on buildings 7 and 8, and the right of first offer on building 6 until an additional 285,000 square feet has been leased beyond the space in buildings 9 and 10.

Level 2 performance numbers are sufficient to trigger rights of first refusal on buildings 7 and 8, and the right of first offer on building 6, if more than 285,000 square feet has already been leased beyond the space in buildings 9 and 10, but less than all of the square footage in buildings 6, 7, and 8.

Level 3 performance numbers are required to trigger Lessor’s obligations pursuant to Section 17.27 of the Lease.

Cash and cash equivalents may include marketable securities which can be converted to cash in less than 3 months.

All rights are subject to lender approval independent of the Lessee’s performance level.

	Level 1	Level 2	Level 3
Revenue	At least $100 million in each of the last four quarters	At least $150 million in each of the last four quarters	At least $150 million in each of the last four quarters
EBITDA ratio to Revenue	Ratio of EBITDA to Revenue greater than 0% in each of the last 3 quarters	Ratio of EBITDA to Revenue of at least 3% in each of the last 3 quarters	Ratio of EBITDA to Revenue of at least 5% in each of the last 3 quarters
Cash and Cash Equivalents	At least $250 million for each of the last four quarters.	At least $300 million for each of the last 4 quarters.	At least $500 million for each of last 4 quarters.

EX-10.12

Exhibit 10.12

SUBLEASE

THIS SUBLEASE is dated for references purposes only as of July 6, 2006, and is entered by and between OPENWAVE SYSTEMS INC., a Delaware corporation (“Sublessor”), and PDL BIOPHARMA, INC., a Delaware corporation (“Sublessee”). Sublessor and Sublessee hereby agree as follows:

1. Recitals: This Sublease is made with reference to the fact that Pacific Shores Development, LLC, predecessor-in-interest to Pacific Shores Investors, LLC, a Delaware limited liability company (“Master Lessor”), as Lessor, and Sublessor, under its previous name of Phone.Com, Inc., as Lessee, are parties to that certain Triple Net Building Lease, dated as of February 4, 2000 (“Master Lease”), with respect to certain premises (the “Premises”) comprising that certain building commonly known as Building 9, Pacific Shores Center, with an address at 1400 Seaport Boulevard, Redwood City, California 94063 (“Building”). The Building is located within Pacific Shores Center, Redwood City, California (“Project”). A copy of the Master Lease is attached hereto as Exhibit A.

2. Premises and Common Areas:

A. Premises. Sublessor hereby subleases to Sublessee, and Sublessee hereby subleases from Sublessor, the entire Premises (“Subleased Premises”). The Subleased Premises, the Building and the Project are more particularly described in the Master Lease.

B. Common Areas. During the Term, Sublessee shall have the non-exclusive right to use the Common Area described in, and pursuant to, the provisions of Section 2.02 of the Master Lease. Sublessee shall use the Common Area in accordance with such reasonable rules and regulations as are established by Master Lessor. Said use of the Common Area (including without limitation amenities/athletic facility/baseball and soccer fields) shall be provided at no additional cost or charge to Sublessee and its employees for user fees or otherwise, except as expressly provided in the Master Lease for reimbursement of repair, replacement and maintenance costs and such other costs charged by Master Lessor with respect thereto as part of Master Lease Additional Rent (as defined in Section 4.B. below), and except for any governmental or public authority charges, fees or impositions of any nature imposed against the Sublease or the Sublessee’s use of the Common Areas during the Term.

3. Term:

A. Term. Subject to (i) Sublessor’s having obtained Master Lessor’s Consent to this Sublease as described in Paragraph 25 below, and (ii) execution and delivery of the Future Lease by Sublessee and Master Lessor as described in Paragraph 3.B below, the term of this Sublease (“Term”) shall be for that period commencing on the earlier of (a) January 1, 2007, and (b) the date that is ninety (90) days after Sublessee’s completion of the Sublessee Improvements (as defined in Section 14.B. below) (“Commencement Date”), and ending on April 29, 2013 (“Expiration Date”), unless this Sublease is sooner terminated pursuant to its terms, or the Master Lease is sooner terminated pursuant to its terms. Sublessor shall deliver the Subleased Premises to Sublessee in the condition required by this Sublease on November 1, 2006 (“Premises Delivery Date”). If Sublessor is unable to deliver possession of the Subleased Premises to Sublessee by the Premises Delivery Date for any reason whatsoever, Sublessor shall not be subject to any liability therefor, nor shall such failure affect the validity of this Sublease or the obligations of Sublessee hereunder, or extend the

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Expiration Date, but in such case Sublessee shall not be obligated to perform any obligation of Sublessee hereunder with respect to the Premises until Sublessor delivers possession of the Subleased Premises to Sublessee in the required condition, and the Commencement Date shall be extended for a reasonable period of time to the extent that Sublessor’s delay causes any delay in completion of the Sublessee Improvements. Sublessor and Sublessee promptly shall execute a Commencement Date memorandum establishing the Commencement and Expiration Dates promptly after the Commencement Date has been determined. Sublessee’s failure to execute the Commencement Date memorandum shall not affect the validity of this Sublease or the dates set forth therein.

Notwithstanding the foregoing, in the event that Sublessor fails, as a result of occurrences other than a Sublessee default hereunder or Force Majeure Delay (as defined in Section 17.21 of the Master Lease), to deliver to Sublessee the Master Lessor’s Consent, the provisions of Paragraph 25 below shall control. Also notwithstanding the foregoing, in the event that (i) Sublessee and Master Lessor fail to execute and deliver the Future Lease within fifteen (15) days after the date of full execution of this Sublease (the “Execution Date”) by Sublessor and Sublessee (“Future Lease Outside Termination Date”), and/or (ii) Sublessor fails, as a result of occurrences other than a Sublessee default hereunder or Force Majeure Delay (as defined in Section 17.21 of the Master Lease), to deliver to Sublessee the Subleased Premises on or before the date that is thirty (30) days after the Premises Delivery Date (the “Premises Delivery Outside Termination Date”), then Sublessee and Sublessor shall have the right, but not the obligation, to terminate this Sublease. Such termination shall be accomplished by providing written notice thereof to the other party within ten (10) days after the Future Lease Outside Termination Date or the Premises Delivery Outside Termination Date, as applicable, in which case this Sublease shall terminate on the day following the last day of the applicable ten (10)- day notice period (unless Sublessee and Master Lessor execute and deliver the Future Lease, and/or Sublessor delivers the Subleased Premises to Sublessee, as applicable, during such ten (10)- day period, in which case this Sublease shall remain in full force and effect), neither party shall have any further rights or obligations hereunder, and Sublessor shall return to Sublessee all sums (including the Letter of Credit [as defined below], if any) paid by Sublessee to Sublessor in connection with Sublessee’s execution hereof. The return of all sums paid by Sublessee to Sublessor shall be Sublessee’s sole and exclusive remedy in the event of a termination pursuant to this Paragraph. However, Sublessor agrees to use commercially reasonable diligent, good faith efforts to deliver the Subleased Premises to Sublessee on the Premises Delivery Date, and Sublessee agrees to use commercially reasonable diligent good faith efforts to obtain the execution and delivery by Sublessee and Master Lessor of the Future Lease as soon as possible.

B. No Option to Extend; Future Lease. The parties acknowledge that Sublessee has no option to extend the Term of this Sublease. However, concurrently with the execution of this Sublease, Sublessee and Master Lessor have executed and delivered, or plan to execute and deliver, a lease agreement whereby Sublessee shall continue in occupancy of the Subleased Premises following the Expiration Date as a direct tenant for the Subleased Premises (the “Future Lease”). Sublessee shall attempt in good faith to obtain the execution and delivery of the Future Lease by Sublessee and Master Lessor as soon as possible, but not later than fifteen (15) days after the Execution Date. No costs or expenses associated with the execution and delivery of the Future Lease shall be borne by Sublessor. If the execution and delivery of the Future Lease by Sublessee and Master Lessor is not obtained within fifteen (15) days after the Execution Date, the provisions of Section 3.A. above shall control.

C. Early Entry. For the period commencing on the Premises Delivery Date and continuing until the Commencement Date (“Early Entry Period”), Sublessee shall have the right to enter the Subleased Premises for purposes of constructing the Sublessee Improvements and installing its trade fixtures, furniture, equipment, cabling and wiring. Such early entry shall be subject to all of the terms and conditions of this Sublease (including, without limitation, obligations relating to Sublessee’s insurance) except for the

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obligation to pay Rent; provided, however that during the period of Sublessee’s construction work in the Subleased Premises, Sublessee shall be obligated to pay all utilities costs for the Subleased Premises. Notwithstanding anything to the contrary contained in this Sublease, Sublessee shall not have the right to commence demolition in preparation for or construction of the Sublessee Improvements during the Early Entry Period in any portion of the Subleased Premises unless and until both Sublessor and Master Lessor have approved Sublessee’s plans for the Sublessee Improvements pursuant to the provisions of Section 14.B. below. Further, prior to the Premises Delivery Date, Sublessee shall have no right of possession or occupancy of the Subleased Premises, and Sublessor reserves the right to make any use of the Subleased Premises that is not inconsistent with Sublessor’s obligation to deliver the Subleased Premises to Sublessee as of the Premises Delivery Date.

4. Rent:

A. Monthly Base Rent. Commencing on the Commencement Date and continuing throughout the Term, Sublessee shall pay to Sublessor monthly base rent (“Monthly Base Rent”) for the Subleased Premises in equal monthly installments as set forth below:

Months	Base Rent
1 - 24	$223,581.85 per month
25 – Expiration Date	$268,864.25 per month

As used herein, “month” shall mean a period beginning on the first (1st) day of a calendar month and ending on the last day of that month. Monthly Base Rent shall be paid on or before the first (1st) day of each month. Rent (as defined below) for any period during the Term hereof which is for less than one month of the Term shall be a prorata portion of the monthly installment based on the number of days in such month. Rent shall be payable without notice or demand and without any deduction, offset or abatement, in lawful money of the United States of America. Rent shall be paid directly to Sublessor at Openwave Systems Inc., 2100 Seaport Boulevard, Redwood City, California 94063, Attn: Real Estate Department, or such other address as may be designated in writing by Sublessor.

This Sublease is an “Absolute Triple Net” Sublease. Except as expressly provided in this Sublease (i) Sublessor shall receive the Monthly Base Rent free and clear of any and all expenses, costs, impositions, taxes, assessments, liens or charges of any nature whatsoever payable by Sublessee pursuant to this Sublease, and (ii) Sublessee shall not be entitled to any abatement of or reduction in Rent payable under this Sublease.

B. Additional Rent. In addition to Monthly Base Rent, commencing on the Commencement Date and continuing each month thereafter throughout the remainder of the Term, Sublessee shall pay to Sublessor as additional rent under this Sublease (“Sublease Additional Rent”), at the time that Sublessee pays Monthly Base Rent or, if so notified by Sublessor in writing, within twenty (20) days after receipt of Sublessor’s invoice therefor, one hundred percent (100%) (“Sublessee’s Share”) of all “Additional Rent” (as defined in Section 4.05(a) of the Master Lease, and hereinafter referred to as “Master Lease Additional Rent”) with respect to the Subleased Premises during the Term, including, without limitation, all taxes, assessments, fees and other impositions payable in accordance with the provisions of Article XI of the Master Lease, insurance in accordance with the provisions of Article VII of the Master Lease, operating charges and Common Area facility use privilege charges with respect to the amenities/athletic facility (in lieu of any separate use charge to employees who use said facility, the baseball and soccer fields), as well as maintenance, repair and replacement costs and expenses, utility charges and other costs and charges allocable to the Common Area and the Common Area facilities and the Outside Areas of the Subleased Premises, all in

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accordance with the provisions of Article VI of the Master Lease, and any other charges, costs and expenses (including appropriate reserves therefor) which are contemplated or may arise under any provision of the Master Lease during the Term, plus the Management Fee described in Section 4.05 (a) of the Master Lease, payable by Sublessor under the Master Lease during the Term.

Pursuant to Section 4.05(b) of the Master Lease, Master Lessor is required to provide a “Lessor’s Statement” of the actual expenses for the Premises as compared to the estimated payments made throughout the applicable calendar period. Following Sublessor’s receipt of such Lessor’s Statement from Master Lessor, Sublessor shall promptly forward a copy to Sublessee, and there shall be an adjustment between Sublessor and Sublessee for any over- or under- payment of such Master Lease Additional Rent items for the preceding calendar period, with payment to Sublessor or credit to Sublessee against the next installment of Sublease Additional Rent (or refund following the expiration of the Sublease Term), as the case may require, within thirty (30) days after Sublessor’s delivery of such reconciliation to Sublessee. Attached hereto as Exhibit E is a true and correct copy of the most recent reconciliation for the Subleased Premises received by Sublessor from Master Lessor.

Pursuant to Section 4.07 of the Master Lease, Sublessor has a right to review supporting data for any Lessor’s Statement. If, within ten (10) days after receipt of the Lessor’s Statement from Sublessor, Sublessee notifies Sublessor that Sublessee desires to review the supporting data and identifies for Sublessor those items it wishes to challenge, Sublessor shall forward to Master Lessor Sublessee’s statement prior to the end of the thirty (30)- day period identified in Section 4.07(1), and Sublessee may exercise the rights set forth in Section 4.07 in strict accordance therewith. If Sublessee does not timely meet the requirements of Section 4.07, or if Master Lessor does not comply with the provisions of Section 4.07, Sublessor shall have no liability to Sublessee with respect thereto other than the obligation set forth in Paragraph 24.A.(iv) below, and Sublessee shall indemnify Sublessor for any liability Sublessor incurs as a result of Sublessee’s failure to comply with the provisions of Section 4.07 of the Master Lease.

Except as otherwise provided in this Sublease, Sublessee also shall be responsible for payment of all other monetary obligations of Sublessor to Master Lessor under the terms of the Master Lease, including, without limitation, pursuant to Section 17.04, applicable to the Subleased Premises for the Term, except to the extent such Master Lease Additional Rent is incurred as a result of Sublessor’s default under the Master Lease or this Sublease. Sublessee also shall pay Sublessee’s own telephone, telecommunications, internet and data communications charges.

All monies required to be paid by Sublessee under this Sublease (except for Monthly Base Rent, as defined in Paragraph 4.A.) shall be deemed Sublease Additional Rent, and Sublessor shall have all rights and remedies for the non-payment of same as it would have for non-payment of Monthly Base Rent. Monthly Base Rent and Sublease Additional Rent hereinafter collectively shall be referred to as “Rent.”

Notwithstanding anything to the contrary contained in this Sublease, if Sublessee elects to occupy the Subleased Premises for purposes of conducting business thereon prior to the Commencement Date, from and after such date Sublessee shall pay to Sublessor the Master Lease Additional Rent applicable to the Subleased Premises.

C. Payment of First Month’s Rent. Upon execution of this Sublease by Sublessee, Sublessee shall pay to Sublessor the sum of $223,581.85, which sum shall constitute Monthly Base Rent for the first month of the Term.

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5. Security Deposit: Subject to the provisions of Paragraph 34 below, upon the execution of this Sublease by Sublessee, Sublessee shall deposit with Sublessor, in cash, the sum of $268,864.25 as security for the performance by Sublessee of the terms and conditions of this Sublease (“Security Deposit”). If Sublessee fails to pay Rent or other charges due hereunder or otherwise defaults with respect to any provision of this Sublease, then Sublessor may, but shall not be required to, draw upon, use, apply or retain all or any portion of the Security Deposit for the payment of any Rent or other charge in default, for the payment of any other sum which Sublessor has become obligated to pay by reason of Sublessee’s default, or to compensate Sublessor for any loss or damage which Sublessor has suffered thereby. The Security Deposit is not an advance payment of Rent or a measure or limit of Sublessor’s damages upon Sublessee’s default under this Sublease, and Sublessor shall not be required to keep the Security Deposit separate from Sublessor’s general funds or to pay interest thereon. Sublessor shall not be deemed a trustee of the Security Deposit. Sublessee hereby waives any restriction on the use or application of the Security Deposit by Sublessor as may be set in any applicable law, including, without limitation, Section 1950.7 of the California Civil Code, as it may be amended. The use, application or retention of the Security Deposit, or any portion thereof, by Sublessor shall not prevent Sublessor from exercising any other right or remedy provided by this Sublease or at law or in equity, it being intended that Sublessor shall not first be required to proceed against the Security Deposit, and the Security Deposit shall not operate as a limitation on any recovery to which Sublessor otherwise may be entitled. If Sublessor so uses or applies all or any portion of the Security Deposit, then Sublessee shall, within five (5) days after demand therefor, deposit cash with Sublessor in the amount required to restore the Security Deposit to the full amount stated above. Failure to make such deposit when due shall be a material default under this Sublease, without any requirement for prior written notice thereof from Sublessor. Within thirty (30) days after the later of the expiration or earlier termination date of this Sublease, if Sublessee is not then in default hereunder, Sublessor shall return to Sublessee (without interest) so much of the Security Deposit as has not been applied by Sublessor pursuant to this Paragraph, or which is not otherwise required to cure Sublessee’s defaults.

6. Parking: During the Term, Sublessee shall have the right to use the parking spaces for the Subleased Premises described in, and pursuant to, the provisions of Section 2.03 of the Master Lease. Sublessee shall use the parking area in accordance with such reasonable rules and regulations as are established by Master Lessor. Said parking shall be provided at no additional cost or charge, except as expressly provided in the Master Lease for reimbursement of repair, replacement and maintenance costs and such other costs charged by Master Lessor with respect thereto as part of Master Lease Additional Rent, and except for any governmental or public authority charges, fees or impositions of any nature imposed against the Sublease or the Sublessee’s use of the parking spaces during the Term.

7. Condition of Premises: Sublessor represents and warrants for the benefit of Sublessee, to the knowledge of Sublessor that, as of the Premises Delivery Date, the following two representations and warranties shall be true and correct. Whenever a representation or warranty is being made to Sublessor’s knowledge in this Sublease, such qualification indicates that the warranty is being made to the current actual knowledge of Thomas Masles, Sublessor’s Vice President, Global Real Estate and Facilities, without any implied, imputed or constructive knowledge and without any independent investigation having been made or any implied duty to investigate.

A. Compliance with Laws. The Subleased Premises, including the tenant improvements installed by Sublessor, are in compliance with all applicable laws, regulations, building codes and ordinances (collectively, “Applicable Laws”), including, without limitation, the Americans with Disabilities Act of 1990 (“ADA”). If at any time during the period commencing with the date of Sublessee’s receipt of comments from the City of Redwood City (“City”) to Sublessee’s plans for the Sublessee Improvements and continuing until the earlier of (i) ninety (90) days thereafter and (ii) the date that Sublessee commences demolition in

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preparation for and/or construction of the Sublessee Improvements, Sublessee discovers that the foregoing sentence was not true as of the Premises Delivery Date, Sublessee shall notify Sublessor of the need for correction or repair, and Sublessor shall cause the correction or repair to be completed at no cost to Sublessee. Notwithstanding anything to the contrary contained in the foregoing, if the need for correction or repair was caused by the act or omission of Sublessee, its agents, employees or contractors on the Subleased Premises, Sublessee, and not Sublessor, shall be responsible for the correction or repair.

B. No Defects. The Subleased Premises (including without limitation the window systems, roof, roof membrane and structural elements), tenant improvements installed by Sublessor, and all systems located within or serving the Subleased Premises (including without limitation the plumbing, lighting, gas, electrical, HVAC distribution and fire safety (each individually referred to as a “Building Systems)), are water-tight and in good working condition and repair. If at any time during the ninety (90) day period immediately following Sublessee’s receipt of comments from the City to Sublessee’s plans for the Sublessee Improvements (the “Warranty Period”), Sublessee discovers that the roof membrane, roof structure, window systems or the electrical, gas, plumbing, lighting or HVAC distribution systems serving the Subleased Premises are not in the condition required by the foregoing sentence, Sublessee shall notify Sublessor of the need for correction or repair, and Sublessor shall cause the correction or repair to be completed at no cost to Sublessee; provided, however, if during the Warranty Period Sublessee (i) commences demolition in preparation for and/or construction that modifies a particular Building System, then the Warranty Period with regard to that Building System shall cease as of the date that Sublessee commences such demolition and/or construction, or (ii) makes a roof penetration at the Sublease Premises, then the Warranty Period with regard to the roof and roof membrane shall cease as of the date of such penetration. If during the first ninety (90) days after Sublessee occupies the Subleased Premises for purposes of conducting business Sublessee discovers that the generator, plumbing (or other) fixtures or HVAC units are not in the condition required by this Paragraph, Sublessee shall notify Sublessor of the need for correction or repair, and Sublessor shall cause the correction or repair to be completed at no cost to Sublessee. If Sublessor delivers to Sublessee the elevators and the maintenance and certification documentation required with respect thereto, and prior to the date that Sublessee commences demolition in preparation for and/or construction of the Sublessee Improvements, Sublessee discovers that the elevators are not in the condition required by this Paragraph, Sublessee shall notify Sublessor of the need for correction or repair, and Sublessor shall cause the correction or repair to be completed at no cost to Sublessee. Notwithstanding anything to the contrary contained in the foregoing, if the need for correction or repair was caused by the act or omission of Sublessee, its agents, employees or contractors on the Subleased Premises, including, without limitation, modifications to or penetration of the roof membrane, Sublessee, and not Sublessor, shall be responsible for the correction or repair.

Other than as provided in Paragraphs 7.A and B above and Paragraph 35 below, Sublessor shall deliver the Subleased Premises to Sublessee broom clean and with all personal effects removed, but otherwise in its “as-is, with all faults” condition, and Sublessor shall have no obligation whatsoever to make or pay the cost of any alterations, improvements or repairs to the Subleased Premises, including, without limitation, any improvement or repair required to comply with any Applicable Laws. Sublessee shall not look to Sublessor for performance of any repairs required to be performed by Master Lessor under the terms of the Master Lease, provided, however, that any cost that might otherwise be “passed through” to Sublessee pursuant to Section 6.01(b) or 6.02 of the Master Lease with respect only to the matters warranted in Paragraphs 7.A. and 7.B. above as a result of such repairs shall be borne by Sublessor rather than Sublessee, except to the extent the need for repair was caused by the act of omission of Sublessee, its agents, employees or contractors on the Subleased Premises.

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Other than as provided in Paragraphs 7.A and B above, from and after the Premises Delivery Date, Sublessee shall, at Sublessee’s cost and expense, comply promptly with all Applicable Laws relating to the Subleased Premises and Sublessee’s use and occupancy of the same in effect during any part of the Term, whether such requirements are presently foreseeable or not, and without regard to the cost or expense of compliance.

8. Indemnification.

A. Indemnification of Master Lessor. Pursuant to this Sublease, for the benefit of Master Lessor, Sublessee assumes all of Sublessor’s indemnification obligations as “Lessee” under the Master Lease, including, without limitation, Sections 7.07 and 17.22(d), arising from and after the Delivery Date or related to the actions or omissions of Sublessee or its agents, employees, licensees, invitees, contractors, vendors, guests, visitors, sublessees or assigns (collectively, “Agents”), subject to and in accordance with the terms, conditions, exceptions and defenses set forth in the Master Lease, and except for any liability, damage or injury arising because of the negligence or willful misconduct of Sublessor or its Agents.

B. Indemnification of Sublessor. Except to the extent caused by the active negligence or willful misconduct of Sublessor or its Agents, Sublessee shall indemnify and hold harmless Sublessor from any and all liability, claims, loss, damages, causes of action (whether in tort or contract, law or equity, or otherwise), expenses, charges, assessments, fines and penalties of any kind, including, without limitation, reasonable attorney fees, expert witness fees and costs, arising by reason of (i) the death or injury of any person, including any person who is an employee, agent, invitee, licensee, permittee, visitor, guest or contractor of Sublessee, or by reason of damage to or destruction of any property, including property owned by Sublessee or any person who is an employee, agent, invitee, licensee, permittee, visitor, guest or contractor of Sublessee, caused or allegedly caused (1) while that person or property is in or about the Subleased Premises; (2) by some condition of the Subleased Premises; (3) by some act or omission by Sublessee or its Agents, or any person in, adjacent, on, or about the Subleased Premises with the permission, consent or sufferance of Sublessee; (4) by any matter connected to or arising out of Sublessee’s occupation and use of the Subleased Premises (ii) the negligence or willful misconduct of Sublessee or its Agents; or (iii) a breach of Sublessee’s obligations, representations or warranties under this Sublease; or (iv) a breach of Sublessee’s obligations under the Master Lease to the extent incorporated herein pursuant to Paragraph 24. In addition, Sublessee shall indemnify and hold Sublessor harmless from any liabilities, losses, claims, damages, penalties, fines, attorney fees, expert fees, court costs, remediation costs, investigation costs, or other expenses resulting from or arising out of the use, storage, treatment, transportation, release, presence, generation or disposal of Hazardous Materials (defined in Section 17.22 of the Master Lease) on, from or about the Subleased Premises, and/or the subsurface or ground water, after the Premises Delivery Date from an act or omission of Sublessee or any of Sublessee’s Agents. If by reason of an act or omission of Sublessee or any of its employees, agents, invitees, licensees, visitors, guests or contractors, Sublessor is made a party defendant or a cross-defendant to any action involving the Subleased Premises or this Sublease, Sublessee shall hold harmless and indemnify Sublessor from all liability or claims of liability, including all damages, attorney fees and costs of suit.

C. Indemnification of Sublessee. Sublessor shall indemnify and hold harmless Sublessee from any liabilities, losses, claims, damages, penalties, fines, attorney fees, expert fees, court costs, remediation costs, investigation costs, or other expenses resulting from or arising out of the use, storage, treatment, transportation, release, presence, generation or disposal of Hazardous Materials on, from or about the Subleased Premises, and/or the subsurface or ground water, prior to the Premises Delivery Date, from an act or omission of Sublessor or its agents or employees. To the extent that Sublessor is indemnified by Master Lessor pursuant to Section 17.22(d) of the Master Lease, Sublessee shall have no liability with respect to such matters.

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D. Consequential Damages. Notwithstanding any other provision of this Sublease, in no event shall Sublessor or Sublessee be liable to the other (i) for lost profits or any special, indirect, incidental, punitive or consequential damages arising from any cause (except, in the case of an indemnity obligation, to the extent the indemnified party is obligated to pay such damages to Master Lessor under the Master Lease as a result of a default by the indemnifying party under this Sublease or the Master Lease), or (ii) for any damage which is or could be covered by the insurance required to be carried under this Sublease.

E. Survival. The foregoing indemnifications and those contained in the Master Lease incorporated by reference herein shall survive the expiration or earlier termination of this Sublease.

9. Right to Cure Defaults:

A. Sublessee’s Defaults. If Sublessee fails to pay any sum of money due to Sublessor within two (2) business days’ following written notice to Sublessee, or fails to perform any other act on its part to be performed hereunder within five (5) business days’ following written notice to Sublessee, then Sublessor may, but shall not be obligated to, make such payment or perform such act. All such sums paid, and all costs and expenses of performing any such act, shall be deemed Sublease Additional Rent payable by Sublessee to Sublessor upon demand, together with interest thereon at the Agreed Rate as described in Section 17.02 of the Master Lease, from the date of the expenditure until repaid.

B. Sublessee’s Authorization to Direct Sublease Payments. In addition to Sublessee’s rights pursuant to Paragraph 41 below, Sublessee shall have the right to pay all Rent owing by Sublessee to Sublessor under this Sublease for those items which also are owed by Sublessor to Master Lessor under the Master Lease directly to Master Lessor on the following terms and conditions:

(i) Either (i) Sublessee reasonably believes that Sublessor has failed to make any payment required to be made by Sublessor to Master Lessor under the Master Lease and Sublessor fails to provide adequate proof of payment within two (2) business days after Sublessee’s written demand requesting such proof; or (ii) Sublessee reasonably believes that Sublessor shall fail to make any payment required to be made by Sublessor to Master Lessor under the Master Lease and Sublessor fails to provide assurance of future performance in form reasonably satisfactory to Sublessee within two (2) business days after Sublessee’s written demand requesting such assurance; or (iii) Sublessee has received a Master Lessor Base Rent Demand as defined in Section 41.A.(2) below.

(ii) Sublessee shall not prepay any amounts owing by Sublessee without the consent of Sublessor.

(iii) Sublessee shall provide to Sublessor concurrently with any payment to Master Lessor reasonable evidence of such payment.

(iv) Notwithstanding section (i) above, if Sublessor notifies Sublessee that it disputes any amount demanded by Master Lessor, Sublessee shall not make any such payment to Master Lessor unless Master Lessor has provided a three-day notice to pay such amount or forfeit the Master Lease or Master Lessor has provided a Master Lessor Base Rent Demand.

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Any sums paid directly by Sublessee to Master Lessor in accordance with this Paragraph 9 (rather than pursuant to the provisions of Paragraph 41 below) shall be credited toward the amounts payable by Sublessee to Sublessor under this Sublease, and Sublessee agrees that upon the credit by Sublessor of such amounts against the amounts payable by Sublessee to Sublessor pursuant to this Sublease, Sublessor shall be forever released from all obligations and liabilities under this Sublease relating to Sublessor’s obligation to pay such particular amounts due under the Master Lease.

10. Assignment and Subletting:

A. In General. Sublessee shall not voluntarily or by operation of law assign, transfer, mortgage, sublet, license or otherwise transfer or encumber all or any part of Sublessee’s interest in this Sublease or the Subleased Premises or any part thereof (“Transfer”) without the prior written consent of Sublessor, which shall not be unreasonably withheld or delayed, and of Master Lessor to any proposed Transfer, and any such Transfer shall be made in accordance with the provisions of Article 11 of the Master Lease or Paragraph 10.C. below. A consent to one Transfer shall not be deemed to be a consent to any subsequent Transfer. Any Transfer without the consents required by this Paragraph shall be void and shall constitute a breach of this Sublease. Sublessor’s consent to any assignment or subletting shall be ineffective unless set forth in writing, and Sublessee shall not be relieved from any of its obligations under this Sublease, unless the consent expressly so provides.

B. Excess Rent. In the event Sublessor shall consent to a Transfer, and after any excess rent has been paid to Master Lessor pursuant to Section 11.04 of the Master Lease, Sublessee shall pay to Sublessor with its regularly scheduled Monthly Base Rent payments, fifty percent (50%) of all sums and the fair market value of all consideration collected or received by Sublessee from a sub-sublessee or assignee which are in excess of the Monthly Base Rent and Sublease Additional Rent due and payable with respect to the subleased or assigned Subleased Premises for the time period encompassed by the Transfer term, after first deducting: (i) leasing commissions, and (ii) the unamortized cost (based on a straight-line amortization over the entire Sublease Term) of Sublessee Improvements paid for by Sublessee and allocable to such subleased or assigned Subleased Premises (based on the rentable square footage of the space assigned or sublet compared to the Subleased Premises).

C. Sublessee Affiliates. Sublessee may assign this Sublease, or sublet up to forty percent (40%) of the Sublease Premises, without the need for Sublessor’s consent (but with written notice to Sublessor prior to such transfer, unless such notification is restricted by the regulations or requirements of the Securities and Exchange Commission, in which event such notification shall be made promptly following the date of such transfer), to any corporation, limited liability company or partnership which controls, is controlled by, or is under common control with Sublessee, or to any corporation, limited liability company or partnership resulting from the merger or consolidation with Sublessee, or to any person or entity which acquires all of Sublessee’s stock or all, or substantially all of the assets of Sublessee as a going concern of the business that is being conducted on the Sublease Premises (collectively, an “Affiliate”), provided that said assignee or sublessee (i) in the event of an assignment of this Sublease to an Affiliate only, has a net worth at least equal to the net worth of Sublessee as of the date of this Sublease, and (ii) assumes, in full, the obligations of Sublessee under this Sublease (or, in the case of a sublease, the portion of the Sublease Premises subject to the sublease) and provided further that the use to which the Sublease Premises will be put does not materially change. Any such assignment shall not, in any way, affect or limit the liability of Sublessee under the terms of this Sublease. The terms of Paragraph 10.B. above shall not be applicable to any assignment or sublease pursuant to this Paragraph. The foregoing shall not be deemed to relieve Sublessee’s obligation to obtain Master Lessor’s consent to an assignment or sublease to an Affiliate under the Master Lease, to the extent Master Lessor’s consent is required.

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11. Use: Sublessee shall use the Subleased Premises only for office, research and development and such ancillary uses which do not cause excessive wear of the Subleased Premises or increase the potential liability of Sublessor, and, except as otherwise expressly permitted in this Sublease, in accordance with the provisions of Section 5.01 of the Master Lease. Notwithstanding the foregoing sentence, at Sublessee’s option (written notice of which election shall be given to Sublessor at least sixty (60) days prior to commencement of such use), and subject to the terms of the Master Lessor’s Consent (which shall include Master Lessor’s consent to the following), the Subleased Premises also may be used and occupied for laboratory, biopharmaceutical research (including without limitation, vivarium and animal colony facilities for rodents only, small scale pilot fermentation and other pilot plant facilities) and other related legal uses (collectively, “Lab Uses”). Sublessee shall use the Subleased Premises for no uses other than those set forth in the foregoing two sentences without Sublessor’s prior written consent, which shall not be unreasonably withheld, conditioned or delayed so long as such use is lawful and does not conflict with any other provision of this Sublease, and the prior written consent of Master Lessor. Upon demand, Sublessee shall pay to Sublessor all taxes or charges imposed by applicable governmental authorities against the Subleased Premises or Sublessor, so long as such tax or assessment is directly related to Sublessor’s interest in the Subleased Premises (including, without limitation, assessments imposed as a consequence of the occurrence, storage, use or disposal of Hazardous Materials [as defined in Section 17.22(a) of the Master Lease] by Sublessee or Sublessee’s Agents in or about the Subleased Premises). Sublessee shall not do or permit anything to be done in or about the Subleased Premises which would (i) injure the Subleased Premises, or (ii) vibrate, shake, overload, or impair the efficient operation of the Subleased Premises or the sprinkler systems, heating ventilating or air conditioning equipment, or utilities systems located therein. Sublessee shall not store any materials, supplies, finished or unfinished products, or articles of any nature outside of the Subleased Premises, except with the prior written consent of Master Lessor. Sublessee shall comply with all reasonable rules and regulations promulgated from time to time by Master Lessor.

12. Effect of Conveyance by Sublessor: As used in this Sublease, the term “Sublessor” means the holder of the lessee’s interest under the Master Lease, together with any of such lessee’s successors and assigns. In the event of any transfer of said lessee’s interest, Sublessor shall not be relieved of any covenants or obligations of the Sublessor hereunder. From and after the effective date of the transfer, it shall be deemed and construed, without further agreement between the parties, that the transferee has assumed and shall be jointly and severally liable with the original lessee for the performance of all of covenants and obligations to be performed by Sublessor hereunder. However, if Sublessor shall transfer and deliver any security of Sublessee to the transferee of said lessee’s interest in the Master Lease, and thereupon the Sublessor shall be discharged from any further liability with respect thereto. Notwithstanding anything to the contrary contained in this Paragraph, no transfer of Sublessor’s interest in the Subleased Premises shall affect the terms and conditions of this Sublease.

13. Acceptance: The parties acknowledge and agree that Sublessee is subleasing the Subleased Premises on an “as is, with all faults” basis and Sublessor has made no representations or warranties with respect to the condition of the Subleased Premises except as set forth in Paragraph 7 above. Sublessee hereby represents to Sublessor and Master Lessor that (i) Sublessee has fully inspected the Subleased Premises and the physical condition thereof, including, without limitation, accessibility and location of utilities and improvements, zoning and earthquake preparedness, which in Sublessee’s judgment affect or influence Sublessee’s use of the Subleased Premises and Sublessee’s willingness to enter into this Sublease, (ii) Sublessee is relying on its inspection in subleasing the Subleased Premises, and (iii) Sublessee has received no representations or warranties from Sublessor, other than with respect to the condition of the Premises (as set forth in Paragraph 7 above), or from Master Lessor on which Sublessee has relied in entering into this Sublease.

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14. Improvements:

A. Alterations and Improvements. No alterations or improvements shall be made to the Subleased Premises except in strict accordance with this Sublease and Sections 6.03 and 6.04 of the Master Lease, and only with the prior written consent of both Master Lessor and Sublessor, which consent of Sublessor shall not be unreasonably withheld, conditioned or delayed; provided, however, that for any “de minimis” alterations that do not require Master Lessor’s consent under Section 6.03 of the Master Lease, Sublessee shall not be required to obtain the consent of either Master Lessor or Sublessor.

B. Sublessee Improvements. Sublessee may, at its option and in strict accordance with the provisions of the Master Lease, including, without limitation, Sections 6.03 and 6.04 thereof, and this Sublease, complete certain sublessee improvements to prepare the Subleased Premises for Sublessee’s occupancy thereof, consisting, conceptually, of the following: modifications to the existing data center, demolition of certain network labs, possible modifications to the existing executive suites and modifications to the shipping and receiving area (the “Sublessee Improvements”). The Sublessee Improvements shall be constructed at Sublessee’s sole cost and expense, without any contribution or improvement allowance from Sublessor. Sublessee shall not make or permit anyone to make any Sublessee Improvements without the prior written consent of Sublessor, which shall not be unreasonably withheld, conditioned or delayed, and of Master Lessor in accordance with the Master Lease. In connection with the foregoing, Sublessee shall submit to Sublessor, for prior written approval by Sublessor, which shall not be unreasonably withheld, conditioned or delayed, and Master Lessor, any and all space plans, preliminary plans, design development drawings and construction documents required by Master Lessor to be provided in connection with the Sublessee Improvements. Any and all costs and expenses associated with the acquisition of cabling, equipment, furniture, security systems or other personal property for Sublessee or the Subleased Premises or the installation or placement of any of the foregoing within the Subleased Premises or with the project management for the performance of the Sublessee Improvements (collectively, “Sublessee’s Personal Property and Services”), also shall be paid for by and be the sole responsibility of Sublessee, except to the extent included as part of the Personal Property described in Paragraph 35 below.

C. Removal of Improvements. Upon the expiration or earlier termination of this Sublease, or at such later time if so permitted by the Future Lease, Sublessee, at its sole cost and expense, shall be responsible for removing any and all alterations or improvements (including, without limitation, the Sublessee Improvements) installed in the Subleased Premises by Sublessee and restoring the Subleased Premises to its condition immediately prior to the alteration or improvement, but only if and to the extent required by Master Lessor. If this Sublease is terminated as a result of a default, beyond applicable notice and cure periods, by Sublessee under this Sublease or under the Master Lease (to the extent incorporated herein), Sublessee shall be required to remove the alterations or improvements (including, without limitation, the Sublessee Improvements) and restore the Subleased Premises if and to the extent required by Master Lessor.

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15. Insurance; Waiver of Subrogation and Release:

A. Insurance. All insurance policies required to be carried by “Lessee” under Article VII of the Master Lease shall be maintained by Sublessee pursuant to the terms of Article VII, commencing on the Premises Delivery Date and continuing until the expiration or earlier termination of the Term. Such policies shall name Sublessor and Master Lessor (and such lenders as are designated by Sublessor or Master Lessor) as additional insureds. All policies shall be written as primary policies with respect to the interests of Master Lessor and Sublessor and such other additional insureds, and shall be primary to and not contributory with any similar insurance carried by Master Lessor, which insurance shall be considered excess insurance. All policies shall also contain “cross liability” or “severability of interest” provisions and shall insure the performance of the indemnity obligations set forth in this Sublease. Sublessee shall provide Master Lessor and Sublessor with certificates of all policies, including in each instance an endorsement providing that such insurance shall not be cancelled or amended except after thirty (30) days prior written notice to Master Lessor and Sublessor. Sublessor shall not be obligated to deliver the Subleased Premises to Sublessee until Sublessee has provided to Sublessor the certificates of insurance required by Section 7.05 of the Master Lease. The limits of said insurance required by this Sublease as carried by Sublessee shall not limit the liability of Sublessee nor relieve Sublessee of any obligation hereunder.

B. Master Lessor’s Insurance. Sublessee shall pay, as Sublease Additional Rent, any deductible for insurance carried by Master Lessor pursuant to, and subject to the conditions stated in, Article VII of the Master Lease.

C. Mutual Waiver of Subrogation. Sublessor and Sublessee hereby release and relieve the other, and waive their entire claim of recovery for loss or damage to property arising out of or incident to fire, lightning, and the other perils included in a standard “all risk” insurance policy of a type described in Sections 7.01 and 7.02 of the Master Lease that is carried by the waiving party (or that would have been if the waiving party had carried the insurance required hereunder), when such property constitutes the Subleased Premises or the Project, or is in, on or about the Subleased Premises, whether or not such loss or damage is due to the negligence of Sublessor or Sublessee, or their respective agents, employees, guests, licensees, invitees, or contractors. Sublessee and Sublessor waive all rights of subrogation against each other on behalf of, and shall obtain a waiver of all subrogation rights from, all property and casualty insurers referenced above.

D. Releases. Except as expressly set forth in this Sublease, Sublessor shall not be liable to Sublessee, nor shall Sublessee be entitled to terminate this Sublease or to abate Rent, for any reason, including, without limitation: (i) failure or interruption of any utility system or service; or (ii) failure of Master Lessor to maintain the Subleased Premises as may be required under the Master Lease, subject to Paragraph 16.C below. Sublessee hereby waives all claims against Sublessor for damages to good, wares and merchandise and all other personal property in, on or about the Subleased Premises and for injury or death to persons in, on or about the Subleased Premises from any cause arising at any time to the fullest extent permitted by law. Sublessor and Sublessee are corporations or other business entities, and the obligations of Sublessor and Sublessee shall not constitute the personal obligations of the officers, directors, trustees, partners, joint venturers, members, owners, stockholders or other principals or representatives of such corporation or business entity.

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16. Damage and Destruction; Condemnation.

A. Rights of Termination. To the that the Master Lease gives Sublessor any rights following the occurrence of any damage, destruction or condemnation to terminate the Master Lease, to obtain and utilize insurance or condemnation proceeds to repair or restore the Sublease Premises, or any similar rights, such rights shall be reserved to and exercisable solely by Sublessee, and not by Sublessor; provided, however, that Sublessee shall be entitled to exercise such rights only with the prior written consent of Sublessor, which consent shall not be unreasonably withheld, conditioned or delayed.

B. Waiver of Statutory Rights. Except as expressly set forth herein, Sublessee shall have no right to terminate this Sublease as a result of any casualty or condemnation, and Sublessee hereby waives any provision of law that provides for such right of termination.

C. Rent Abatement. Notwithstanding anything in this Sublease to the contrary, to the extent that Rent is abated for Sublessor with respect to the Subleased Premises pursuant to the terms of the Master Lease, Sublessee’s Rent obligations with respect to the Subleased Premises also shall be abated.

17. Default and Remedies.

A. Default: Sublessee’s performance of each of its obligations under this Sublease constitutes a condition as well as a covenant, and Sublessee’s right to continue in possession of the Subleased Premises is conditioned upon such performance. In addition, Sublessee shall be in material default of its obligations under this Sublease if Sublessee commits, or is responsible for the occurrence of, any of the events of default set forth in Section 12.01 of the Master Lease.

B. Remedies: In the event of any default by Sublessee under this Sublease (including, without limitation, a default pursuant to Section 12.01 of the Master Lease), Sublessor shall have all remedies provided by applicable law and in equity, including, without limitation, all rights pursuant to Article 12 of the Master Lease. Sublessor may resort to its remedies cumulatively or in the alternative.

18. Surrender:

A. In General. Unless otherwise provided pursuant to the Future Lease, on or before the Expiration Date or earlier termination of this Sublease, Sublessee shall remove all of its trade fixtures and all alterations and improvements, including, without limitation the Sublessee Improvements if removal is required by Master Lessor, and shall surrender the Subleased Premises to Sublessor in the condition required by Section 17.09(a) of the Master Lease, free of Hazardous Materials stored, used or disposed of by Sublessee. If the Subleased Premises are not surrendered if and as required hereby, then Sublessee shall be liable to Sublessor for all costs incurred by Sublessor in returning the Subleased Premises to the required condition, plus interest thereon at the Agreed Rate. Sublessee shall indemnify, defend, protect and hold harmless Sublessor and Master Lessor against any and all claims, liabilities, judgments, causes of action, damages, costs, and expenses (including attorneys’, consultants’ and experts’ fees) resulting from Sublessee’s delay in surrendering the Subleased Premises, including, without limitation, any claim made by any succeeding tenant founded on or resulting from such failure to surrender. The indemnification set forth in this Paragraph shall survive the expiration or earlier termination of this Sublease. In no event shall Sublessee be required to remove any alterations or improvements which were not installed by or on behalf of Sublessee.

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B. Change in Use of Subleased Premises. If Sublessee elects to use the Subleased Premises for one or more of the Lab Uses, Sublessee shall comply with the provisions of this Section 18.B.; provided, however, that if Sublessee continues to occupy the Subleased Premises pursuant to the Future Lease following the expiration or earlier termination of this Sublease, then the provisions of this Section 18.B. shall not apply.

(i) Governmental Clearances. At the expiration or earlier termination of this Sublease, Sublessee shall vacate, deliver up and surrender to Sublessor possession of the Subleased Premises and all improvements thereon, subject to the terms of this Sublease concerning Hazardous Materials brought upon, kept, used, stored, handled, treated, generated in, or released or disposed of from the Subleased Premises by Sublessee or any of Sublessee’s agents, employees or contractors (collectively, “Sublessee HazMat Operations”), and released of all clearances required by any governmental authorities with respect to Sublessee HazMat Operations.

(ii) Closure Requirements. At least three (3) months prior to the surrender of the Subleased Premises, Sublessee shall deliver to Sublessor a narrative description of the actions proposed (or required by any governmental authority) to be taken by Sublessee in order to surrender the Subleased Premises (including any Alterations permitted by Master Lessor to remain in the Subleased Premises) at the expiration or earlier termination of the Sublease Term, in accordance with the requirements of any Environmental Laws or relevant governmental authority or, in the absence thereof, the commercially reasonable requirements of Master Lessor’s lender or any commercially reasonable requirements of Sublessor’s environmental consultant (collectively, “HazMat Requirements”) with respect to the Sublessee HazMat Operations and otherwise released for unrestricted use and occupancy (the “Surrender Plan”). Such Surrender Plan shall be accompanied by a current listing of (i) all Hazardous Materials licenses and permits held by or on behalf of Sublessee or any of its agents, employees or contractors (collectively, the “Sublessee Parties”) with respect to the Subleased Premises, and (ii) all Hazardous Materials used, stored, handled, treated, generated, released or disposed of from the Subleased Premises, and shall be subject to the review and approval of Sublessor’s environmental consultant. In connection with the review and approval of the Surrender Plan, upon the request of Sublessor, Sublessee shall deliver to Sublessor or its consultant such additional non-proprietary information concerning Sublessee HazMat Operations as Sublessor shall request. On or before such surrender, Sublessee shall deliver to Sublessor evidence that the approved Surrender Plan shall have been satisfactorily completed and all HazMat Requirements have been met, and Sublessor shall have the right, subject to reimbursement at Sublessee’s expenses as set forth below, to cause Sublessor’s environmental consultant to inspect the Subleased Premises and perform such additional procedures as may be deemed reasonably necessary to confirm that the Subleased Premises are, as of the effective date of such surrender or early termination of this Sublease, in accordance with applicable HazMat Requirements. Sublessee shall reimburse Sublessor, as Sublease Additional Rent, for the actual, out-of-pocket expense incurred by Sublessor for Sublessor’s environmental consultant to review and approve the Surrender Plan and to visit the Subleased Premises and verify satisfactory completion of the same. Sublessor shall have the unrestricted right to deliver such Surrender Plan and any report by Sublessor’s environmental consultant with respect to the surrender of the Subleased Premises to third parties. If Sublessee shall fail to prepare or submit a Surrender Plan approved by Sublessor, or if Sublessee shall fail to complete the approved Surrender Plan, or if such Surrender Plan, whether or not approved by Sublessor, shall fail to adequately address any residual effect of Sublessee HazMat Operations in, on or about the Subleased Premises in violation of HazMat Requirements, Sublessor shall have the right to take such actions as Sublessor may deem reasonable or appropriate to assure that the Subleased Premises and the Project are surrendered free from any residual impact from Sublessee HazMat Operations, the cost of which actions shall be reimbursed by Sublessee as Sublease Additional Rent. Sublessee’s obligations pursuant to this Paragraph 18.B. shall survive the expiration or earlier termination of this Sublease.

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19. Brokers: Sublessor and Sublessee each represent to the other that they have dealt with no real estate brokers, finders, agents or salesmen in connection with this transaction, except Cresa Partners, representing Sublessor, and Cornish & Carey Commercial, Inc., representing Sublessee (“Brokers”). Each party agrees to hold the other party harmless from and against all claims for brokerage commissions, finder’s fees, or other compensation made by any other agent, broker, salesman or finder as a consequence of said party’s actions or dealings with such agent, broker, salesman, or finder. Sublessor shall be responsible for payment of any brokerage commission due to the Brokers in connection with this Sublease pursuant to the terms of a separate agreement between Sublessor and Cresa Partners.

20. Notices:

A. Notice Requirements. Unless five (5) days’ prior written notice is given in the manner set forth in this Paragraph, the addresses of Sublessor and Sublessee for all purposes connected with this Sublease shall be the addresses set forth below their respective signatures. All notices, demands, or communications in connection with this Sublease shall be considered received when (i) personally delivered, or (ii) if properly addressed and either sent by nationally recognized overnight courier or deposited in the mail (registered or certified, return receipt requested, and postage prepaid), on the date shown on the return receipt or other documentation for acceptance or rejection. All notices given to the Master Lessor under the Master Lease shall be considered received only when delivered in accordance with Section 17.06 of the Master Lease and when sent to Master Lessor at the following address: Pacific Shores Investors, LLC, c/o Jay Paul Company, 350 California Street, Suite 1905, San Francisco, California 94111.

B. Notices from or to Master Lessor. Each party shall provide to the other party a copy of any notice or demand received from or delivered to Master Lessor within three (3) business days of receiving or delivering such notice or demand, where such notice or demand materially relates to or affects the rights and/or obligations of the parties under this Sublease.

21. Severability: If any term of this Sublease is held to be invalid or unenforceable by any court of competent jurisdiction, then the remainder of this Sublease shall remain in full force and effect to the fullest extent possible under the law, and shall not be affected or impaired.

22. Amendment: This Sublease may not be amended except by the written agreement of all parties hereto.

23. Attorneys’ Fees: If either Sublessor or Sublessee shall bring any action or legal proceeding to enforce, protect or establish any term or covenant of this Sublease, the prevailing party shall be entitled to recover its reasonable attorneys’ fees, consultants’ costs, court costs and experts’ fees as may be fixed by the court. “Prevailing party” as used in this Sublease includes a party who dismisses an action for recovery hereunder in exchange for sums allegedly due, performance of covenants allegedly breached or consideration substantially equal to the relief sought in the action.

24. Other Sublease Terms:

A. Incorporation By Reference. Except as otherwise provided in or contradicted by this Sublease, the terms and conditions of this Sublease shall include the specific Sections of the Master Lease listed in Paragraph 24.B, which are incorporated into this Sublease as if fully set forth, except that: (i) each reference in such incorporated Sections to “Lease” shall be deemed a reference to “Sublease”; (ii) each reference to the “Premises” shall be deemed a reference to the “Subleased Premises”; (iii) each reference to

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“Lessor” and “Lessee” shall be deemed a reference to “Sublessor” and “Sublessee”, respectively, except as expressly set forth herein; (iv) with respect to work, services, repairs, restoration, provision of insurance or the performance of any other obligation of Master Lessor under the Master Lease, the sole obligation of Sublessor shall be to request the same in writing from Master Lessor as and when requested to do so by Sublessee, and to use Sublessor’s commercially reasonable good faith efforts (without requiring Sublessor to spend more than a nominal sum and otherwise at Sublessee’s sole cost and expense) to obtain the Master Lessor’s performance; (v) with respect to any obligation of Sublessee to be performed under this Sublease, wherever the Master Lease grants to Sublessor a specified number of days to perform its obligations under the Lease, Sublessee shall have two (2) fewer days to perform the obligation, including, without limitation, curing any defaults (provided, however, that if any cure period provides for three (3) days or fewer to perform, Sublessee shall have two (2) business days to perform); (vi) Sublessor shall have no liability to Sublessee with respect to (a) representations and warranties made by Master Lessor under the Master Lease, (b) any indemnification obligations of Master Lessor under the Master Lease, or other obligations or liabilities of Master Lessor under the Master Lease with respect to compliance with laws, condition of the Premises or Hazardous Materials, and (c) obligations under the Master Lease to repair, maintain, restore, or insure all or any portion of the Premises, regardless of whether the incorporation of one or more provisions of the Master Lease might otherwise operate to make Sublessor liable therefor; and (vii) with respect to any approval required to be obtained from the “Lessor” under the Master Lease, such consent must be obtained from both the Master Lessor and the Sublessor, but Sublessor’s consent shall not be unreasonably withheld, conditioned or delayed (except that the approval of Sublessor shall be conditioned upon receipt of the Master Lessor’s consent). Notwithstanding the foregoing, references to “Lessor” in the following provisions of the Master Lease shall mean Master Lessor, not Sublessor: Section 2.02, the first sentence of Section 5.06, Section 6.01(b), Section 6.02, the second, third, sixth and seventh sentences of Section 6.03, Section 6.05, Section 7.01, Section 7.03, Section 8.01, Article 13, Section 16.01, Section 17.13, Section 17.19, the last sentence of Section 17.22(d) and Section 17.23.

B. Incorporated Provisions. The following paragraphs of the Master Lease are hereby incorporated into this Sublease, except to the extent expressly contradicted by the provisions of this Sublease: Section 2.02; Section 2.03; Section 5.01; Section 5.02(c); Section 5.03, except for the first sentence; Section 5.05, except as provided in Section 35(ii) of this Sublease; Section 5.06, provided that Sublessee shall be bound by all rules and regulations to the same extent that Sublessor is bound; Article 6; Sections 7.01 through 7.05; Article 8; Article 9; Article 10; Section 11.01, Section 11.03, Section 11.05; Article 12; Article 13; Article 14 (excluding subsection (ii) thereof), except that in exercising any right of entry, Sublessor shall comply with Sublessee’s reasonable security measures and operating procedures and shall minimize any disruption to Sublessee; Article 15; Article 16; Section 17.01; Section 17.02; Section 17.03; Section 17.05, except that the reference to exhibits therein shall mean and refer only to the exhibits to this Sublease; Section 17.06; Section 17.07; Section 17.09(a), except that this Section shall not apply if Sublessee continues in occupancy past the expiration of the Term pursuant to the Future Lease; Section 17.10; Section 17.11; Section 17.12, excluding the reference to Article 16; Section 17.13 (excluding the last sentence); Section 17.16; Section 17.18; Section 17.19; Section 17.20; Section 17.21; Section 17.22, except that in Section 17.22(c), Sublessor shall not withhold approval of any Hazardous Materials use that is approved by Master Lessor, and Sublessee shall not be required to remove Hazardous Materials at the end of the Term if Sublessee continues in occupancy pursuant to the Future Lease; Section 17.23; Section 17.26; and Exhibits A, I, J, K, L and M.

C. Assumption of Obligations: This Sublease is and at all times shall be subject and subordinate to the Master Lease and the rights of Master Lessor thereunder, provided, however, that in the event of a conflict between the provisions of this Sublease and the provisions of the Master Lease, as between Sublessor and Sublessee, the provisions of this Sublease shall control. Sublessee hereby expressly assumes and agrees: (i) to comply with all provisions of the Master Lease with respect to the Subleased Premises

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during the Term to the extent incorporated herein or as otherwise expressly provided by this Sublease; (ii) to perform all the obligations on the part of the “Lessee” to be performed under the terms of the Master Lease with respect to the Subleased Premises during the Term to the extent incorporated herein or as otherwise expressly provided by this Sublease; and (iii) not to act or omit to act in any manner which would violate any provision of the Master Lease.

D. Performance by Sublessor. Sublessor shall not be required to furnish, supply or install anything required of Master Lessor under any Article of the Master Lease. Sublessor shall have no liability or responsibility whatsoever for Master Lessor’s failure or refusal to perform under the Master Lease. Sublessor’s obligation to use its commercially reasonable good faith efforts to cause Master Lessor to observe and perform its obligations under the Master Lease shall not be a guarantee by Sublessor of Master Lessor’s compliance with the provisions of the Master Lease, and in no event shall Sublessor be required to initiate any litigation proceedings or file suit against Master Lessor. Sublessor shall not act or omit to act in any manner which would violate any provision of the Master Lease or that would lead to the termination of the Master Lease by Master Lessor.

25. Master Lessor’s Consent: This Sublease and Sublessor’s and Sublessee’s obligations hereunder are conditioned upon obtaining the written consent of the Master Lessor to this Sublease upon such terms and conditions as are reasonably acceptable to both Sublessor and Sublessee (the “Master Lessor’s Consent”). The parties shall cooperate in good faith to obtain the Master Lessor’s Consent as soon as possible, but not later than fifteen (15) days after the Execution Date. Any and all costs and expenses associated with the Master Lessor’s Consent shall be borne solely by Sublessor. If the Master Lessor’s Consent is not obtained within fifteen (15) days after the Execution Date, then either Sublessor or Sublessee may terminate this Sublease by giving the other party ten (10) days’ prior written notice, in which case this Sublease shall terminate on the day following the last day of the ten (10)- day notice period (unless Master Lessor’s Consent is obtained during such ten (10)- day period, in which case this Sublease shall remain in full force and effect), neither party shall have any further rights or obligations hereunder and Sublessor shall return to Sublessee all sums (including the Letter of Credit, if applicable) paid by Sublessee to Sublessor in connection with Sublessee’s execution hereof. The return of all sums paid by Sublessee to Sublessor shall be Sublessee’s sole and exclusive remedy in the event of a termination pursuant to this Paragraph, including, without limitation, a termination resulting from Sublessor’s reasonable determination that any term or condition proposed by Master Lessor to be included in a consent is unacceptable.

26. Signage: Sublessee shall have the signage rights, and the obligations with respect thereto, set forth in Section 17.15 of the Master Lease. Sublessor shall be responsible for the removal of Sublessor’s existing signage prior to the Delivery Date. Unless otherwise provided in the Future Lease, Sublessee shall be responsible for the removal of Sublessee’s signage upon the expiration or earlier termination of this Sublease, and for the cost to restore any damage caused by such removal.

27. No Offer. Submission of this Sublease for examination or signature by Sublessee does not constitute a reservation of, option for or option to sublease, and such submission is not effective as a sublease or otherwise until execution and delivery by both Sublessor and Sublessee, subject, however, to the provisions of Paragraph 25 above.

29. (Intentionally omitted.)

30. Fitness Center. A fitness center exists within the Project and, to the extent it is open and operating, is available for Sublessee’s use at no additional cost on the terms and conditions provided herein. Sublessee’s use of the fitness center shall be subject to all the rules and regulations of the Master Lessor.

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Sublessor does not represent or warrant to Sublessee that Master Lessor will continue to open and operate the fitness center for the tenants of the Project. The continued availability of the fitness center shall not be a condition precedent to this Sublease, and the failure of the fitness center to be available to Sublessee shall have no effect upon this Sublease or the rent payable by Sublessee to Sublessor under this Sublease. Except to the extent caused by the active negligence or willful misconduct of Sublessor, its agents, employees or contractors, Sublessor shall not be liable to Sublessee, or its employees, agents, contractors, sublessees, assignees or invitees, and Sublessee, as a material part of the consideration to be rendered to Sublessor under this Sublease, waives all such claims against Sublessor, for any damage to personal property or injury to persons in or about the fitness center and/or the Project from any cause whatsoever arising at any time, including, but not limited to, any damage or injury to any Sublessee employee, agent, contractor, sublessee, assignee or invitee using the fitness center or Project. Except to the extent caused by the active negligence or willful misconduct of Sublessor (or Master Lessor), its agents, employees or contractors, Sublessee shall indemnify, protect, defend with counsel reasonably acceptable to Sublessor (or Master Lessor) and hold harmless Sublessor) or Master Lessor) from and against any and all claims, liabilities, judgments, causes of action, damages, costs and expenses (including reasonable attorneys’, consultants’ and experts’ fees), caused by or arising in connection with the use of the fitness center by Sublessee, its agents, employees, contractors, sublessee, assignees or invitees, including, without limitation, any claims asserted or caused by Sublessee’s employees. The foregoing release and indemnity shall survive the expiration or earlier termination of this Sublease.

31. Holding Over. Unless Sublessee continues to occupy the Sublease Premises pursuant to the Future Lease, if Sublessee holds over in the Subleased Premises after the expiration or sooner termination of the Term of this Sublease, Sublessee shall be deemed a month-to-month subtenant and the Monthly Base Rent during the holdover period shall be 200% of the monthly base rent payable by Sublessor to Master Lessor during the last month of the term of the Master Lease. Nothing in this Paragraph shall be deemed to permit Sublessee to hold over beyond the expiration or earlier termination of the Term of this Sublease (unless Sublessee continues to occupy the Subleased Premises pursuant to the Master Lease), and Sublessee shall indemnify, defend, protect and hold harmless Sublessor or Master Lessor from and against any and all claims, liabilities, judgments, causes of action, damages, costs and expenses (including reasonable attorneys’, consultants’ and experts’ fees) resulting from the failure of Sublessee to surrender the Subleased Premises in the condition required by this Sublease upon the expiration or sooner termination of the Term of this Sublease. The foregoing indemnification shall survive the expiration or earlier termination of this Sublease.

32. Sublessor’s Estoppel. Sublessor represents and warrants that to Sublessor’s knowledge, as of the date of this Sublease, (i) the Master Lease is in full force and effect; (ii) neither Sublessor nor Master Lessor is in material breach of the Master Lease; and (iii) the Master Lease has not been modified, altered, amended or otherwise changed as between Master Lessor and Sublessor, except as provided in that certain Settlement Agreement between Sublessor’s and Sublessee’s respective predecessors-in-interest dated November 15, 2001.

33. Access. Sublessee shall have access to the Subleased Premises twenty-four (24) hours per day, seven (7) days per week, subject to Master Lessor’s reasonable security measures.

34. Letter of Credit:

A. Terms of Letter of Credit. In lieu of the cash Security Deposit required by Paragraph 5 above, as additional consideration for value received and a further incentive to maintain Sublessor’s willingness to enter this Sublease, and as additional collateral so as to compensate Sublessor for future damages it may suffer by reason of Sublessee’s defaults hereunder, Sublessee shall deliver to Sublessor, not

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later than five (5) days after the date of Sublessee’s execution of this Sublease, an unconditional, clean, irrevocable letter of credit in the amount of $268,864.25 (“LC Amount”), which letter of credit shall be issued by a money-center bank (a bank which accepts deposits, maintains accounts, has a local Silicon Valley office which will negotiate a letter of credit and whose deposits are insured by the FDIC) reasonably acceptable to Sublessor, shall be for a term continuing through the last day of the forty-five (45) - day period following the Expiration Date (or shall contain an “evergreen” provision which provides that it automatically is renewed on an annual basis unless the issuer delivers forty-five (45) days’ prior written notice to Sublessor and Sublessee), shall permit partial draws, shall provide that draws thereunder will be honored upon receipt by issuer of the letter of credit and a written statement signed by Sublessor or its authorized agent stating that Sublessor is entitled to draw down on the letter of credit, shall be freely transferable and shall be in a form and content reasonably acceptable to Sublessor. Such letter of credit, together with any other renewal or replacement letters of credit delivered or to be delivered by Sublessee hereunder shall be referred to collectively herein as the “LC”. The LC shall provide for forty-five (45) days’ prior written notice to Sublessor of cancellation or material change thereof, and shall further provide that, in the event of any non-extension of the LC, Sublessor shall be entitled to present its written demand for payment of the entire face amount of the LC, and the proceeds therefrom so obtained shall be held as provided below. Sublessee shall pay all expenses, points and/or fees incurred by Sublessee in obtaining the LC. Additionally, upon a proposed sale or other transfer of any interest in the Premises, this Sublease or Sublessor (including consolidations, mergers or other entity changes), Sublessee, at its sole cost and expense and upon ten (10) business days’ notice, shall, concurrent with Sublessor’s delivery to Sublessee of the then outstanding LC, deliver to any such transferee, successor or assign a replacement LC on identical terms (except for the stated beneficiary) from the same issuer or another bank acceptable to Sublessor, in Sublessor’s reasonable discretion, naming the new sublessor as the beneficiary thereof. The LC shall not be mortgaged, assigned or encumbered in any manner whatsoever by Sublessee without Sublessor’s prior written consent, which may be withheld in Sublessor’s sole discretion.

B. Application of LC. The LC shall be held by Sublessor without liability for interest and as security for performance by Sublessee of its obligations under this Sublease. The LC, and any proceeds therefrom, is not an advance payment of Rent or a measure or limit of Sublessor’s damages upon Sublessee’s default under this Sublease, and Sublessor shall not be required to keep any proceeds from the LC separate from Sublessor’s general funds or to pay interest thereon. If Sublessee defaults (following any applicable grace periods, it being understood that no notice of a default by Sublessee hereunder need be given by Sublessor to Sublessee if Sublessee is the subject of a bankruptcy proceeding) with respect to any provision of this Sublease, including, but not limited to, provisions relating to the payment of Rent, Sublessor may, but shall not be required to, draw down upon all or any portion of the LC for payment of any Rent or other sum in default, and/or for the payment of any amount that Sublessor may spend or may become obligated to spend by reason of Sublessee’s default or to compensate Sublessor for any loss or damage which Sublessor has suffered thereby. The use, application or retention of the LC, or any proceeds therefrom, by Sublessor shall not prevent Sublessor from exercising any other right or remedy provided by this Sublease or by law or in equity, it being intended that Sublessor shall not first be required to proceed against the LC, and the LC and any proceeds therefrom shall not operate as a limitation on any recovery to which Sublessor otherwise may be entitled. Sublessee hereby waives any restriction on the use or application of the Security Deposit by Sublessor as set forth in California Civil Code Section 1950.7 or any successor statute. If all or any portion of the LC is drawn upon, Sublessee, within five (5) days after written notice from the issuer or Sublessor of the amount so applied, shall reinstate the LC to the LC Amount required under this Sublease by providing either cash (so that the full amount of cash and LC proceeds held by Sublessor equals the LC Amount) or a replacement LC upon the identical terms and conditions set forth in this Paragraph, and if all or any portion of the LC again is used or applied, Sublessee shall, within five (5) days after written demand therefor, again reinstate the LC to the LC Amount required under this Sublease by providing either cash (so

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that the full amount of cash and LC proceeds held by Sublessor equals the LC Amount) or a replacement LC upon the identical terms and conditions set forth in this Paragraph. Sublessee’s failure to provide Sublessor with cash in the required amount or to reinstate the LC as required hereunder shall be a material default under this Sublease, without any obligation of Sublessor to provide any additional notice of default, and Sublessor shall be permitted to draw down the entire balance of the LC and apply it to any current or future obligations of Sublessee in such event. Sublessee hereby grants to Sublessor a security interest in the LC and any cash proceeds therefrom in accordance with the applicable provisions of the California Uniform Commercial Code.

C. Return of LC. Within thirty (30) days after the later of the expiration or earlier termination date of this Sublease, and the date upon which the LC expires, if Sublessee is not then in default hereunder, Sublessor shall return to Sublessee (without interest) the LC or so much of the proceeds of the LC as have not been applied by Sublessor pursuant to this Paragraph, or which are not otherwise required to cure Sublessee’s defaults.

35. Personal Property: During the Term of this Sublease, without obligation to pay additional Monthly Base Rent with respect thereto, Sublessee shall have the right to use the following: (i) existing furniture, (ii) security system, (iii) cabling, (iv) UPS, PDU, and air handlers in all main data centers and MDF/IDF data closets, (v) existing racks, and (vi) other personal property currently located in the Subleased Premises. In addition, at no cost to Sublessee (a) prior to the Commencement Date, Sublessor shall configure the existing furniture located in the Subleased Premises to a condition reasonably appropriate for use by Sublessee’s employees, and (b) within sixty (60) days following the Premises Delivery Date, Sublessor shall provide to Sublessee and shall configure to Sublessee’s reasonable requirements any additional furniture and personal property requested by Sublessee from Sublessor’s inventory of such items currently in storage. The items listed in the foregoing two sentences shall be referred to as the “Personal Property”). Sublessee acknowledges that Sublessee is taking possession of the Personal Property on an “as is, where is, with all faults” basis, and that Sublessee is not relying on any representations or warranties of any kind whatsoever, express or implied, including, without limitation, any implied warranties as to merchantability or fitness for a particular purpose; provided, however, that Sublessor represents for the benefit of Sublessee that Sublessor owns the Personal Property free and clear of all liens. Sublessor shall have no obligation to repair, maintain, replace or insure the Personal Property, all of which shall be the obligation of Sublessee. Upon the expiration of this Sublease (or upon early termination for any reason other than a default of Sublessee under this Sublease), Sublessee shall purchase the Personal Property from Sublessor pursuant to the bill of sale in substantially the form attached hereto as Exhibit B and incorporated by reference herein. Unless Sublessee continues to occupy the Subleased Premises pursuant to the Future Lease, Sublessee shall be responsible for removing the Personal Property from the Subleased Premises upon the expiration or earlier termination (except for early termination resulting from the default of Sublessee under this Sublease) of the Term.

36. Voluntary Termination: Sublessor shall not voluntarily terminate the Master Lease during the Term unless and until Master Lessor has agreed in writing to continue this Sublease in full force and effect as a direct lease between Master Lessor and Sublessee upon and subject to all of the terms, covenants and conditions of this Sublease for the balance of the Term hereof, including without limitation the Monthly Base Rent payable hereunder. If Master Lessor so consents, Sublessee shall attorn to Master Lessor in connection with any such voluntary termination and shall execute an attornment agreement in such form as reasonably may be requested by Master Lessor.

37. Environmental:

A. Sublessee’s Acknowledgment. Sublessee’s execution of this Sublease shall be deemed Sublessee’s acknowledgment and agreement that Sublessee has received, and, pursuant to Section

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17.22(b) of the Master Lease, reviewed same, a copy of each of those certain documents entitled: (i) PHASE I, ENVIRONMENTAL SITE ASSESSMENT, PACIFIC SHORES CENTER, REDWOOD CITY, CALIFORNIA, Prepared for: The Jay Paul Company, San Francisco, California, Prepared by: IRIS ENVIRONMENTAL, Oakland, California, December 20, 1999, Job No. 99-122A; and (ii) PHASE II, ENVIRONMENTAL SITE ASSESSMENT, PACIFIC SHORES CENTER, 1000 SEAPORT BOULEVARD, REDWOOD CITY, CALIFORNIA, Prepared for: The Jay Paul Company, San Francisco, California, Prepared by: IRIS ENVIRONMENTAL, Oakland, California, January 14, 2000, Job No. 99-122-B.

B. Change in Use of Subleased Premises. If Sublessee elects to use the Subleased Premises for one or more of the Lab Uses, in addition to the provisions of Section 17.22 of the Master Lease regarding Hazardous Materials (to the extent incorporated in this Sublease), Sublessee also shall comply with the following provisions:

(i) Use of Hazardous Materials. Sublessee shall not cause or permit any Hazardous Materials to be brought upon, kept or used in, on or about the Project by Sublessee or Sublessee’s Parties without Sublessor’s prior written consent, except that Sublessee may, without the need for Sublessor’s prior written consent, bring on, keep at and use in, on or about the Subleased Premises those Hazardous Materials described in Exhibit C attached hereto and incorporated by reference herein or any similar Hazardous Materials used for substantially the same purposes in substitution thereof in compliance with applicable Environmental Laws, even if they are Hazardous Materials. All such Hazardous Materials will be used, kept and stored by Sublessee in a manner that complies with all applicable Environmental Laws. Sublessee shall, at all times, use, keep, test, store, handle, transport, treat or dispose all such Hazardous Materials in or about the Project in compliance with all applicable HazMat Requirements. Unless Sublessee continues to occupy the Subleased Premises pursuant to the Future Lease following the expiration or earlier termination of this Sublease, Sublessee shall remove Hazardous Materials used or brought onto the Project during the Sublease Term from the Project prior to the expiration or earlier termination of this Sublease in accordance with any applicable HazMat Requirements and the Surrender Plan approved by Sublessor. For purposes of this Sublease, if Sublessee elects to use the Subleased Premises for one or more of the Lab Uses, then this Paragraph 37.B.(i) of this Sublease shall supersede in their entirety the provisions of Section 17.22(c) of the Master Lease.

(ii) Sublessee’s Obligation to Promptly Remediate. If the presence of Hazardous Materials on the Subleased Premises after the Premises Delivery Date results from an act or omission of Sublessee (or Sublessee’s successors-in-interest), its agents, employees, invitees, vendors, contractors, guests, or visitors results in contamination of the Project or any water or soil beneath the Project in violation of applicable HazMat Requirements, Sublessee shall promptly take all action necessary or appropriate to test, investigate and remedy that contamination, at its sole cost and expense, provided that Sublessor’s consent to such action shall first be obtained, which consent shall not be unreasonably withheld, conditioned or delayed.

(iii) Notification. Sublessor and Sublessee each agree to promptly notify the other of any communication received from any governmental entity concerning Hazardous Materials or the violation or alleged violation of Environmental Laws that relate to the Project. In addition, Sublessee shall promptly provide to Sublessor copies of any approvals or disapprovals received from any relevant governmental agency in connection with permits, licenses or periodic or episodic testing or remediation of the Subleased Premises by Sublessee required by HazMat Requirements, including but not limited to the plans, permits and licenses described in Exhibit D attached hereto and incorporated by reference herein or any other such plans, permits and licenses instead performed by Sublessee pursuant to HazMat Requirements. Without limiting the foregoing, Sublessee shall deliver to Sublessor any applications for decommissioning the Subleased Premises pursuant to HazMat Requirements at the same time such application is delivered to the

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relevant governmental agency. Sublessor shall have the opportunity to participate in, and comment on, any such decommission or surrender plan application, and the final version of such plan shall be subject to Sublessor’s written approval.

(iv) Testing. Sublessor shall have the right to conduct tests of the Subleased Premises at any time that Master Lessor seeks to sell or refinance the Subleased Premises, or if Sublessor has reasonable grounds to believe that Hazardous Materials may exist at the Subleased Premises in violation of the terms of this Sublease. Such tests shall be performed in order to determine whether any contamination of the Subleased Premises or the Project has occurred as a result of Sublessee’s use. Sublessee shall be required to pay the reasonable cost of such tests of the Subleased Premises if they are performed due to Sublessor’s reasonable grounds to believe that Hazardous Materials may exist at the Subleased Premises in violation of the terms of this Sublease (Master Lessor shall pay the costs of such tests in the event of a sale or refinancing); provided, however, that if Sublessee conducts its own tests of the Subleased Premises using third party contractors and test procedures acceptable to Sublessor which tests are certified to Sublessor, Sublessor shall accept such tests in lieu of such tests to be paid for by Sublessee. In connection with such testing, upon the request of Sublessor, Sublessee shall deliver to Sublessor or its consultant such non-proprietary information concerning the use of Hazardous Materials in or about the Subleased Premises by Sublessee or any Sublessee Parties. If contamination has occurred in violation or excess of the HazMat Requirements for which Sublessee is liable under this Section 37.B.(iv), Sublessee shall pay all costs to conduct such tests. If no such contamination is found, Sublessor shall pay the costs of such tests. Sublessee shall, at its sole cost and expense, promptly and satisfactorily remediate any environmental conditions identified by such testing in accordance with HazMat Requirements. Sublessor’s receipt of or satisfaction with any environmental assessment in no way waives any rights which Sublessor may have against Sublessee. Notwithstanding anything herein to the contrary, within thirty (30) days prior to the Expiration Date or any earlier date on which this Sublease terminates, Sublessee shall, at Sublessee’s sole expense, deliver to Sublessor a phase II environmental audit of the Subleased Premises showing the environmental condition of the Subleased Premises and the completion of Sublessee’s Surrender Plan for the Subleased Premises; provided, however, that this sentence shall not apply if Sublessee continues to occupy the Subleased Premises pursuant to the Future Lease following the expiration or earlier termination of this Sublease.

(v) Dispute Resolution. Notwithstanding anything herein to the contrary, if Sublessor requires Sublessee to perform any testing, clean-up or remediation of Hazardous Materials, or if Sublessor requires Sublessee to modify Sublessee’s use of Hazardous Materials at the Subleased Premises in a manner or in amounts other than as is required by Environmental Laws pursuant to either this Paragraph 37.B. or Section 18.B. above, and Sublessee believes that Sublessor’s requirements are not commercially reasonable, then if Sublessee provides Sublessor with written notice thereof (the “Dispute Notice”) within fifteen (15) business days of the date on which Sublessor first informs Sublessee in writing of such requirement, then such dispute shall be remedied pursuant to the terms of this Paragraph 37.B.(v). If such a dispute exists, Sublessor and Sublessee shall meet within ten (10) business days after the date of the Dispute Notice and attempt in good faith to resolve the dispute. If, despite such meeting, the parties cannot resolve the dispute, each of Sublessor and Sublessee shall separately designate to the other in writing an environmental expert to determine if the requirement in question is commercially reasonable. Each environmental expert designated shall have at least ten (10) years’ experience in performing environmental audits of real property in San Mateo County and shall be paid by the party choosing such expert. The failure of either party to appoint an environmental expert within the time allowed shall be deemed equivalent to appointing the environmental expert appointed by the other party, who shall then determine whether the requirement in question is commercially reasonable. The two (2) environmental experts shall then each prepare a written proposal of what a commercially reasonable environmental requirement for the activity in question. If the two (2) environmental experts are unable to agree on whether the requirement in question is

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commercially reasonable, or, in lieu thereof, to come to agreement on a commercially reasonable environmental requirement for the issue in question, within fifteen (15) business days of their appointment, the two designated environmental experts shall jointly designate a third similarly qualified environmental expert. The third environmental expert shall within ten (10) business days following its appointment, then determine which of the two environmental experts’ determinations most closely reflects an appropriate, commercially reasonable requirement with respect to the Hazardous Materials issue in question. The third environmental expert shall have no rights to adjust, amend or otherwise alter the determinations made by the environmental experts selected by the parties, but must select one or the other of such experts’ submissions. The determination by such third environmental expert shall be final and binding upon the parties. Said third environmental expert shall, upon selecting the determination, concurrently notify both parties hereto. The parties shall share the expenses of the third environmental expert equally.

(vi) Survival. Sublessee’s obligations pursuant to this Paragraph 37.B. shall survive the expiration or earlier termination of this Sublease.

38. Surrender if No Future Lease. If for any reason Sublessee is not entitled to continue to occupy the Subleased Premises pursuant to the Future Lease, upon the expiration or earlier termination of this Sublease, Sublessee shall surrender the Subleased Premises to Sublessor in the condition required by Section 17.09(a) of the Master Lease and shall remove any alterations or improvements (including the Sublessee Improvements) if required to do so pursuant to Paragraph 14.C. above.

39. Right to Make Building Repairs. Pursuant to Section 6.01(b) of the Master Lease, Sublessor has a right to perform repairs required to be made by Master Lessor if Master Lessor defaults with respect to such obligations, and to be reimbursed, together with interest thereon, for the cost of such repairs. Upon prior written notice to Sublessor, Sublessee shall have the right to exercise the rights set forth in Section 6.01(b) in strict accordance therewith. If Sublessee does not timely meet the requirements of Section 6.01(b), or if Master Lessor does not comply with Section 6.01(b), Sublessor shall have no liability to Sublessee with respect thereto other than the obligation set forth in Paragraph 24.A.(iv) above.

40. Right to Contest Property Taxes. Pursuant to Section 9.04 of the Master Lease, Sublessor has a right to seek a reduction in the assessed valuation of the Subleased Premises or to contest any real property taxes to be paid by Sublessor with respect to the Subleased Premises. Upon prior written notice to Sublessor, Sublessee shall have the right to exercise the rights set forth in Section 9.04 in strict accordance therewith. If Sublessee does not timely meet the requirements of Section 9.04, or if Master Lessor does not comply with Section 9.04, Sublessor shall have no liability to Sublessee or with respect thereto other than the obligation set forth in Paragraph 24.A.(iv) above, and Sublessee shall indemnify Sublessor for any liability Sublessor incurs as a result of Sublessee’s failure to comply with the provisions of Section 9.04 of the Master Lease.

41. Security for Sublessor’s Performance.

A. Events Necessitating the Posting of a Deficiency Letter of Credit. Sublessor shall deliver to Sublessee a letter of credit, in the form described in Paragraph 41.B. below, in the amount of Three Million and No/100 Dollars ($3,000,000.00) (“Deficiency Letter of Credit”), upon the occurrence of either of the following:

(1) If at any time following the second anniversary of the Commencement Date, Sublessor’s average cash on hand for any six (6)- month period, as displayed in Sublessor’s 10-K and 10-Q, drops below One Hundred Million and No/100 Dollars ($100,000,000.00) (a “Cash Deficiency Event”), Sublessee shall provide Sublessor with written notice that a Cash Deficiency Event has occurred. Within

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thirty (30) days after Sublessor receives any such notice from Sublessee (a “Cash Deficiency Notice”), Sublessor shall deliver to Sublessee the Deficiency Letter of Credit, provided that a Cash Deficiency Event has occurred, or

(2) If, at any time during the Term, Sublessor fails to pay Base Rent under the Master Lease when due, Master Lessor has made an unconditional demand (“Master Lessor Base Rent Demand”) upon either Sublessor or Sublessee for payment of such Base Rent, and Sublessor fails to pay the Base Rent at issue within five (5) business days after the date of Master Lessor’s Base Rent Demand (“Event of Sublessor’s Default”), within thirty (30) days following such Event of Sublessor’s Default Sublessor shall deliver to Sublessee the Deficiency Letter of Credit.

B. Terms of the Deficiency Letter of Credit. The Deficiency Letter of Credit shall be issued by a bank, selected by Sublessor and reasonably acceptable to Sublessee, that accepts deposits, maintains accounts, has an office in the San Francisco Bay Area, and that will negotiate a letter of credit, the deposits of which must be insured by the Federal Deposit Insurance Corporation (“Issuer”). Sublessor shall pay all expenses, points or fees incurred to obtain and maintain the Deficiency Letter of Credit, including, without limitation, all costs or fees charged by the Issuer in connection with a draw against a Deficiency Letter of Credit. The Deficiency Letter of Credit shall provide that, once per calendar month during the term of the Letter of Credit, drafts will be honored, up to the amount of the difference between the Monthly Base Rent payable by Sublessee under this Sublease and the monthly Base Rent payable by Sublessor under the Master Lease, together with any applicable late charges payable by Sublessor under the Master Lease for such month (“Monthly Base Rent Differential”) (plus any costs imposed by the Issuer in connection with the draw), on sight if accompanied by a statement on Sublessee’s company letterhead signed by an officer of Sublessee asserting that (i) under Section 12.01(b) of the Master Lease, Sublessor has not paid the Base Rent due under the Master Lease when due and such failure has continued for four (4) business days after written notice thereof from Master Lessor, and that Master Lessor has made a Master Lessor Base Rent Demand upon either Sublessor or Sublessee for the payment of such Base Rent, and (ii) Sublessee is entitled to draw the amount requested from the Deficiency Letter of Credit Issuer pursuant to Paragraph 41 of this Sublease and that such requested amount does not exceed the Monthly Base Rent Differential for such month (plus any costs imposed by Issuer in connection with the draw). In addition, the Deficiency Letter of Credit shall provide that the term of the Letter of Credit (“Letter of Credit Term”) will expire upon the earlier to occur of (y) the date that is thirty (30) days after the expiration or earlier termination of this Sublease, and (z) the date that the Issuer receives a statement signed by an officer of Sublessor asserting that a Permitted Termination Event (defined below) or a Restricted Assignment (defined below) has occurred. During the Letter of Credit Term, any Deficiency Letter of Credit shall be automatically renewable on an annual basis, and for thirty (30) days following the expiration of the Letter of Credit Term.

Notwithstanding anything to the contrary contained in this Paragraph 41.B., if Sublessor fails to renew or replace the Deficiency Letter of Credit at least thirty (30) days prior to its expiration, Sublessee may, without prejudice to any other remedy it has, upon five (5) business days’ written notice to Sublessor, and provided Sublessor does not renew or replace such Deficiency Letter of Credit during such period, draw on all of the Deficiency Letter of Credit and such drawn amount shall be held by Sublessee solely to pay the Monthly Base Rent Differential in the amounts and at the times otherwise permitted by this Paragraph; provided, however, Sublessee must certify to Sublessor each of the items described in subsections (i)-(ii) above of this Paragraph 41.B. before Sublessee may, in any calendar month, disburse any payments from such drawn amount, and all amounts so drawn from the Deficiency Letter of Credit (less any amounts disbursed to Sublessee in accordance with the provisions of this sentence) shall be immediately refunded to Sublessor upon Sublessor’s replacement or renewal of such Deficiency Letter of Credit. If there is a termination of the Master Lease for any reason other than Sublessor’s uncured default under the Master Lease, such event shall

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be a “Permitted Termination Event” and shall terminate the Deficiency Letter of Credit automatically. If the Sublease or Sublessee’s interest in the Subleased Premises is assigned other than to a Sublessee Affiliate, or if Sublessee attempts to transfer the Deficiency Letter of Credit other than to a Sublessee Affiliate, either of such events shall be a “Restricted Assignment” and shall terminate the Deficiency Letter of Credit automatically. Sublessee shall notify Sublessor at least ten (10) days in advance of a transfer to a Sublessee Affiliate, unless such notification is restricted by the regulations or requirements of the Securities and Exchange Commission, in which event such notification shall be made promptly following the date of such transfer.

C. Rights and Obligations of the Parties. If, in any calendar month during the Letter of Credit Term, Sublessor has not paid the Base Rent due under the Master Lease when due, Master Lessor has made a Master Lessor Base Rent Demand upon either Sublessor or Sublessee for the payment of such Base Rent, and Sublessor fails to pay the Base Rent at issue within three (3) business days after the date of the Master Lessor Base Rent Demand, then Sublessee, at its option, may draw from the Deficiency Letter of Credit an amount of cash that in no event exceeds the Monthly Base Rent Differential for the applicable calendar month (plus costs imposed by the issuer in connection with the draw), and shall pay all such drawn amounts to Master Lessor within five (5)- business days after any such draw. In the alternative, within such five (5)- business day period, Sublessee may deliver to Sublessor written evidence certified by an officer of Sublessee and otherwise reasonably acceptable to Sublessor (“Payment Notice”) that Sublessee has paid Sublessor’s full Monthly Base Rent Differential to Master Lessor for such calendar month, together with a statement that Sublessee will retain the Monthly Base Rent Differential (together with the issuer’s costs) as reimbursement for that portion of Sublessee’s payment allocable to the Monthly Base Rent Differential and costs. In the event Sublessee either fails to pay any such amounts to Master Lessor within such period or to provide Sublessor with the Payment Notice (a “Payment Default”), the Deficiency Letter of Credit shall automatically terminate. Notwithstanding anything to the contrary contained in this Sublease, in the event Sublessee draws on the Deficiency Letter of Credit due to a Monthly Base Rent Differential for any calendar month, Sublessee agrees that Sublessor shall be forever released from all obligations and liabilities under this Sublease relating to Sublessor’s obligation hereunder to pay the Base Rent due for such particular calendar month under the Master Lease. Also notwithstanding anything in this Sublease to the contrary, Sublessor shall have the right, from time to time during the Letter of Credit Term, but not more than once each calendar year during the Letter of Credit Term and upon no less than ten (10) days’ prior written notice to Sublessee, to replace Deficiency Letter of Credit with a replacement letter of credit meeting all of the terms and conditions set forth in this Paragraph. Sublessee shall return the Deficiency Letter of Credit (or any unapplied proceeds thereof) to Sublessor, or shall cause the Issuer to cancel the Deficiency Letter of Credit, within thirty (30) days following the expiration or termination of the Letter of Credit Term.

D. Termination of Master Lease. In the event of a termination of the Master Lease due solely to a default, beyond applicable notice and cure periods, by Sublessor thereunder, and not as a result of any fault of Sublessee, Sublessee shall have the right at its option, and without prejudice to any other remedy which Sublessee may have, to draw on all of the Deficiency Letter of Credit and retain such proceeds.

[SIGNATURES APPEAR ON NEXT PAGE]

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IN WITNESS WHEREOF, the parties have executed this Sublease on the day and year first above written.

SUBLESSEE:		SUBLESSOR:
PDL BIOPHARMA, INC.,		OPENWAVE SYSTEMS INC.,
a Delaware corporation		a Delaware corporation
By:	/s/ Mark McDade	By:	/s/ Gregory Wrenn
	Mark McDade
Title:	Chief Executive Officer	Title:	SVP & General Counsel
By:
Title:
Address:	34801 Campus Drive	Address:	2100 Seaport Boulevard
	Fremont, CA 94555		Redwood City, CA 94063
	Attn: Laurie Torres		Attn: Real Estate Department
Telephone:	(510) 574-1400	Telephone:	(650) 480-8000

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EXHIBIT “A”

MASTER LEASE

TRIPLE NET BUILDING LEASE

Between

PACIFIC SHORES CENTER LLC,

as

LESSOR

and

PHONE.COM, INC.

a California corporation

as

LESSEE

for

PREMISES

At

Pacific Shores Center

Building 9

Redwood City, California

ARTICLE I

PARTIES

Section 1.01. Parties. This Lease, dated for reference purposes, and effective as of February 4, 2000, is made by and between PACIFIC SHORES CENTER LLC, or assignee (provided that such assignee is an entity controlled or managed, directly by Jay Paul) (“Lessor”) and PHONE.COM, INC., a California corporation (“Lessee”).

ARTICLE II

PREMISES

Section 2.01. Demise of Premises. Lessor hereby leases to Lessee and Lessee leases from Lessor for the term, at the rental, and upon all of the terms and conditions set forth herein, Premises consisting of one building (“Building”) of ten free standing, office and research and development buildings (“Buildings”) to be constructed by Lessor on real property situated in Redwood City, County of San Mateo, State of California and commonly known as Pacific Shores Center which Lessor is in the process of acquiring (the “Property”). The Building will be five stories tall and will consist of approximately two hundred seventy-nine thousand five hundred eighty-four (279,584) rentable square feet, as more particularly described and depicted herein in Exhibit “A.” The actual rentable square footage of the Building (the “Rentable Area”) will be determined and certified by Lessor’s architect by a method described as “dripline,” whereby the measurement encompasses the outermost perimeter of the constructed building, including every projection thereof and all area beneath each such projection, whether or not enclosed, with no deduction for any inward deviation of structure and with the measurement being made floor by floor, beginning from the top of the Building provided that, Lessee shall have the right, to be exercised prior to Commencement Date, to measure the “as-built” Building to confirm that the aforesaid dripline methodology was accurately utilized by Lessor’s architect. The Buildings and appurtenances described herein, the Property, and all other improvements to be built on the Property are together designated as the “Project.” The Building leased hereunder is commonly known as Building 9 - Pacific Shores Center, Redwood City, California and its appurtenances described herein are herein designated as the “Premises.”

Section 2.02. Common Area. During the Lease Term, Lessee shall have the non-exclusive right to use the Common Area defined herein. Lessor reserves the right to modify the Common Area, including reducing the size or changing the use, configuration and elements thereof in its sole discretion and to close or restrict access from time to time for repair, maintenance or to prevent a dedication thereof, provided that Lessee nonetheless shall have access to parking and the Premises during such activities and, provided further, that Lessor will continue to maintain the baseball and soccer fields and the amenities/athletic facility or replacement items of like kind for so long as Lessor is legally able to do so during the Lease Term. Lessor further reserves the right to establish, repeal and amend from time to time rules and regulations for the use of the Common Area (provided that, to the extent that any conflict between any new Rules and Regulations and this Lease (including the Rules and Regulations attached hereto as Exhibit “L”) would materially and adversely affect Lessee’s use of the Premises, this Lease shall govern, and to grant reciprocal easements or other rights to use the Common Area to owners of other property. “Common Area” includes, without limitation,

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landscaping, sidewalks, walkways, driveways, curbs, parking lots (including striping), sprinkler systems, lighting, surface water drainage systems and amenities/athletic facility, as well as baseball and soccer fields, and, to the extent required by government authorities having jurisdiction over Lessor’s development of the Project, a waterfront park, perimeter walking/biking trail, amphitheater, marine life resource center, retreat and conference center, child care center and such further portions of the Project or additional or different facilities as Lessor may from time to time designate or install or make available for the use by Tenant in common with others.

Section 2.03. Parking. Lessor shall provide Lessee with parking spaces within the Common Area in the ratio to space within the Building as required by law which is three (3) spaces per one thousand (1,000) square feet of interior space. In the event Lessor elects or is required by any law to limit or control parking at the Premises, whether by validation of parking tickets or any other method of assessment, Lessee agrees to participate in such validation or assessment program under such reasonable rules and regulations as are from time to time established by Lessor. Said parking shall be provided at no additional cost except as expressly provided herein in Article VI for reimbursement of repair, replacement and maintenance, and except for any governmental or public authority charges, fees or impositions of any nature hereafter imposed.

Section 2.04. Construction.

(a) Government Approvals. Lessor shall diligently pursue obtaining governmental approval of a Site Plan and Buildings design and elevations with respect to the development of the Premises, copies of which are attached hereto as Exhibit “A.” The parties acknowledge and agree that the final footprint and elevations of the Buildings may vary from those attached as Exhibit “A” because the plans and specifications will undergo a plancheck process with the City of Redwood City and Lessor will make such revisions as are required or are otherwise deemed necessary or appropriate by Lessor, provided however, that nothing herein shall be deemed to relieve Lessor from the duty to develop the Building substantially in compliance with Exhibit “A,” and further provided that all revisions to the plans and specifications which may materially and adversely affect the use, accessibility, safety or design of the Premises shall be subject to the review and (unless imposed by law or any governmental agency) consent of Lessee, which shall not be unreasonably withheld, conditioned or delayed, provided further that any delay to the construction schedule caused by such review and giving or withholding of consent shall be Lessee Delay.

(b) Construction of Shell Buildings. Lessor, utilizing Rudolph & Sletten (or such alternate as Lessor in its sole discretion may select) as general contractor (“General Contractor”), shall construct the “Building Shell” (as defined in the attached Exhibit “D”) in accordance with (i) plans and specifications to be attached as Exhibit “B” and (ii) all existing applicable municipal, local, state and federal laws, statutes, rules, regulations and ordinances. Lessor shall pay all costs of constructing the Building Shell.

(c) Construction of Tenant Improvements. All improvements not included within the scope of the Building Shell shall be deemed “Tenant Improvements.” Lessor, using the General

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Contractor, shall construct the Tenant Improvements and shall contribute the Tenant Improvement Allowance towards the payment of same and Lessee shall pay all costs associated with same in excess of the Tenant Improvement Allowance. Notwithstanding the foregoing, Lessee may select a general contractor other than Lessor’s General Contractor to construct the Tenant Improvements by giving written notice to Lessor on or before April 1, 2000, provided that (i) such general contractor has sufficient financial strength and experience in constructing first class quality improvements of the type to be constructed in the Premises to reasonably satisfy Lessor and any lender whose loan is secured by the Project or any part thereof and, (ii) Lessee agrees in such notice that the Tenant Improvements identified on Exhibit N hereto as “Early Construction Improvements” shall be constructed by Lessor’s General Contractor to facilitate construction of the balance of the Tenant Improvements by the Lessee selected general contractor (that the Early Construction Improvements shall retain concurrent status as Tenant Improvements, the cost of which is to be charged to the Tenant Improvement Allowance), and (iii) such general contractor is ready, willing and able and agrees to construct the Tenant Improvements in accordance with Lessor’s General Contractor’s construction schedule, and (iv) any failure by such Lessee selected general contractor to construct the Tenant Improvements in accordance with Lessor’s General Contractor’s construction schedule shall be Lessee Delay. If Lessor’s General Contractor constructs the Tenant Improvements, or if Lessee selects a general contractor other than Lessor’s General Contractor, but Lessor’s General Contractor nonetheless contracts with Lessor to construct the “Early Construction Improvements,” in each case the contract shall be a guaranteed maximum price contract based upon the successful bids of subcontractors and/or negotiated prices as provided in Section 2.04(f). The total compensation to the General Contractor under such contract shall be equal to a contractor’s fee not to exceed an amount equal to 2.5% of the contract (provided that a contractor’s fee shall not be payable for change orders required due to coordination errors caused by the General Contractor or any of its subcontractors) and an amount not to exceed an amount equal to 2 ¹/2% of the contract for general conditions plus an amount equal to .75% of the contract for insurance.

(d) Tenant Improvement Plans and Cost Estimate. Lessee shall work with Lessor’s architect to develop interior schematic drawings and Lessee shall approve final interior schematic drawings for the Tenant Improvements no later than June 6, 2000. Lessee shall work with Lessor’s architect to develop working drawings outlining, among other things, Lessee’s wall layout, detailed electrical and air conditioning requirements and finishes (“Working Drawings”) and Lessee shall approve final Working Drawings on or before July 15, 2000. The cost of the interior schematic drawings and Working Drawings shall be a Tenant Improvement cost paid by Lessee. Based on this information, Lessee shall cause the General Contractor to prepare and deliver to Lessee a budget for the Tenant Improvements (“Budget”). Lessee shall approve the Budget (or modify the same with Lessor’s consent), in writing, within fourteen (14) days thereafter. The Working Drawings and Budget must be approved by Lessor and Lessee (neither of whom shall unreasonably withhold or delay such consent) in writing and must provide for Tenant Improvements of quality equal to or greater than the Interior Specifications Standards set forth in Exhibit “C” and must encompass the buildout of the entire Premises. Once the Budget is approved, Lessor shall enter into a guaranteed maximum price (“GMP”) contract with the General Contractor for the construction of the Tenant Improvements, and any additional costs for Tenant Improvements in excess of the GMP contract shall be Lessor’s responsibility except for Lessee initiated change orders which shall be Lessee’s responsibility.

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(e) Cost Responsibilities. Attached as Exhibit “C” to this Lease is a Work Letter Agreement for Tenant Improvements, and Exhibit “D,” Cost Responsibilities of Lessor and Lessee, which together with this Section 2.04, describe the planning and payment responsibilities of the Lessor and Lessee with respect to the construction of the Shell Building and Tenant Improvements at the Premises. All approved Tenant Improvements shall be constructed in accordance with a construction schedule approved by Lessor.

(f) Tenant Improvement Allowance. Lessor shall provide to Lessee a semi-improved “cold” shell facility as described in Exhibit “D” attached and a Tenant Improvement Allowance of $27.50 per square foot to be used for the Tenant Improvements outlined in Exhibit “D,” all as outlined in the Tenant Improvement Work Letter attached as Exhibit “C.” Subcontracts for all Tenant Improvement Work shall be obtained by a sealed competitive bid process (involving at least two qualified bidders) wherever practical and as to work done without such process, Lessor or the General Contractor shall provide reasonable assurance to Lessee that the cost and expense of same is competitive in the industry for first-class workmanship and materials.

(g) Payment for Tenant Improvements. Within five (5) business days after the Budget is approved by Lessor and Lessee, Lessee shall deposit Lessee’s share of the amount budgeted for the first three (3) months of the construction schedule (together with the cost of any Tenant Improvements already made), with Lessor’s construction lender to be held in an escrow account. Until the Tenant Improvements are completed, Lessee shall deposit, on the first day of the third calendar month of the construction schedule, Lessee’s share of the amount budgeted for the following three (3) months and on the first day of the sixth calendar month of the construction schedule Lessee’s share of all remaining budgeted amounts. Lessee’s share is the portion of the budgeted amount not paid from the Tenant Improvement Allowance as described in the following sentence. Said construction lender shall issue payments from said account pursuant to the construction contract for the Tenant Improvements with a portion of each payment being taken from the Tenant Improvement Allowance (in the same ratio as the Tenant Improvement Allowance bears to the entire Budget total) and the balance being paid from Lessee’s deposit, until the Tenant Improvement Allowance is exhausted, whereupon any remaining payments shall be made 100% by Lessee. Lessor shall manage the construction of the Tenant Improvements for a supervision fee of 4% of the Budget (as the same may change by agreement of the parties) due and payable in nine equal monthly installments beginning on the first day of the calendar month following the calendar month in which the Budget is first approved.

(h) Lessee’s Fixturing Period. At least thirty (30) days prior to such date that is estimated by Lessor to be forty-five (45) days prior to the Commencement Date, Lessor shall notify Lessee of the date that is estimated to be forty-five (45) days prior to the Commencement Date. Lessor shall provide Lessee access to the Premises during the forty-five (45) day period prior to the estimated Commencement Date (“Lessee’s Fixturing Period”) for the purpose of installing furnishings and equipment, e.g. security system, furniture system and phone and data system, provided, that Lessee and Lessee’s employees and contractors shall at all times avoid interfering with Lessor’s ongoing work to bring the Premises to a substantially completed condition. Except for payment of Base Rent, all terms and provisions of this Lease shall apply during Lessee’s Fixturing Period, including, without limitation, Lessee’s indemnity and other obligations set forth in Sections 7.07., 7.08. and 17.22. hereof.

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(i) Construction of Offsite and Onsite Improvements. In addition to the Building Shell and Tenant Improvements, and concurrently with its construction schedule Lessor shall construct both offsite and onsite improvements required as a condition to the Certificate of Occupancy for the Building which are (i) (onsite) shoreline park, baseball field, soccer field and an amenities/athletic facility, and (ii) (offsite) Seaport Boulevard improvements and deep water slough restoration.

(j) Lessee Termination Rights. In the event that either (i) Lessor is not the fee owner of the Property on or before April 1, 2000, or (ii) Lessor has not presented Lessee with reasonable evidence on or before June 1, 2000, that it has closed a loan with one or more lenders and obtained financing in an amount sufficient to purchase the Property, to complete the construction of the Building Shell and all onsite and offsite improvements described in subparagraph (i) above, and to fund the Tenant Improvement Allowance, then Lessee shall have the right to terminate this Lease upon written notice to Lessor within sixty (60) days after either April 1, 2000 or June 15, 2000, as applicable. If Lessee terminates this Lease in accordance with this paragraph, neither party shall have any further rights or obligations hereunder.

ARTICLE III

TERM

Section 3.01. Lease Term.

(a) Commencement Date. The term of this Lease (“Lease Term”) shall be for twelve (12) years beginning on the earlier of (i) the first date on which Lessee occupies or conducts business at the Premises or (ii) the date on which a Certificate of Occupancy is issued affecting the Building and the Seaport Boulevard improvements, the baseball and soccer fields and the amenities/athletic facility have been substantially completed (the “Commencement Date”) provided that, (A) for each day of delay by Lessee in failing to approve the interior schematic drawings or the Working Drawings when required under Section 2.04(d), or (B) for each day of delay by Lessee in failing to approve the Budget, in writing, within fourteen (14) days after delivery by the General Contractor as provided in Section 2.04(d), or (C) for each day of delay caused by any changes to the approved Working Drawings requested by Lessee, or (D) for each day that any other act or omission by Lessee causes the construction schedule for Tenant Improvements to be delayed provided that Lessor gives Lessee written notice of such Lessee Delay within five (5) business days after its occurrence (collectively “Lessee Delay”), the Commencement Date shall occur one (1) day in advance of the date of the Certificate of Occupancy for each such day of delay. For example, if seven (7) days of Lessee Delay causes the date of issuance of the Certificate of Occupancy to occur on April 8, 2001 rather than April 1, 2001, the Commencement Date shall be April 1, 2001 for all purposes, including payment of Base Rent and Additional Rent. The Lease Term shall expire, unless sooner terminated or extended as provided herein, on the date which completes twelve years after the Commencement Date occurs or is deemed to have occurred, e.g. if the date on which the Certificate of Occupancy is issued or deemed to be issued for the Building is April 1, 2001, the Lease Term shall expire on

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March 31, 2013 and if that date is April 3, 2001, the Lease Term shall expire on April 2, 2013 (“Expiration Date”). The parties shall execute a “Memorandum of Commencement of Lease Term” when the Commencement Date becomes known, which shall include a certification of the actual Rentable Area of the Building determined by the methodology described in Section 2.01. and the actual monthly installments of Base Rent to be paid pursuant to Section 4.01., and shall be substantially in the form attached hereto as Exhibit “E.”

(b) Scheduled Commencement Date. Lessor shall use commercially reasonable efforts to cause the Certificate of Occupancy for the Building to be issued no later than April 1, 2001 (“Scheduled Commencement Date”). If a Certificate of Occupancy is not issued for the Building on or before the Scheduled Commencement Date, this failure shall not affect the validity of this Lease or the obligations of Lessee under it. If the Commencement Date is adjusted for delay from any cause, the Expiration Date shall be likewise adjusted for a like period.

(c) Termination in Event of Delay. If for any reason Lessor is unable to cause the issuance of a Certificate of Occupancy for the Building, on or before the date which is one hundred eighty (180) days after the Scheduled Commencement Date (for a reason other than Lessee Delay or delay excused under Section 20.01.), Lessee, at its sole election, may terminate this Lease upon giving notice within ten (10) days thereafter. Failure to give such notice within said time period constitutes an irrevocable waiver of the foregoing right to terminate under this Section 3.01(c).

Section 3.02. Option to Extend.

(a) Exercise. Lessee is given two (2) options to extend the Lease Term (“Option to Extend”), each for a five (5) year period (“Extended Term”) following the date on which the initial Lease Term of first Extended Term would otherwise expire, which option may be exercised only by written notice (“Option Notice”) from Lessee to Lessor given not less than twelve (12) months prior to the end of the initial Lease Term or the first Extended Term, as the case may be, (“Option Exercise Date”); provided, however, if Lessee is in material default under this Lease (beyond the expiration of any applicable notice period) on the Option Exercise Date or on any day thereafter on or before the last day of the initial Lease Term of the first Extended Term, the Option Notice shall be totally ineffective, and this Lease shall expire on the last day of the initial Lease Term or the first Extended Term, if not sooner terminated. The right of Lessee to exercise an Option to Extend shall not be affected by any sublease or assignment of this Lease previously entered into by Lessee pursuant to the provisions of this Lease.

(b) Extended Term Rent. In the event Lessee exercises its Option to Extend set forth herein, all the terms and conditions of this Lease shall continue to apply except that the Base Rent payable by Lessee during each Option Term shall be equal to one hundred percent (100%) of Fair Market Rent (defined below), as determined under subparagraph (c) below. “Fair Market Rent” shall mean the effective rate being charged (including periodic adjustments thereto as applicable during the period of the Extended Term), for comparable space in similar buildings in the vicinity, i.e. of a similar age and quality considering any recent renovations or modernization, and floor plate size or, if such comparable space is not available, adjustments shall be made in the determination of Fair Market Rent to reflect the age and quality of the Building and Premises

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as contrasted to other buildings used for comparison purposes, with similar amenities, taking into consideration: size, location, floor level, leasehold improvements or allowances provided or to be provided, term of the lease, extent of services to be provided, the time that the particular rate under consideration became or is to become effective, and any other relevant terms or conditions applicable to both new and renewing tenants, but in no event less than the monthly Base Rent prevailing during the last year of the initial Lease Term or first Extended Term, as applicable.

(c) Determination of Fair Market Rent.

(i) Negotiation. If Lessee so exercises an Option to Extend in a timely manner, the parties shall then meet in good faith to negotiate the Base Rent for the Premises for the Extended Term, during the first thirty (30) days after the date of the delivery by Lessee of the Option Notice (the “Negotiation Period”). If, during the Negotiation Period, the parties agree on the Base Rent applicable to the Premises for the Extended Term, then such agreed amount shall be the Base Rent payable by Lessee during the Extended Term.

(ii) Arbitration. In the event that the parties are unable to agree on the Base Rent for the Premises within the Negotiation Period, then within ten (10) days after the expiration of the Negotiation Period, each party shall separately designate to the other in writing an appraiser to make this determination. Each appraiser designated shall be a member of MAI and shall have at least ten (10) years experience in appraising commercial real property, of similar quality and use as the Premises, in San Mateo County. The failure of either party to appoint an appraiser within the time allowed shall be deemed equivalent to appointing the appraiser appointed by the other party, who shall then determine the Fair Market Rent for the Premises for the Extended Term. Within five (5) business days of their appointment, the two designated appraisers shall jointly designate a third similarly qualified appraiser. Within thirty (30) days after their appointment, each of the two appointed appraisers shall submit to the third appraiser a sealed envelope containing such appointed appraiser’s good faith determination of the Fair Market Rent for the Premises for the Extended Term; concurrently with such delivery, each such appraiser shall deliver a copy of his or her determination to the other appraiser. The third appraiser shall within ten (10) days following receipt of such submissions, then determine which of the two appraisers’ determinations most closely reflects Fair Market Rent as defined above. The determination most closely reflecting the third appraiser’s determination shall be deemed to be the Fair Market Rent for the Premises during the Extended Term; the third appraiser shall have no rights to adjust, amend or otherwise alter the determinations made by the appraiser selected by the parties, but must select one or the other of such appraisers’ submissions. The determination by such third appraiser shall be final and binding upon the parties. Said third appraiser shall, upon selecting the determination which most closely resembles Fair Market Rent, concurrently notify both parties hereto. The Base Rent for the Extended Term in question shall be the determination so selected. The parties shall share the appraisal expenses equally. If the Extended Term begins prior to the determination of Fair Market Rent, Lessee shall pay monthly installments of Base Rent equal to one hundred ten percent (110%) of the monthly installment of Base Rent in effect for the last year of the initial Lease Term or the first Extended Term, as applicable, (in lieu of “holdover rent” payable under Section 17.09(b)). Once a determination is made, any over payment or under payment shall be reimbursed as a credit against, or paid by adding to, the monthly installment of Base Rent next falling due.

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ARTICLE IV

RENT: TRIPLE NET LEASE

Section 4.01. Base Rent. Lessee shall pay to Lessor as Base Rent an initial monthly installment of Three Dollars and twenty-five Cents ($3.25) per square foot of Rentable Area as determined under Section 2.01., in advance, on the first day of each calendar month of the Lease Term, commencing on the Commencement Date. Base Rent for any period during the Lease Term which is for less than one month shall be a pro rata portion of the monthly installment (based on the actual days in that month).

Section 4.02. Rent Adjustment. The Base Rent set forth in Section 4.01. above shall be adjusted upward by an annual compounded increase of three and five tenths percent (3.5%), as of the first day of the thirteenth (13th) full calendar month following the Commencement Date and as of the first day of every thirteenth (13th) calendar month thereafter during the Lease Term, as shown on Exhibit “E” attached hereto.

Section 4.03. First Payment of Base Rent. If the Commencement Date is other than the first day of a calendar month, the first installment of Base Rent shall be paid on the first day of the calendar month immediately succeeding the Commencement Date and shall include pro rata payment for the calendar month in which the Commencement Date occurs.

Section 4.04. Absolute Triple Net Lease. This Lease is what is commonly called a “Absolute Triple Net Lease,” it being understood that Lessor shall receive the Base Rent set forth in Section 4.01. free and clear of any and all expenses, costs, impositions, taxes, assessments, liens or charges of any nature whatsoever. Lessee shall pay all rent in lawful money of the United States of America to Lessor at the notice address stated herein or to such other persons or at such other places as Lessor may designate in writing on or before the due date specified for same without prior demand, set-off or deduction of any nature whatsoever. It is the intention of the parties hereto that this Lease shall not be terminable for any reason by Lessee, and that except as herein expressly provided in Articles III, VIII and XIII, concerning delay, destruction and condemnation, Lessee shall in no event be entitled to any abatement of or reduction in rent payable under this Lease. Any present or future law to the contrary shall not alter this agreement of the parties.

Section 4.05. Additional Rent.

(a) Defined. In addition to the Base Rent reserved by Section 4.01., Lessee shall pay, as Additional Rent, all taxes, assessments, fees and other impositions in accordance with the provisions of Article IX, insurance premiums in accordance with the provisions of Article VII, operating charges, and Common Area facility use privilege charges with respect to the amenities/athletic facility (in lieu of any separate use charge to Lessee’s employees who use said facility the baseball and soccer fields) as well as, maintenance, repair and replacement costs and expenses, utility charges, and other costs and charges allocable to the Common Area and the Common Area facilities and the Outside Areas of the Premises, all in accordance with the provisions of Article VI and any other charges, costs and expenses (including appropriate

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reserves therefor) which are contemplated or which may arise under any provision of this Lease during the Lease Term, plus a Management Fee to Lessor equal to 4% of the Base Rent. The Management Fee is due and payable, in advance, with each installment of Base Rent. All of such charges, costs, expenses, Management Fee and all other amounts payable by Lessee hereunder, shall constitute Additional Rent, and upon the failure of Lessee to pay any of such charges, costs or expenses, Lessor shall have the same rights and remedies as otherwise provided in this Lease for the failure of Lessee to pay Base Rent. To the extent any of the aforesaid amounts are fairly allocable to the Common Area or to other portions of the Project, Lessee’s obligation is to pay only its proportionate share as determined by Lessor based upon the ratio of the Rentable Area of the Premises to the Rentable Area of other office and research and development buildings at the Project that have been approved for development which share is presently determined to be seventeen percent (17%).

(b) Payment. To the extent not paid pursuant to other provisions of this Lease, and at Lessor’s sole election, Lessor may submit invoices and Lessee shall pay Lessee’s share of Additional Rent in monthly installments on the first day of each month in advance in an amount to be estimated by Lessor, based on Lessor’s experience in managing office/research and development projects. Within ninety (90) days following the end of the period used by Lessor in estimating Additional Rent, Lessor shall furnish to Lessee a statement (hereinafter referred to as “Lessor’s Statement”) of the actual amount of Lessee’s proportionate share of such Additional Rent for such period. Within fifteen (15) days thereafter, Lessee shall pay to Lessor, as Additional Rent, or Lessor shall remit or credit to Lessee, as the case may be, the difference between the estimated amounts paid by Lessee and the actual amount of Lessee’s Additional Rent for such period as shown by such statement. Monthly installments for the ensuing year shall be adjusted upward or downward as set forth in Lessor’s Statement.

Section 4.06. Security Deposit. Within two (2) business days after the first date when Lessor is both the fee owner of the Property and has obtained financing in an amount sufficient both to purchase the Property and to complete the construction of the Building Shell, the offsite and offsite improvements described in subsection 2.04(j) and to fund the Tenant Improvement Allowance, Lessee shall deposit with Lessor a Security Deposit equal to eighteen (18) month’s of Base Rent in the amount of Sixteen Million, Five Hundred Forty Five Thousand Dollars and no Cents ($16,545,000) in the form of cash or an unconditional, irrevocable letter of credit without documents, i.e. no obligation on Lessor’s part to present anything but a sight draft, with Lessor as beneficiary and providing for payment in San Francisco on presentation of Lessee’s drafts on sight and drawable in whole or in part San Francisco and otherwise from a bank and in a form acceptable to Lessor (the “Security Deposit”). The Security Deposit shall be held by Lessor as security for the faithful performance by Lessee of all of the terms, covenants, and conditions of this Lease applicable to Lessee. If Lessee defaults with respect to any provision of this Lease, including but not limited to the provisions relating to the condition of the Premises upon Lease Termination, Lessor may (but shall not be required to) use, apply or retain all or any part of the Security Deposit for the payment of any amount which Lessor may spend by reason of Lessee’s default or to compensate Lessor for any loss or damage which Lessor may suffer by reason of Lessee’s default. If any portion of the Security Deposit is so used or applied, Lessee shall, within ten days after written demand therefor, deposit cash (or a replacement Letter of Credit in form and substance subject to the same requirements as the original Letter of Credit)

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with Lessor in an amount sufficient to restore the Security Deposit to its original amount. Lessee’s failure to do so shall be a Default by Lessee. The rights of Lessor pursuant to this Section 4.06. are in addition to any rights which Lessor may have pursuant to Article 12 below. If Lessee fully and faithfully performs every provision of this Lease to be performed by it, the Security Deposit or any balance thereof shall be returned (without interest) to Lessee (or, at Lessor’s option, to the last assignee of Lessee’s interests hereunder) at Lease expiration or termination and after Lessee has vacated the Premises. Lessor shall not be required to keep the Security Deposit separate from Lessor’s general funds or be deemed a trustee of same. If the Security Deposit is in whole or in part in the form of a Letter of Credit, failure of Lessee to deliver a replacement Letter of Credit to Lessor at least forty-five (45) business days prior to the expiration date of any current Letter of Credit shall constitute a separate default entitling Lessor to draw down immediately and entirely on the current Letter of Credit and the proceeds shall constitute a cash Security Deposit.

Section 4.07. Lessee’s Right to Review Supporting Data.

(1) Exercise of Right by Lessee. Provided that Lessee is not in default under this Lease and provided further that Lessee strictly complies with the provisions of this Paragraph, Lessee shall have the right to reasonably review supporting data for any portion of a Lessor’s statement that Lessee claims is incorrect. In order for Lessee to exercise its right under this Paragraph, Lessee shall, within thirty (30) days after any such Lessor’s statement is sent, deliver a written notice to Lessor specifying the portions of the Lessor’s statement that are claimed to be incorrect, and Lessee shall simultaneously pay to Lessor all amounts due from Lessee to Lessor as specified in the Lessor’s statement. Except as expressly set forth in subparagraph 3 below, in no event shall Lessee be entitled to withhold, deduct, or offset any monetary obligation of Lessee to Lessor under the Lease including, without limitation, Lessee’s obligation to make all Base Rent payments and all payments for Additional Rent pending the completion of, and regardless of the results of, any review under this Paragraph. The right to review granted to Lessee under this Paragraph may only be exercised once for any Lessor’s statement, and if Lessee fails to meet any of the above conditions as a prerequisite to the exercise of such right, the right of Lessee under this Paragraph for a particular Lessor’s statement shall be deemed waived.

(2) Procedures for Review. Lessee acknowledges that Lessor maintains its records for the Building and Project at its offices in San Francisco, and Lessee therefore agrees that any review of supporting data under this Paragraph shall occur at such location. Any review to be conducted under this Paragraph shall be at the sole expense of Lessee and shall be conducted by an independent firm of certified public accountants of national standing. Lessee acknowledges and agrees that any supporting data reviewed under this Paragraph constitute confidential information of Lessor, which shall not be disclosed to anyone other than the accountants performing the review and the principals of Lessee who receive the results of the review. The disclosure of such information to any other person, whether or not caused by the conduct of Lessee, shall constitute a material breach of this Lease.

(3) Finding of Error. Any errors disclosed by the review of supporting data under this Paragraph shall be promptly corrected, provided that Lessor shall have the right to cause another review of the supporting data to be made by an independent firm of certified public

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accountants of national standing. In the event of a disagreement between the two accounting firms, the review that discloses the least amount of deviation from the Lessor’s statement shall be deemed to be correct and its review shall be final and binding on both Lessor and Lessee. If the results of the review of supporting data taking into account, if applicable, the results of any additional review caused by Lessor reveal that Lessee has overpaid obligations for a preceding period, the amount of such overpayment shall be credit against Lessee’s subsequent installment obligations to pay its share of Additional Rent. In the event that such results show that Lessee has underpaid its obligations for a preceding period, the amount of such underpayment shall be paid by Lessee to Lessor with the next succeeding installment obligation of Additional Rent or, if the Lease has terminated, in cash within thirty (30) days after the determination of underpayment is delivered to Lessee. Each party shall pay the cost and expense of its chosen accounting firm.

(4) Effect of Lessee’s Default. In the event that Lessee becomes in default of its obligations under this Lease at any time during the pendency of a review of records under this Paragraph, said right to review shall immediately cease and the matters originally set forth in the Lessor’s statement shall be deemed to be correct.

ARTICLE V

USE

Section 5.01. Permitted Use and Limitations on Use. The Premises shall be used and occupied only for office, research and development, together with such ancillary uses which do not cause excessive wear of the Premises or increase the potential liability of Lessor, and for no other use, without Lessor’s prior written consent. Lessee shall not use, suffer or permit the use of the Premises in any manner that will tend to create waste, nuisance or unlawful acts. In no event shall it be unreasonable for Lessor to withhold its consent as to uses which it determines would tend to increase materially the wear of the Premises or any part thereof or increase the potential liability of Lessor or decrease the marketability, financability, leasability or value of the Premises. Lessee shall not do anything in or about the Premises which will (i) cause structural injury to the Building or Premises, or (ii) cause damage to any part of the Building except to the extent reasonably necessary for the installation of Lessee’s trade fixtures and Lessee’s Alterations, and then only in a manner which has been first approved by Lessor in writing. Lessee shall not operate any equipment within the Building or Premises which will (i) materially damage the Building or the Common Area, (ii) overload existing electrical systems or other mechanical equipment servicing the Building, (iii) impair the efficient operation of the sprinkler system or the heating, ventilating or air conditioning (“HVAC”) equipment within or servicing the Building, or (iv) damage, overload or corrode the sanitary sewer system. Lessee shall not attach, hang or suspend anything from the ceiling, roof, walls or columns of the Building or set any load on the floor in excess of the load limits for which such items are designed nor operate hard wheel forklifts within the Premises. Any dust, fumes, or waste products generated by Lessee’s use of the Premises shall be contained and disposed so that they do not (i) create an unreasonable fire or health hazard, (ii) damage the Premises, or (iii) result in the violation of any law. Except as approved by Lessor, Lessee shall not change the exterior of the Building, or install any equipment or fixtures on or make any penetrations of the exterior or roof of the Building, provided that Lessee may install rooftop antennae or other communication devices on the roof of the Building with Lessor’s prior written consent which shall not be unreasonably

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withheld or delayed. Lessee shall not conduct on any portion of the Premises any sale of any kind, including any public or private auction, fire sale, going-out-of-business sale, distress sale or other liquidation sale. No materials, supplies, tanks or containers, equipment, finished products or semifinished products, raw materials, inoperable vehicles or articles of any nature shall be stored upon or permitted to remain within the outside areas of the Premises except in fully fenced and screened areas outside the Building which have been designed for such purpose and have been approved in writing by Lessor for such use by Lessee.

Section 5.02. Compliance with Law.

(a) Lessor shall deliver the Premises to Lessee on the Commencement Date, for office use, free of violations of any covenants or restrictions of record, or any applicable law, building code, regulation or ordinance in effect on such Commencement Date, including without limitation, the Americans with Disability Act, and free of Year Two Thousand computer programming defects.

(b) Except as provided in paragraph 5.02.(a), Lessee shall, at Lessee’s cost and expense, comply promptly with all statutes, ordinances, codes, rules, regulations, orders, covenants and restrictions of record, and requirements applicable to the Premises and Lessee’s use and occupancy of same in effect during any part of the Lease Term, whether the same are presently foreseeable or not, and without regard to the cost or expense of compliance.

(c) By executing this Lease, Lessee acknowledges that it has reviewed and satisfied itself as to its compliance, or intended compliance with the applicable zoning and permit laws, hazardous materials and waste requirements, and all other statutes, laws, or ordinances relevant to the uses stated in Section 5.01., above, provided that Lessor represents that the Premises, when certified for occupancy, may legally be used for general office purposes.

Section 5.03. Condition of Premises at Commencement Date. Subject to all of the terms of this Lease for the construction of Tenant Improvements. Lessor shall deliver the Building to Lessee on the Commencement Date with the Building plumbing, lighting, heating, ventilating, air conditioning, gas, electrical, and sprinkler systems and loading doors as set forth in Exhibit “D” in proper operating condition and built substantially in accordance with the approved plans therefor, and in a workmanlike manner. Except as otherwise provided in this Lease, Lessee hereby accepts the Premises in their condition existing as of the Commencement Date, subject to all applicable zoning, municipal, county and state laws, ordinances and regulations governing and regulating the use and condition of the Premises, and any covenants or restrictions, liens, encumbrances and title exceptions of record, and accepts this Lease subject thereto and to all matters disclosed thereby and by any exhibits attached hereto. Lessee acknowledges that neither Lessor nor any agent of Lessor has made any representation or warranty as to the present or future suitability of the Premises for the conduct of Lessee’s business.

Section 5.04. Defective Condition at Commencement Date. In the event -that it is determined, and Lessee notifies Lessor in writing within one year after the Commencement Date, that any of the obligations of Lessor set forth in Section 5.02.(a) or Section 5.03.(a) were not performed, then it shall be the obligation of Lessor, and the sole right and remedy of Lessee,

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after receipt of written notice from Lessee setting forth with specificity the nature of the failed performance, to promptly, within a reasonable time and at Lessor’s sole cost, correct same. Except as to defects which remain Lessor’s responsibility under Section 6.01(b), Lessee’s failure to give such written notice to Lessor within one year after the Commencement Date shall constitute a conclusive presumption that Lessor has complied with all of Lessor’s obligations under the foregoing sections 5.02. and 5.03., and any required correction after that date shall be performed by Lessee, at its sole cost and expense. At the end of the first year of the Lease Term, Lessor shall promptly assign to Lessee all of Lessor’s contractor’s, and/or manufacturer’s guarantees, warranties, and causes of action which do not relate to Lessor’s obligations under Section 6.01(b).

Section 5.05. Building Security. Lessee acknowledges and agrees that it assumes sole responsibility for security at the Premises for its agents, employees, invitees, licensees, contractors, guests and visitors and will provide such systems and personnel for same including, without limitation, that portion of the Common Area located on the legal parcel which the Building is located as it deems necessary or appropriate and at its sole cost and expense. Lessee acknowledges and agrees that Lessor does not intend to provide any security system or security personnel at the Premises or Project, including, without limitation, at the Common Areas provided, however, that nothing herein shall be deemed to prevent Lessor from providing such system or personnel in the future, the cost of which will be included in those items for which Lessee pays Additional Rent.

Section 5.06. Rules and Regulations. Lessor may from time to time promulgate reasonable and nondiscriminatory rules and regulations applicable for the care and orderly management of the Premises. Such rules and regulations shall be binding upon Lessor upon delivery of a copy thereof to Lessor, and Lessor agrees to abide by such rules and regulations. A copy of the initial Rules and Regulations is attached hereto as Exhibit “L.” If there is a conflict between the rules and regulations and any of the provisions of this Lease, the provisions of this Lease shall prevail. Lessor shall not be responsible for the violation of any such rules and regulations by any person, including, without limitation, Lessee or its employees, agents, invitees, licensees, guests, visitors or contractors.

ARTICLE VI

MAINTENANCE, REPAIRS AND ALTERATIONS

Section 6.01. Maintenance of Premises.

(a) Throughout the Lease Term, Lessee, at its sole cost and expense, shall keep, maintain, repair and replace the Premises (except as provided in 6.01.(b)) and all improvements and appurtenances in or serving the Premises, including, without limitation, all interior and exterior walls, all doors and windows, the roof membrane, all elevators and stairways, all wall surfaces and floor coverings, all Tenant Improvements and alterations, additions and improvements installed during the Lease Term, all sewer, plumbing, electrical, lighting, heating, ventilation and cooling systems, fire sprinklers, fire safety and security systems, fixture and appliances and all wiring and glazing, in the same good order, condition and repair as they are in on the Commencement Date, or may be put in during the Lease Term, reasonable wear excepted, provided that wear which could be prevented by first class maintenance shall not be deemed reasonable.

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(b) Lessor, at its sole cost and expense, shall repair defects in the Building Shell, including, exterior walls (including all exterior glass which is damaged by structural defects in such exterior walls), floors installed as part of the Building Shell, supporting pillars, structural walls, roof structure and foundations of the Building and sewer and plumbing systems outside the Building as well as any defects in the offsite and onsite improvements listed in Section 2.04(i), provided that the need for repair is not caused by Lessee, in which event Lessor shall repair same, at Lessee’s sole cost and expense (to the extent not insured) and Lessee shall reimburse Lessor for same upon demand. Lessor shall replace the roof membrane of the Building, the parking lot surface, landscaping, drainage, irrigation, sprinkler and sewer and plumbing systems outside the Building systems when the useful life of each has expired, and Lessee shall pay that portion of the cost of each replacement, together with annual interest at the Agreed Rate which shall be amortized over the useful life of each such replacement applicable to the balance of the Lease Term, in equal monthly installments due and payable with installments of Base Rent provided that as to repairs and replacements within the Common Area, Lessee shall pay its proportionate share. Lessee shall give Lessor written notice of any need of repairs which are the obligation of Lessor hereunder and Lessor shall have a reasonable time to perform same. Should Lessor default as provided in Section 12.03 with respect to its obligation to make any of the repairs assumed by it hereunder with respect to the Building, Lessee shall have the right to perform such repairs and Lessor agrees that within thirty (30) days after written demand accompanied by detailed invoice(s), it shall pay to Lessee the cost of any such repairs together with accrued interest from the date of Lessee’s payment at the Agreed Rate. Lessor shall not be liable to Lessee, its employees, invitees, or licensees for any damage to person or property, and Lessee’s sole right and remedy shall be the performance of said repairs by Lessee with right of reimbursement from Lessor of the reasonable fair market cost of said repairs, not exceeding the sum actually expended by Lessee, together with accrued interest from the date of Lessee’s payment at the Agreed Rate, provided that nothing herein shall be deemed to create a right of setoff or withholding by Lessee of Base Rent or Additional Rent or any other amounts due herein. Lessee hereby expressly waives all rights under and benefits of Sections 1941 and 1942 of the California Civil Code or under any similar law, statute or ordinance now or hereafter in effect to make repairs and offset the cost of same against rent or to withhold or delay any payment of rent or any other of its obligations hereunder as a result of any default by Lessor under this Section 6.01.(b).

(c) Lessee agrees to keep the Premises, both inside and out, clean and in sanitary condition as required by the health, sanitary and police ordinances and regulations of any political subdivision having jurisdiction and to remove all trash and debris which may be found in or around the Premises. Lessee further agrees to keep the interior surfaces of the Premises, including, without limitation, windows, floors, walls, doors, showcases and fixtures clean and neat in appearance.

(d) If Lessee refuses or neglects to commence such repairs and/or maintenance for which Lessee is responsible under this Article VI (including with respect to that portion of the Common Area located on the legal parcel on which the Building is located) within a thirty (30) day period

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(or as soon as practical and in no event later than five (5) days, if the failure to initiate the repair threatens to cause further damage to the Premises) after written notice from Lessor and thereafter diligently prosecute the same to completion, then Lessor may (i) enter the Premises (except in an emergency, upon at least 24 hours advanced written notice) during Lessor’s business hours and cause such repairs and/or maintenance to be made and shall not be responsible to Lessee for any loss or damage occasioned thereby and Lessee agrees that upon demand, it shall pay to Lessor the reasonable cost of any such repairs, not exceeding the sum actually expended by Lessor, together with accrued interest from the date of Lessor’s payment at the Agreed Rate and (ii) elect to enter into a maintenance contract at a market rate for first-rate maintenance with a third party for the performance of all or a part of Lessee’s maintenance obligations, whereupon, Lessee shall be relieved from its obligations to perform only those maintenance obligations covered by such maintenance contract, and Lessee shall bear the entire cost of such maintenance contract which shall be paid in advance, as Additional Rent, on a monthly basis with Lessee’s Base Rent payments.

Section 6.02. Maintenance of Common Areas and Outside Areas. Subject to 6.01.(c) and subject to Lessee paying Lessee’s share of the cost and expense for same pursuant to Section 4.05, Lessor shall maintain, repair and replace all landscape, hardscape and other improvements within the Common Areas and shall operate and manage the amenities/athletic facility and other Common Area features and facilities described in Section 2.02 and Lessor shall also maintain, repair and replace all landscape, hardscape and other improvements within the Outside Areas of the Premises (“Outside Areas”), including without limitation, walkways, driveways, parking areas and lighting and sprinkler systems.

Section 6.03. Alterations, Additions and Improvements. No alterations, additions, or improvements (“Alterations”) shall be made to the Premises by Lessee without the prior written consent of Lessor which Lessor will not unreasonably withhold, provided, however, that Lessee may make Alterations which do not affect the Building systems, exterior appearance, structural components or structural integrity and which do not exceed collectively Seventy-five Thousand Dollars ($75,000) in cost within any twelve (12) month period, without Lessor’s prior written consent. As a condition to Lessor’s obligation to consider any request for consent hereunder, Lessee shall pay Lessor upon demand for the reasonable costs and expenses of third party consultants, engineers, architects and others for reviewing plans and specifications and for monitoring the construction of any proposed Alterations. Lessor may require Lessee to remove any such Alterations at the expiration or termination of the Lease Term and to restore the Premises to their prior condition by written notice given on or before the earlier of (i) the expiration of the Lease Term or (ii) thirty (30) days after termination of the Lease or (iii) thirty (30) days after a written request from Lessee for such notice from Lessor provided, that, if Lessee requests same from Lessor, Lessor will notify Lessee within five (5) business days after receipt of Lessee’s request and a copy of all plans and specifications for the proposed Alteration whether it will require removal. All Alterations to be made to the Premises shall be made under the supervision of a competent, California licensed architect and/or competent California licensed structural engineer (each of whom has been approved by Lessor) and shall be made in accordance with plans and specifications which have been furnished to and approved by Lessor in writing prior to commencement of work. All Alterations shall be designed, constructed and installed at the sole cost and expense of Lessee by California licensed architects, engineers, and

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contractors approved by Lessor, in compliance with all applicable law, and in good and workmanlike manner. Any Alteration except furniture and trade fixtures, shall become the property of Lessor at the expiration, or sooner termination of the Lease, unless Lessor directs otherwise, provided that Lessee shall retain title to all furniture and trade fixtures placed on the Premises. All heating, lighting, electrical, air conditioning, full height partitioning (but not moveable, free standing cubicle-type partitions which do not extend to the ceiling or connect to Building walls), drapery and carpeting installations made by Lessee together with all property that has become an integral part of the Premises, shall be and become the property of Lessor upon the expiration, or sooner termination of the Lease, and shall not be deemed trade fixtures. Within thirty (30) days after completion of any Alteration, Lessee, Lessee shall provide Lessor with a complete set of “as built” plans for same.

Section 6.04. Covenant Against Liens. Lessee shall not allow any liens arising from any act or omission of Lessee to exist, attach to, be placed on, or encumber Lessor’s or Lessee’s interest in the Premises or Project, or any portion of either, by operation of law or otherwise. Lessee shall not suffer or permit any lien of mechanics, material suppliers, or others to be placed against the Premises or Project, or any portion of either, with respect to work or services performed or claimed to have been performed for Lessee or materials furnished or claimed to have been furnished to Lessee or the Premises. Lessor has the right at all times to post and keep posted on the Premises any notice that it considers necessary for protection from such liens. At least seven (7) days before beginning construction of any Alteration, Lessee shall give Lessor written notice of the expected commencement date of that construction to permit Lessor to post and record a notice of nonresponsibility. If any such lien attaches or Lessee received notice of any such lien, Lessee shall cause the lien to be immediately released and removed of record. Despite any other provision of this Lease, if the lien is not released and removed within twenty (20) days after Lessor delivers notice of the lien to Lessee, Lessor may immediately take all action necessary to release and remove the lien, without any duty to investigate the validity of it. All expenses (including reasonable attorney fees and the cost of any bond) incurred by Lessor in connection with a lien incurred by Lessee or its removal shall be considered Additional Rent under this Lease and be immediately due and payable by Lessee.

Section 6.05 Reimbursable Capital Expenditures. Except for items of capital expenditures, which are to be made at Lessor’s sole cost and expense pursuant to the first sentence of Section 6.01(b) above, capital expenditures, together with interest thereon at the Agreed Rate, for any replacement item at the Premises made by Lessor in excess of Ten Thousand Dollars ($10,000.00) during the Lease Term shall be amortized over the remaining Lease Term for the useful life of such replacement item within the numerator being the number of months remaining in the Lease Term and the denominator being the number of months of the “useful life” of the improvements. Lessee shall be obligated for such amortized portion of any such expenditure in equal monthly installments due and payable with each installment of Base Rent.

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ARTICLE VII

INSURANCE

Section 7.01. Property/Rental Insurance for Premises: At all times during the Lease Term, Lessor shall keep the Premises insured against loss or damage by fire and those risks normally included in the term “all risk,” including, without limitation, coverage for (i) earthquake and earthquake sprinkler leakage, (ii) flood, (iii) loss of rents and extra expense for eighteen (18) months, including scheduled rent increases, (iv) boiler and machinery, (v) Tenant Improvements and (vi) fire damage legal liability form, including waiver of subrogation. Any deductibles shall be paid by Lessee. The amount of such insurance shall not be less than 100% of replacement cost. Insurance shall include a Building Ordinance and Increased Cost of Construction Endorsement insuring the increased cost of reconstructing the Premises incurred due to the need to comply with applicable statutes, ordinances and requirements of all municipal, state and federal authorities now in force, which or may be in force hereafter. Any recovery received from said insurance policy shall be paid to Lessor and thereafter applied by Lessor to the reconstruction of the Premises in accordance with the provisions of Article VIII below. Lessee, in addition to the rent and other charges provided herein, shall reimburse Lessor for the cost of the premiums for all such insurance covering the Premises in accordance with Article IV. Such reimbursement and shall be made within (15) days of Lessee’s receipt of a copy of Lessor’s statement therefor. Lessee shall pay to Lessor any deductible (subject to the above conditions) owing within fifteen (15) days after receipt of notice from Lessor of the amount owing. To the extent commercially available, Lessor’s insurance shall have a deductible not greater than fifteen percent (15%) for earthquake and ten percent (10%) for the basic “all risk” coverage.

Section 7.02. Property Insurance for Fixtures and Inventory. At all times during the Lease Term, Lessee shall, at its sole expense, maintain insurance with “all risk” coverage on any fixtures, furnishings, merchandise equipment or personal property in or on the Premises, whether in place as of the date hereof or installed hereafter. The amount of such insurance shall not be less than one hundred percent (100%) of the replacement cost thereof, and Lessor shall not have any responsibility nor pay any cost for maintaining any types of such insurance. Lessee shall pay all deductibles.

Section 7.03. Lessor’s Liability Insurance. During the Lease Term, Lessor shall maintain a policy or policies of comprehensive general liability insurance naming Lessor (and such others as designated by Lessor) against liability for bodily injury, property damage on our about the Project, with combined single limit coverage of not less than Thirty Million Dollars ($30,000,000.00). Lessee, in addition to the rent and other charges provided herein, agrees to pay to Lessor Lessee’s proportionate share of the premium(s) for all such insurance pursuant to Section 4.05. The insurance premiums shall be paid in accordance with Article IV, within (15) days of Lessee’s receipt of a copy of Lessor’s statement therefore.

Section 7.04. Liability Insurance Carried by Lessee. At all times during the Lease Term (and any holdover period) Lessee shall obtain and keep in force a commercial general liability policy of insurance protecting Lessee, Lessor and any Lender(s) whose names are provided to Lessee as Additional Insureds against claims from bodily injury, personal injury and property

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damage based upon involving or arising out of ownership, use, occupancy or maintenance of the Premises and all areas appurtenant thereto. Such insurance shall be on an occurrence basis providing a single limit coverage in amount of not less than Ten Million Dollars ($10,000,000) per occurrence with an Additional Lessors or Premises Endorsements and containing an “Amendment of the Pollution Exclusion Endorsement” for damage caused by heat, smoke, fumes from a hostile fire. The limits of said insurance required by this Lease as carried by Lessee shall not, however limit the liability of Lessee nor relieve Lessee of any obligation hereunder. All insurance to be carried by the Lessee shall be primary to and not contributory with, any similar insurance carried by Lessor whose insurance shall be considered excess insurance only.

Section 7.05. Lessee to Furnish Proof of Insurance. Lessee shall furnish to Lessor prior to the Commencement Date, and at least thirty (30) days prior to the expiration date of any policy, certificates indicating that the property insurance and liability insurance required to be maintained by Lessee is in full force and effect for the twelve (12) month period following such expiration date; that Lessor has been named as an additional insured to the extent of contractual liability assumed in Section 7.07. “Indemnification” and Section 7.08. “Lessor as Party Defendant”; and that all such policies will not be canceled unless thirty (30) days’ prior written notice of the proposed cancellation has been given to Lessor. The insurance shall be with insurers approved by Lessor, provided, however, that such approval shall not be unreasonably withheld so long as Lessee’s insurance carrier has a Best’s Insurance Guide rating not less than A+ VIII. Within ten (10) business days after Lessee’s written request for same, Lessor shall furnish once during any calendar year, certificates indicating that the property insurance and liability insurance required to be kept by Lessor is in full force and effect.

Section 7.06. Mutual Waiver of Claims and Subrogation Rights. Lessor and Lessee hereby release and relieve the other, and waive their entire claim of recovery for loss or damage to property arising out of or incident to fire, lightning, and the other perils included in a standard “all risk” insurance policy of a type described in Sections 7.01 and 7.02 above, when such property constitutes the Premises, or is in, on or about the Premises, whether or not such loss or damage is due to the negligence of Lessor or Lessee, or their respective agents, employees, guests, licensees, invitees, or contractors. Lessee and Lessor waive all rights of subrogation against each other on behalf of, and shall obtain a waiver of all subrogation rights from, all property and casualty insurers referenced above.

Section 7.07. Indemnification and Exculpation.

(a) Except as otherwise provided in Section 7.07.(b), Lessee shall indemnify and hold Lessor free and harmless from any and all liability, claims, loss, damages, causes of action (whether in tort or contract, law or equity, or otherwise), expenses, charges, assessments, fines, and penalties of any kind, including without limitation, reasonable attorney fees, expert witness fees and costs, arising by reason of the death or injury of any person, including any person who is an employee, agent, invitee, licensee, permittee, visitor, guest or contractor of Lessee, or by reason of damage to or destruction of any property, including property owned by Lessee or any person who is an employee, agent, invitee, permitee, visitor, or contractor of Lessee, caused or allegedly caused (1) while that person or property is in or about the Premises; (2) by some condition of the Premises; (3) by some act or omission by Lessee or its agent, employee,

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licensee, invitee, guest, visitor or contractor or any person in, adjacent, on, or about the Premises with the permission, consent or sufferance of Lessee; (4) by any matter connected to or arising out of Lessee’s occupation and use of the Premises, or any breach or default in timely observance or performance of any obligation on Lessee’s part to be observed or performed under this Lease.

(b) Notwithstanding the provisions of Section 7.07.(a) of this Lease, Lessee’s duty to indemnify and hold Lessor harmless shall not apply to any liability, claims, loss or damages arising because of the active negligence or willful acts of misconduct of Lessor or its agents, employees or contractors or which is or could be covered by the insurance Lessor is required to carry under this Lease. Lessor hereby waives all claims against Lessee for any damage which is or could be covered by the insurance Lessee is required to carry under this Lease.

(c) Lessee hereby waives all claims against Lessor for damages to goods, wares and merchandise and all other personal property in, on or about the Premises and for injury or death to persons in, on or about the Premises from any cause arising at any time to the fullest extent permitted by law and in no event shall Lessor be liable for lost profits or other consequential damages arising from any cause or for any damage which is or could be covered by the insurance Lessee is required to carry under this Lease.

Section 7.08. Lessor as Party Defendant. If by reason of an act or omission of Lessee or any of its employees, agents, invitees, licensee, visitors, guests or contractors, Lessor is made a party defendant or a cross- defendant to any action involving the Premises or this Lease, Lessee shall hold harmless and indemnify Lessor from all liability or claims of liability, including all damages, attorney fees and costs of suit.

ARTICLE VIII

DAMAGE OR DESTRUCTION

Section 8.01. Destruction of the Premises.

(a) In the event of a partial destruction of the Premises during the Lease Term from any cause, Lessor, upon receipt of, and to the extent of, insurance proceeds paid in connection with such casualty, shall forthwith repair the same, provided the repairs can be made within a reasonable time under state, federal, county and municipal applicable law, but such partial destruction shall in no way annul or void this Lease, (except as provided in Section 8.01.(b) below) provided that Lessee shall be entitled to a proportionate credit for rent equal to the payment of Rental Income Insurance received by Lessor. Lessor shall use diligence in making such repairs within a reasonable time period, acts of God, strikes and delays beyond Lessor’s control excepted, in which instance the time period shall be extended accordingly, and this Lease shall remain in full force and effect, with the rent to be proportionately reduced as provided in this Section. If the Premises are damaged by any peril within twelve (12) months prior to the last day of the Lease Term and, in the reasonable opinion of the Lessor’s architect or construction consultant, the restoration of the Premises cannot be substantially completed within ninety (90) days after the date of such damage and such damage renders unusable more than thirty percent (30%) of the Premises, Lessor may terminate this Lease on sixty (60) days written notice to Lessee.

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(b) If the Building is damaged from any cause, Lessor shall promptly furnish Lessee with the written opinion of Lessor’s architect of when the restoration work to repair the damage may be complete. Lessee shall have the option to terminate this Lease if the time estimated to substantially complete the restoration exceeds fifteen (15) months from the date Lessor’s architect’s opinion is delivered to Lessee, which shall be (i) exercised by written notice to Lessor delivered within thirty (30) days after delivery to Lessee of Lessor’s architect’s opinion or (ii) irrevocably and automatically waived if not so timely exercised. In the event of termination, Lessee shall pay to Lessor all insurance proceeds, if any, received by Lessee as a result of the damage or destruction except to the extent allocable to the unamortized (over the Lease Term) cost of (i) Tenant Improvements paid for by Lessee over and above the Tenant Improvement Allowance and (ii) or other Alterations installed therein at Lessee’s sole cost and expense.

Section 8.02. Waiver of Civil Code Remedies. Lessee hereby expressly waives any rights to terminate this Lease upon damage or destruction to the Premises, including without limitation any rights pursuant to the provisions of Section 1932, Subdivisions 1 and 2 and Section 1933, Subdivision 4, of the California Civil Code, as amended from time-to-time, and the provisions of any similar law hereinafter enacted.

Section 8.03. No Abatement of Rentals. The Rentals and other charges due under this Lease shall not be reduced or abated by reason of any damage or destruction to the Premises (except to the extent of proceeds received by Lessor from the Rental Loss Insurance), and Lessor shall be entitled to all proceeds of the insurance maintained pursuant to Section 7.01. above during the period of rebuilding pursuant to Section 8.01.(a) above, or if the Lease is terminated pursuant to Section 8.01.(a) above. Lessee shall have no claim against Lessor, including, without limitation, for compensation for inconvenience or loss of business, profits or goodwill during any period of repair or reconstruction.

Section 8.04. Liability for Personal Property. In no event shall Lessor have any liability for, nor shall it be required to repair or restore, any injury or damage to Lessee’s personal property or to any other personal property or to Alterations (except to the extent Lessor receives insurance proceeds to repair damage to same) in or upon the Premises by Lessee.

ARTICLE IX

REAL PROPERTY TAXES

Section 9.01. Payment of Taxes. Lessee shall pay all real property taxes, including any escaped or supplemental tax and any form of real estate tax or assessment, general, special, ordinary or extraordinary, and any license, fee, charge, excise or imposition (“real property taxes”), imposed, assessed or levied on or with respect to the Premises (and Lessee shall pay its proportionate share of real property taxes imposed, assessed or levied on or with respect to the Common Area) by any Federal, State, County, City or other political subdivision or public authority having the direct or indirect power to tax, including, without limitation, any improvement district or any community facilities district, as against any legal or equitable

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interest of Lessor in the Premises or against the Premises or any part thereof applicable to the Premises for a period of time included within the Lease Term as well as any government or private cost sharing agreement assessments made for the purpose of augmenting or improving the quality of services and amenities normally provided by government agencies. All such payments shall be made at least ten (10) days prior to the delinquency date for such payment or ten (10) days after Lessee’s receipt of the tax bill, whichever is later. Notwithstanding the foregoing, Lessee shall not be required to pay any net income taxes, franchise taxes, or any succession or inheritance taxes of Lessor. If any anytime during the Lease Term, the State of California or any political subdivision of the state, including any county, city, city and county, public corporation, district, or any other political entity or public corporation of this state, levies or assesses against Lessor a tax, fee, charge or imposition, excise on rents under the Lease, the square footage of the Premises, the act of entering into this Lease, or the occupancy of Lessee, or levies or assesses against Lessor any other tax, fee, or excise, however described, including, without limitation, a so-called value added, business license, transit, commuter, environmental or energy tax fee, charge or excise or imposition related to the Premises as a direct substitution in whole or in part for, or in addition to, any real property taxes on the Premises, Lessee shall pay ten (10) days before delinquency or ten (10) days after receipt of the tax bill, whichever is later, that tax, fee, charge, excise or imposition. A good faith estimate of anticipated real property taxes is attached hereto as Exhibit M.

Section 9.02. Pro Ration for Partial Years. If any such taxes paid by Lessee shall cover any period prior to the Commencement Date or after the Expiration Date of the Lease Term, Lessee’s share of such taxes shall be equitably prorated to cover only the period of time within the tax fiscal year during which this Lease shall be in effect, and Lessor shall reimburse Lessee to any extent required. If Lessee shall fail to pay any such taxes, Lessor shall have the right to pay the same in which case Lessee shall repay such amount to Lessor within ten (10) days after written demand, together with interest at the Agreed Rate.

Section 9.03. Personal Property Taxes.

(a) Lessee shall pay prior to delinquency all taxes imposed, assessed against and levied upon trade fixtures, furnishings, equipment and all other personal property of Lessee contained in the Premises or elsewhere. When possible, Lessee shall cause said trade fixtures, furnishings, equipment and all other personal property to be assessed and billed separately from the real property of Lessor.

(b) If any of Lessee’s said personal property shall be assessed with Lessor’s real property, Lessee shall pay Lessor the taxes attributable to Lessee within ten (10) days after receipt of a written statement setting forth the taxes applicable to Lessee’s property.

(c) If Lessee shall fail to pay any such taxes, Lessor shall have the right to pay the same, in which case Lessee shall repay such amount to Lessor with Lessee’s next rent installment together with interest at the Agreed Rate.

Section 9.04. Lessee’s Right to Contest Real Property Taxes. Lessee at its sole cost and expense shall have the right, at any time, to seek a reduction in the assessed valuation of the

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Premises or to contest any real property taxes that are to be paid by Lessee with respect to the Premises. If Lessee seeks a reduction or contests any such real property taxes, the failure on Lessee’s part to pay such real property taxes shall not constitute a default as long as Lessee complies with the provisions of this Section. Lessor shall not be required to join in any proceeding or contest brought by Lessee unless the provisions of any law require that the proceeding or contest be brought by or in the name of Lessor or any owner of the Premises. In that case Lessor shall join in the proceeding or contest or permit it to be brought in Lessor’s name as long as Lessor is not required to bear any cost or expense. Lessor, on final determination of the proceeding or contest, shall immediately pay or discharge any decision or judgment rendered, together with all costs, fees, charges, interest, penalties and all other amounts incidental to the decision or judgment. If Lessor does not pay the real property taxes when due and Lessor seeks a reduction or contests them as provided in this Section, before the commencement of such proceeding or contest Lessee shall furnish to Lessor a surety bond issued by an insurance company qualified to do business in California provided that said bond and company are both reasonably satisfactory to Lessor. The amount of the bond shall equal one hundred thirty three percent (133%) of the total amount of real property taxes in dispute. The bond shall hold Lessor and the Premises harmless from any damage arising out of the proceeding or contest and shall insure the payment of any judgment that may be rendered.

ARTICLE X

UTILITIES

Section 10.01. Lessee to Pay. Lessee shall pay prior to delinquency and throughout the Lease Term, all charges for water, gas, heating, cooling, sewer, telephone, electricity, garbage, air conditioning and ventilation, janitorial service, landscaping and all other materials and utilities supplied to the Premises. The disruption, failure, lack or shortage of any service or utility due to any cause whatsoever shall not affect any obligation of Lessee hereunder, and Lessor shall faithfully keep and observe all the terms, conditions and covenants of this Lease and pay all rent due hereunder, all without diminution, credit or deduction, provided that, Lessor shall credit Lessee to the extent of any rental interruption proceeds Lessor receives as a result of such disruption, failure, lack or shortage of services or utility.

ARTICLE XI

ASSIGNMENT AND SUBLETTING

Section 11.01. Lessor’s Consent Required. Except as provided in Section 11.02, Lessee shall not voluntarily or by operation of law assign, transfer, mortgage, sublet, license or otherwise transfer or encumber all or any part of Lessee’s interest in this Lease or in the Premises or any part thereof, without Lessor’s prior written consent which Lessor shall not unreasonably withhold or delay. Lessor shall respond in writing to Lessee’s request for consent hereunder in a timely manner and any attempted assignment, transfer, mortgage, encumbrance, subletting or licensing without such consent shall be void, and shall constitute a breach of this Lease. By way of example, but not limitation, reasonable grounds for denying consent include: (i) poor credit history or insufficient financial strength of transferee (but not necessarily financial strength as great as that of Lessee), (ii) transferee’s intended use of the Premises is inconsistent with the permitted use or will materially and adversely affect Lessor’s interest. Lessee shall

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reimburse Lessor upon demand for Lessor’s reasonable costs and expenses (including attorneys’ fees, architect fees and engineering fees) involved in renewing any request for consent whether or not consent is granted.

Section 11.02. Lessee Affiliates. Lessee may assign or sublet the Premises, or any portion thereof, to any corporation which controls, is controlled by, or is under common control with Lessee, or to any corporation resulting from the merger or consolidation with Lessee, or to any person or entity which acquires all, or substantially all of the assets of Lessee as a going concern of the business that is being conducted on the Premises (“Affiliate”), provided that said assignee or sublessee assumes, in full, the obligations of Lessee under this Lease and provided further that the use to which the Premises will be put does not materially change. Any such assignment shall not, in any way, affect or limit the liability of Lessee under the terms of this Lease.

Section 11.03. No Release of Lessee. Regardless of Lessor’s consent, no subletting or assignment shall release Lessee of Lessee’s obligation or alter the primary liability of Lessee to pay the rent and to perform all other obligations to be performed by Lessee hereunder. The acceptance of rent by Lessor from any other person shall not be deemed consent to any subsequent assignment or subletting. In the event of default by any assignee of Lessee or any successor of Lessee, in the performance of any of the terms hereof, Lessor may proceed directly against Lessee without the necessity of exhausting remedies against said assignee.

Section 11.04. Excess Rent. In the event Lessor shall consent to a sublease or an assignment, Lessee shall pay to Lessor with its regularly scheduled Base Rent payments, fifty percent (50%) of all sums and the fair market value of all consideration collected or received by Lessee from a sublessee or assignee which are in excess of the Base Rent and Additional Rent due and payable with respect to the subject space pursuant to Article IV for the time period encompassed by the sublease or assignment term, after first deducting reasonable leasing commissions and the cost of any Tenant Improvements paid by Lessee with respect to such sublease or assignment.

Section 11.05. No Impairment of Security. Lessee’s written request to Lessor for consent to an assignment or subletting or other form of transfer shall be accompanied by (a) the name and legal composition of the proposed transferee; (b) the nature of the proposed transferee’s business to be carried on in the Premises; (c) the terms and provisions of the proposed transfer agreement; and (d) such financial and other reasonable information as Lessor may request concerning the proposed transferee.

Section 11.06. Lessor’s Recapture Rights.

(a) Lessor’s Recapture Rights. Notwithstanding any other provision of this Article 11, in the event that Lessee proposes to sublease or assign or otherwise transfer (to anyone other than an Affiliate) any interest in this Lease or the Premises or any part thereof affecting (collectively with all other such subleases, assignments, or transfers then in effect) more than fifty percent (50%) of the square footage of the Rentable Area of the Building (“Recapture Space”) for the major portion of the then remaining Lease Term, then Lessor shall have the option to recapture the Recapture Space by written notice to Lessee (“Recapture Notice”) given within ten (10)

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business days after Lessor receives any notice of such proposed assignment or sublease or other transfer (“Transfer Notice”). A timely Recapture Notice terminates this Lease for the Recapture Space, effective as of the date specified in the Transfer Notice. If Lessor declines or fails timely to deliver a Recapture Notice, Lessor shall have no further right under this Section 11.06 to the Recapture Space unless it becomes available again after transfer by Lessee.

(b) Consequences of Recapture. To determine the new Base Rent under this Lease if Lessor recaptures the Recapture Space, the then current Base Rent (immediately before Lessor’s recapture) under the Lease shall be multiplied by a fraction, numerator of which is the square feet of the Rentable Area retained by Lessee after Lessor’s recapture and the denominator of which is the total square feet of the Rentable Area before Lessor’s recapture. The Additional Rent, to the extent that it is calculated on the basis of the square feet within the Building, shall be reduced to reflect Lessee’s proportionate share based on the square feet of the Building retained by Lessee after Lessor’s recapture. This Lease as so amended shall continue thereafter in full force and effect. Either party may require written confirmation of the amendments to this Lease necessitated by Lessor’s recapture of the Recapture Space. If Lessor recaptures the Recapture Space, Lessor shall, at Lessor’s sole expense, construct, paint, and furnish any partitions required to segregate the Recapture Space from the remaining Premises retained by Lessee.

ARTICLE XII

DEFAULTS; REMEDIES

Section 12.01. Defaults. The occurrence of any one or more of the following events shall constitute a material default and breach of this Lease by Lessee:

(a) The vacation of the Premises by Lessee for a period of time which would thereafter terminate Lessor’s insurance coverage at the Premises or cause an increase of Lessor’s insurance coverage at the Project or which for a period of more than six consecutive calendar months (other than vacation caused by damage or destruction and during the repair of same) or the commission of waste at the Premises or the making of an assignment or subletting in violation of Article XI;

(b) The failure by Lessee to make any payment of rent or any other payment required to be made by Lessee hereunder, as and when due, if such failure continues for a period of five (5) business days after written notice thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a Notice to Pay Rent or Quit in the form required by applicable Unlawful Detainer statutes such Notice shall constitute the notice required by this paragraph, provided that the cure period stated in the Notice shall be five (5) business days rather than the statutory three (3) days;

(c) Lessee’s failure to provide (i) any instrument or assurance as required by Section 7.05 or (ii) estoppel certificate as required by Section 15.01 or (iii) any document subordinating this Lease to a Lender’s deed of trust if such failure continues for five (5) business days after written notice of the failure. In the event Lessor serves Lessee with a Notice to Perform Covenant or Quit in the form required by applicable Unlawful Detainer Statutes, such Notice shall constitute the notice required by this paragraph, provided that the cure period stated in the Notice shall be five (5) business days rather than the statutory three (3) days;

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(d) The failure by Lessee to observe or perform any of the covenants, conditions or provisions of this Lease to be observed or performed by Lessee, other than described in paragraph (a) (b) or (c) above, if such failure continues for a period of ten (10) days after written notice thereof from Lessor to Lessee; provided, however, that if the nature of Lessee’s default is such that more than ten (10) days are reasonably required for its cure, then Lessee shall not be deemed to be in default if Lessee commences such cure within said ten (10) day period and thereafter diligently prosecutes such cure to completion;

(e) (i) The making by Lessee of any general arrangement or assignment for the benefit of creditors; (ii) the filing by Lessee of a voluntary petition in bankruptcy under Title 11 U.S.C. or the filing of an involuntary petition against Lessee which remains uncontested for a period of sixty days; (iii) the appointment of a trustee or receiver to take possession of substantially all of Lessee’s assets located at the Premises or of Lessee’s interest in this Lease; or (iv) the attachment, execution or other judicial seizure of substantially all of Lessee’s assets located at the Premises or of Lessee’s interest in this Lease, provided, however, in the event that any provisions of this Section 12.01(e) is contrary to any applicable law, such provision shall be of no force or effect;

(f) The discovery by Lessor that any financial statement given to Lessor by Lessee, or any guarantor of Lessee’s obligations hereunder, was materially false.

Section 12.02. Remedies. In the event of any such material default and breach by Lessee, Lessor may at any time thereafter, and without limiting Lessor in the exercise of any right or remedy which Lessor may have by reason of such default and breach:

(a) Terminate Lessee’s right to possession of the Premises by any lawful means including by way of unlawful detainer (and without any further notice if a notice in compliance with the unlawful detainer statutes and in compliance with paragraphs (b), (c) and (d) of Section 12.01 above has already been given), in which case this Lease shall terminate and Lessee shall immediately surrender possession of the Premises to Lessor. In such event Lessor shall be entitled to recover from Lessee all damages incurred by Lessor by reason of Lessee’s default including, but not limited to, (i) the cost of recovering possession of the Premises including reasonable attorney’s fees related thereto; (ii) the worth at the time of the award of any unpaid rent that had been earned at the time of the termination, to be computed by allowing interest at the Agreed Rate but in no case greater than the maximum amount of interest permitted by law, (iii) the worth at the time at the time of the award of the amount by which the unpaid rent that would have been earned between the time of the termination and the time of the award exceeds the amount of unpaid rent that Lessee proves could reasonably have been avoided, to be computed by allowing interest at the Agreed Rate but in no case greater than the maximum amount of interest permitted by law, (iv) the worth at the time of the award of the amount by which the unpaid rent for the balance of the Lease Term after the time of the award exceeds the amount of unpaid rent that Lessee proves could reasonably have been avoided, to be computed by discounting that amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of the award plus one per cent (1%), (v) any other amount necessary to compensate Lessor for all the detriment proximately caused by Lessee’s failure to perform obligations under

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this Lease, including brokerage commissions and advertising expenses, expenses of remodeling the Premises for a new tenant (whether for the same or a different use), and any special concessions made to obtain a new tenant, and (vi) any other amounts, in addition to or in lieu of those listed above, that may be permitted by applicable law.

(b) Maintain Lessee’s right to possession as provided in Civil Code Section 1951.4 in which case this Lease shall continue in effect whether or not Lessee shall have abandoned the Premises. In such event Lessor shall be entitled to enforce all of Lessor’s rights and remedies under this Lease, including the right to recover the rent as it becomes due hereunder.

(c) Pursue any other remedy now or hereafter available to Lessor under the laws or judicial decisions of the state of California. Unpaid amounts of rent and other unpaid monetary obligations of Lessee under the terms of this Lease shall bear interest from the date due at the Agreed Rate.

Section 12.03. Default by Lessor. Lessor shall not be in default under this Lease unless Lessor fails to perform obligations required of Lessor within a reasonable time, but in no event later than thirty (30) days after written notice by Lessee to Lessor and to the holder of any first mortgage or deed of trust covering the Premises whose name and address shall have theretofore been furnished to Lessee in writing, specifying that Lessor has failed to perform such obligation; provided, however, that if the nature of Lessor’s obligation is such that more than thirty (30) days are required for performance then Lessor shall not be in default if Lessor commences performance within such thirty day period and thereafter diligently prosecutes the same to completion. In the event Lessor does not commence performance within the thirty (30) day period provided herein, Lessee may perform such obligation and will be reimbursed for its expenses by Lessor together with interest thereon at the Agreed Rate. Lessee waives any right to terminate this Lease or to vacate the Premises on Lessor’s default under this Lease. Lessee’s sole remedy on Lessor’s default is an action for damages or injunctive or declaratory relief. Notwithstanding the foregoing, nothing herein shall be deemed applicable in the event of Lessor’s delay in delivery of the Premises. In that situation, all rights and remedies shall be determined under Section 3.01 above.

Section 12.04. Late Charges. Lessee hereby acknowledges that late payment by Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur costs not contemplated by this Lease, the exact amount of which will be extremely difficult to ascertain. Such costs include, but are not limited to, processing and accounting charges, and late charges which may be imposed on Lessor by the terms of any mortgage or trust deed covering the Premises. Accordingly, if any installment of rent or any other sum due from Lessee shall not be received by Lessor or Lessor’s designated agent by the later of two (2) days after written notice of such failure is given or five (5) days after such amount is due and owing, Lessee shall pay to Lessor a late charge equal to ten percent (10%) of such overdue amount. The parties hereby agree that such late charge represents a fair and reasonable estimate of the costs Lessor will incur by reason of late payment by Lessee. Acceptance of such late charge by Lessor shall in no event constitute a waiver of Lessee’s default with respect to such overdue amount, nor prevent Lessor from exercising any of the other rights and remedies granted hereunder. In the event that a late charge is payable hereunder, whether or not collected, for three (3) consecutive installments of rent, then rent shall automatically become due and payable quarterly in advance, rather than monthly, notwithstanding Section 4.01 or any other provision of this Lease to the contrary.

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Section 12.05. Impounds. In the event that a late charge is payable hereunder, whether or not collected, for three (3) installments of rent or any other monetary obligation of Lessee under the terms of this Lease within a twelve (12) month period, Lessee shall pay to Lessor, if Lessor shall so request in writing, in addition to any other payments required under this Lease, a monthly advance installment, payable at the same time as the monthly rent, as estimated by Lessor, for real property tax and insurance expenses on the Premises which are payable by Lessee under the terms of this Lease. Such fund shall be established to insure payment when due, before delinquency, of any or all such real property taxes and insurance premiums. If the amounts paid to Lessor by Lessee under the provisions of this paragraph are insufficient to discharge the obligations of Lessee to pay such real property taxes and insurance premiums as the same become due, Lessee shall pay to Lessor, upon Lessor’s demand, such additional sums necessary to pay such obligations. All moneys paid to Lessor under this paragraph may be intermingled with other moneys of Lessor and shall not bear interest. In the event of a default in the obligations of Lessee to perform under this Lease, then any balance remaining from funds paid to Lessor under the provisions of this paragraph may, at the option of Lessor, be applied to the payment of any monetary default of Lessee in lieu of being applied to the payment of real property tax and insurance premiums.

ARTICLE XIII

CONDEMNATION OF PREMISES.

Section 13.01. Total Condemnation. If the entire Premises, whether by exercise of governmental power or the sale or transfer by Lessor to any condemnor under threat of condemnation or while proceedings for condemnation are pending, at any time during the Lease Term, shall be taken by condemnation such that there does not remain a portion suitable for occupation, this Lease shall then terminate as of the date transfer of possession is required. Upon such condemnation, all rent shall be paid up to the date transfer of possession is required, and Lessee shall have no claim against Lessor or the award for the value of the unexpired portion of this Lease Term.

Section 13.02. Partial Condemnation. If any portion of the Premises is taken by condemnation during the Lease Term, whether by exercise of governmental power or the sale for transfer by Lessor to an condemnor under threat of condemnation or while proceedings for condemnation are pending, this Lease shall remain in full force and effect except that in the event a partial taking leaves the Premises unfit for the conduct of the business of Lessee, then Lessee shall have the right to terminate this Lease effective upon the date transfer of possession is required. Moreover, Lessor shall have the right to terminate this Lease effective on the date transfer of possession is required if more than thirty-three percent (33%) of the total square footage of the Premises is taken by condemnation. Lessee and Lessor may elect to exercise their respective rights to terminate this Lease pursuant to this Section by serving written notice to the other within thirty (30) days after receipt of notice of condemnation. All rent shall be paid up to the date of termination, and Lessee shall have no claim against Lessor for the value of any unexpired portion of the Lease Term. If this Lease shall not be canceled, the rent after such

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partial taking shall be that percentage of the adjusted base rent specified herein, equal to the percentage which the square footage of the untaken part of the Premises, immediately after the taking, bears to the square footage of the entire Premises immediately before the taking. If Lessee’s continued use of the Premises requires alterations and repair by reason of a partial taking, all such alterations and repair shall be made by Lessee at Lessee’s expense. Lessee waives all rights it may have under California Code of Civil Procedure Section 1265.130 or otherwise, to terminate this Lease based on partial condemnation.

Section 13.03. Award to Lessee. In the event of any condemnation, whether total or partial, Lessee shall have the right to claim and recover from the condemning authority such compensation as may be separately awarded or recoverable by Lessee for loss of its business fixtures, or equipment belonging to Lessee immediately prior to the condemnation. The balance of any condemnation award shall belong to Lessor (including, without limitation, any amount attributable to any excess of the market value of the Premises for the remainder of the Lease Term over the then present value of the rent payable for the remainder of the Lease Term) and Lessee shall have no further right to recover from Lessor or the condemning authority for any claims arising out of such taking, provided that Lessee shall have the right to make a separate claim in the condemnation proceeding, as long as the award payable to Lessor is not reduced thereby, for (i) the taking of the unamortized or undepreciated value of any leasehold improvements owned by Lessee that Lessee has the right to remove at the end of the Lease Term and that Lessee elects not to remove, (ii) reasonable removal and relocation costs for any leasehold improvements that Lessee has the right to remove and elects to remove (if condemnor approves of the removal), and (iii) relocation costs under Government Code section 7262, the claim for which Lessee may pursue by separate action independent of this Lease.

ARTICLE XIV

ENTRY BY LESSOR

Section 14.01. Entry by Lessor Permitted. Lessee shall permit Lessor and its employees, agents and contractors to enter the Premises and all parts thereof (i) upon twenty-four (24) hours notice (or without notice in an emergency), including without limitation, the Building and all parts thereof at all reasonable times for any of the following purposes: to inspect the Premises; to maintain the Premises; to make such repairs to the Premises as Lessor is obligated or may elect to make pursuant to Section 6.01(d); to make repairs, alterations or additions to any other portion of the Project and (ii) upon twenty-four (24) hours notice to show the Premises and post “To Lease” signs for the purposes of reletting during the last twelve (12) months of the Lease Term (provided that Lessee has failed to exercise its option to extend) or extended

Lease Term to show the Premises as part of a prospective sale by Lessor or to post notices of nonresponsibility. Lessor shall have such right of entry without any rebate of rent to Lessee for any loss of occupancy or quiet enjoyment of the Premises hereby occasioned. Lessee shall have the right to accompany Lessor on any entry, provided that Lessor shall not be required to give Lessee any notice of an emergency entry and shall not be required to delay any noticed entry to accommodate Lessee’s exercise of its right to so accompany.

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ARTICLE XV

ESTOPPEL CERTIFICATE

Section 15.01. Estoppel Certificate.

(a) Either party shall at any time upon not less than fifteen (15) days’ prior written request from the other party execute, acknowledge and deliver to the other party a statement in writing (i) certifying, if true, that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying, if true, that this Lease, as so modified, is in full force and effect) and the date to which the rent and other charges are paid in advance, if any, and (ii) acknowledging, if true, that there are not, to such party’s knowledge, any uncured defaults on the part of the other party hereunder, or specifying such defaults if any are claimed and (iii) certifying or acknowledging such other matters as are requested by any prospective lender or buyer which are reasonably related to the loan or sale transaction. Any such statement may be conclusively relied upon by any prospective purchaser or encumbrancer of the Premises.

(b) Either party’s failure to deliver such statement within such time shall be conclusive upon the other party (i) that this Lease is in full force and effect, without modification except as may be represented by the requesting party in the statement, (ii) that there are no uncured defaults in requesting party’s performance, and (iii) that not more than one month’s rent has been paid in advance.

ARTICLE XVI

LESSOR’S LIABILITY

Section 16.01. Limitations on Lessor’s Liability. The term “Lessor” as used herein shall mean only the owner or owners at the time in question of the fee title of the Premises. In the event of any transfer of such title or interest, Lessor herein named (and in case of any subsequent transfers then the grantor) shall be relieved from and after the date of such transfer of all liability as respects Lessor’s obligations thereafter to be performed, provided that any funds in the hands of Lessor or the then grantor at the time of such transfer, in which Lessee has an interest, shall be delivered to the grantee. The obligations contained in this Lease to be performed by Lessor shall, subject as aforesaid, be binding on Lessor’s successors and assigns, only during their respective periods of ownership. For any breach of this Lease by Lessor, the liability of Lessor (including all persons and entities that comprise Lessor, and any successor Lessor) and any recourse by Lessee against Lessor shall be limited to (i) the interest of Lessor, and Lessor’s successors in interest, in and to the Premises including any sales proceeds or condemnation awards received by Lessor from the sale or condemnation of the Premises after said breach and (ii) any insurance coverage pertaining to such breach provided by policies caused pursuant to this Lease. On behalf of itself and all persons claiming by, through, or under Lessee, Lessee expressly waives and releases Lessor and each member, agent and employee of Lessor from any personal liability for breach of this Lease.

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ARTICLE XVII

GENERAL PROVISIONS

Section 17.01. Severability. The invalidity of any provision of this Lease as determined by a court of competent jurisdiction, shall in no way affect the validity of any other provision hereof.

Section 17.02. Agreed Rate Interest on Past-Due Obligations. Except as expressly herein provided, any amount due to either party not paid when due shall bear interest at the Bank of America prime rate plus one percent (1%) (“Agreed Rate”). Payment of such interest shall not excuse or cure any default by Lessee under this Lease. Despite any other provision of this Lease, the total liability for interest payments shall not exceed the limits, if any, imposed by the usury laws of the State of California. Any interest paid in excess of those limits shall be refunded to the payor by application of the amount of excess interest paid against any sums outstanding in any order that payee requires. If the amount of excess interest paid exceeds the sums outstanding, the portion exceeding those sums shall be refunded in cash to the payor by the payee. To ascertain whether any interest payable exceeds the limits imposed, any nonprincipal payment (including late charges) shall be considered to the extent permitted by law to be an expense or a fee, premium, or penalty rather than interest.

Section 17.03. Time of Essence. Time is of the essence in the performance of all obligations under this Lease.

Section 17.04. Additional Rent. Any monetary obligations of Lessee to Lessor under the terms of this Lease shall be deemed to be Additional Rent and Lessor shall have all the rights and remedies for the nonpayment of same as it would have for nonpayment of Base Rent, except that the one year requirement of Code of Civil Procedure Section 1161(2) shall apply only to scheduled installments of Base Rent and not to any Additional Rent. All references to “rent” (except specific references to either Base Rent or Additional Rent) shall mean Base Rent and Additional Rent.

Section 17.05. Incorporation of Prior Agreements, Amendments and Exhibits. This Lease (including Exhibits A, B, C, D, E, F, G, H, I, J, K and L) contains all agreements of the parties with respect to any matter mentioned herein. No prior agreement or understanding pertaining to any such matter shall be effective. This Lease may be modified in writing only, signed by the parties in interest at the time of the modification. Except as otherwise stated in this Lease, Lessee hereby acknowledges that neither the Lessor nor any employees or agents of the Lessor has made any oral or written warranties or representations to Lessee relative to the condition or use by Lessee of said Premises and Lessee acknowledges that Lessee assumes all responsibility regarding the Occupational Safety Health Act, the legal use and adaptability of the Premises and the compliance thereof with all applicable laws and regulations in effect during the Lease Term except as otherwise specifically stated in this Lease. Neither party has been induced to enter into this Lease by, and neither party is relying on, any representation or warranty outside those expressly set forth in this Lease.

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Section 17.06. Notices. -

(a) Written Notice. Any notice required or permitted to be given hereunder shall be in writing and shall be given by a method described in paragraph (b) below and shall be addressed to Lessee or to Lessor at the addresses noted below, next to the signature of the respective parties, as the case may be. Either party may by notice to the other specify a different address for notice purposes. A copy of all notices required or permitted to be given to Lessor hereunder shall be concurrently transmitted to such party or parties at such addresses as Lessor may from time to time hereafter designate by notice to Lessee, but delay or failure of delivery to such person shall not affect the validity of the delivery to Lessor or Lessee.

(b) Methods of Delivery:

(i) When personally delivered to the recipient, notice is effective on delivery. Delivery to the person apparently designated to receive deliveries at the subject address is personally delivered if made during business hours (e.g. receptionist).

(ii) When mailed by certified mail with return receipt requested, notice is effective on receipt if delivery is confirmed by a return receipt.

(iii) When delivery by overnight delivery Federal Express/Airborne/United Parcel Service/DHL WorldWide Express with charges prepaid or charged to the sender’s account, notice is effective on delivery if delivery is confirmed by the delivery service.

(c) Refused, Unclaimed or Undeliverable Notices. Any correctly addressed notice that is refused, unclaimed, or undeliverable because of an act or omission of the party to be notified shall be considered to be effective as of the first date that the notice was refused, unclaimed, or considered undeliverable by the postal authorities, messenger, or overnight delivery service.

Section 17.07. Waivers. No waiver of any provision hereof shall be deemed a waiver of any other provision hereof or of any subsequent breach of the same or any other provisions. Any consent to, or approval of, any act shall not be deemed to render unnecessary the obtaining of consent to or approval of any subsequent act. 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 the time of acceptance of such rent.

Section 17.08. Recording. Either Lessor or Lessee shall, upon request of the other, execute, acknowledge and deliver to the other a “short form” memorandum of this Lease for recording purposes, provided that Lessee shall also simultaneously execute in recordable form and delivering to Lessor a Quit Claim Deed as to its leasehold and any other interest in the Premises and hereby authorizes Lessor to date and record the same only upon the expiration or sooner termination of this Lease.

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Section 17.09. Surrender of Possession; Holding Over. -

(a) At the expiration of the Lease, Lessee agrees to deliver up and surrender to Lessor possession of the Premises and all improvements thereon broom clean and, in as good order and condition as when possession was taken by Lessee, excepting only ordinary wear and tear (wear and tear which could have been avoided by first class maintenance practices and in accordance with industry standards shall not be deemed “ordinary”). Upon expiration or sooner termination of this Lease, Lessor may reenter the Premises and remove all persons and property therefrom. If Lessee shall fail to remove any personal property which it is entitled or obligated to remove from the Premises upon the expiration or sooner termination of this Lease, for any cause whatsoever, Lessor, at its option, may remove the same and store or dispose of them, and Lessee agrees to pay to Lessor on demand any and all expenses incurred in such removal and in making the Premises free from all dirt, litter, debris and obstruction, including all storage and insurance charges. If the Premises are not surrendered at the end of the Lease Term, Lessee shall indemnify Lessor against loss or liability resulting from delay by Lessee in so surrendering the Premises, including, without limitation, actual damages for lost rent and with respect to any claims of a successor occupant.

(b) If Lessee, with Lessor’s prior written consent, remains in possession of the Premises after expiration of the Lease Term and if Lessor and Lessee have not executed an express written agreement as to such holding over, then such occupancy shall be a tenancy from month to month at a monthly Base Rent equivalent to one hundred fifty percent (150%) of the monthly rental in effect immediately prior to such expiration, such payments to be made as herein provided for Base Rent. In the event of such holding over, all of the terms of this Lease, including the payment of Additional Rent all charges owing hereunder other than rent shall remain in force and effect on said month to month basis.

Section 17.10. Cumulative Remedies. No remedy or election hereunder by -Lessor shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity, provided that notice and cure periods set forth in Article XII are intended to extend and modify statutory notice provisions to the extent expressly stated in Section 12.01.

Section 17.11. Covenants and Conditions. Each provision of this Lease to be observed or performed by Lessee shall be deemed both a covenant and a condition.

Section 17.12. Binding Effect; Choice of Law. Subject to any provisions hereof restricting assignment or subletting by Lessee and subject to the provisions of Article XVI, this Lease shall bind the parties, their personal representatives, successors and assigns. This Lease shall be governed by the laws of the State of California and any legal or equitable action or proceeding brought with respect to the Lease or the Premises shall be brought in Santa Clara County, California.

Section 17.13. Lease to be Subordinate. Lessee agrees that this Lease is and shall be, at all times, subject and subordinate to the lien of any mortgage or other encumbrances which Lessor may create against the Premises including all renewals, replacements and extensions thereof provided, however, that regardless of any default under any such mortgage or

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encumbrance or any sale of the Premises under such mortgage, so long as Lessee timely performs all covenants and conditions of this Lease and continues to make all timely payments hereunder, this Lease and Lessee’s possession and rights hereunder shall not be disturbed by the mortgagee or anyone claiming under or through such mortgagee. Lessee shall execute any documents subordinating this Lease within ten (10) days after delivery of same by Lessor so long as the Lender agrees therein that this Lease will not be terminated if Lessee is not in default following a foreclosure, including, without limitation, any Subordination Non-Distribution and Attornment Agreement (“SNDA”) which is substantially in the form attached hereto as Exhibit “F.”

Section 17.14. Attorneys’ Fees. If either party herein brings an action to enforce the terms hereof or to declare rights hereunder, the prevailing party in any such action, on trial or appeal, shall be entitled to recover its reasonable attorney’s fees, expert witness fees and costs as fixed by the Court.

Section 17.15. Signs. Lessee shall not place any sign upon the exterior of the Building without Lessor’s prior written consent, which consent shall not be unreasonably withheld and which consent is hereby given to the signage described in Exhibit “G” hereto. Lessee, at its sole cost and expense, after obtaining Lessor’s prior written consent, shall install, maintain and remove prior to expiration of this Lease (or within ten (10) days after any earlier termination of this Lease) all signage in full compliance with (i) all applicable law, statutes, ordinances and regulations and (ii) all provisions of this Lease concerning alterations.

Section 17.16. Merger. The voluntary or other surrender of this Lease by Lessee, or a mutual cancellation thereof, or a termination by Lessor, shall not work a merger, and shall, at the option of Lessor, terminate all or any existing subtenancies or may, at the option of Lessor, operate as an assignment to Lessor of any or all of such subtenancies.

Section 17.17. Guarantor. [Intentionally Omitted]

Section 17.18. Quiet Possession. Upon Lessee timely paying the rent for the Premises and timely observing and performing all of the covenants, conditions and provisions on Lessee’s part to be observed and performed hereunder, Lessee shall have quiet possession of the Premises for the entire Lease Term, subject to all of the provisions of this Lease.

Section 17.19. Easements. Lessor reserves to itself the right, from time to time, to grant such easements, rights and dedications that Lessor deems necessary or desirable, and to cause the recordation of Parcel Maps and conditions, covenants and restrictions, so long as such easements, rights, dedications, Maps and conditions, covenants and restrictions do not unreasonably interfere with the use of the Premises by Lessee. Lessee shall sign any of the aforementioned or other documents, and take such other actions, which are reasonably necessary or appropriate to accomplish such granting recordation and subordination of the Lease to same, upon request of Lessor, and failure to do so within ten (10) business days of a written request to do so shall constitute a material breach of this Lease.

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Section 17.20. Authority. Each individual executing this Lease on behalf of a corporation, limited liability company or partnership represents and warrants that he or she is duly authorized to execute and deliver this Lease on behalf of such entity in accordance with a duly adopted resolution of the governing group of the entity empowered to grant such authority, and that this Lease is binding upon said entity in accordance with its terms. Each party shall provide the other with a certified copy of its resolution within ten (10) days after execution hereof, but failure to do so shall in no manner (i) be evidence of the absence of authority or (ii) affect the representation or warranty.

Section 17.21. Force Majeure Delays. In any case where either party hereto is required to do any act (other than the payment of money), delays caused by or resulting from Acts of God or Nature, war, civil commotion, fire, flood or other casualty, labor difficulties, shortages of labor or materials or equipment, government regulations, delay by government or regulatory agencies with respect to approval or permit process, unusually severe weather, or other causes beyond such party’s reasonable control the time during which act shall be completed, shall be deemed to be extended by the period of such delay, whether such time be designated by a fixed date, a fixed time or “a reasonable time.”

Section 17.22. Hazardous Materials.

(a) Definition of Hazardous Materials and Environmental Laws. “Hazardous Materials” means any (a) substance, product, waste or other material of any nature whatsoever which is or becomes listed regulated or addressed pursuant to the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. sections 9601, et seq. (“CERCLA”); the Hazardous Materials Transportation Act (“HMTA”) 49 U.S.C. section 1801, et seq., the Resource Conservation and Recovery Act, 42 U.S.C. section 6901, et seq. (“RCRA”); the Toxic Substances Control Act, 15 U.S.C. sections 2601, et seq. (“TSCA”); the Clean Water Act, 33 U.S.C. sections 1251, et seq.; the California Hazardous Waste Control Act, Health and Safety Code sections 25100, et seq.; the California Hazardous Substances Account Act, Health and Safety Code sections 26300, et seq.; the California Safe Drinking Water and Toxic Enforcement Act, Health and Safety Code sections 25249.5, et seq.; California Health and Safety Code sections 25280, et seq.; (Underground Storage of Hazardous Substances); the California Hazardous Waste Management Act, Health and Safety Code sections 25170.1, et seq.; California Health and Safety Code sections 25501. et seq. (Hazardous Materials Response Plans and Inventory); or the Porter-Cologne Water Quality Control Act, California Water Code sections 13000, et seq., all as amended, or any other federal, state or local statute, law, ordinance, resolution, code, rule, regulation, order or decree regulating, relating to or imposing liability (including, but not limited to, response, removal and remediation costs) or standards of conduct or performance concerning any hazardous, toxic or dangerous waste, substance or material, as now or at any time hereafter may be in effect (collectively, “Environmental Laws”); (b) any substance, product, waste or other material of any nature whatsoever whose presence in and of itself may give rise to liability under any of the above statutes or under any statutory or common law theory based on negligence, trespass, intentional tort, nuisance, strict or absolute liability or under any reported decisions of a state or federal court, (c) petroleum or crude oil, including but not limited to petroleum and petroleum products contained within regularly operated motor vehicles and (d) asbestos.

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(b) Lessor’s Representations and Disclosures. Lessor represents that it has provided Lessee with a description of the Hazardous Materials on or beneath the Property as of the date hereof, attached hereto as Exhibit I and incorporated herein by reference. Lessee acknowledges that in providing the attached Exhibit I, Lessor has satisfied its obligations of disclosure pursuant to California Health & Safety Code Section 25359.7 which requires:

“Any owner of nonresidential real property who knows, or has reasonable cause to believe, that any release of hazardous substances has come to be located on or beneath that real property shall, prior to the sale, lease or rental of the real property by that owner, give written notice of that condition to the buyer, lessee or renter of the real property.”

(c) Use of Hazardous Materials. Lessee shall not cause or permit any Hazardous Materials to be brought upon, kept or used in, on or about the Project by Lessee, its agents, employees, contractors, licensees, guests, visitors or invitees without the prior written consent of Lessor. Lessor shall not unreasonably withhold such consent so long as Lessee demonstrates to Lessor’s reasonable satisfaction that such Hazardous Materials are necessary or useful to Lessee’s business and will be used, kept and stored in a manner that complies with all applicable Environmental Laws. Lessee shall, at all times, use, keep, store, handle, transport, treat or dispose all such Hazardous Materials in or about the Property in compliance with all applicable Environmental Laws. Prior to the expiration or earlier termination of the Lease, Lessee shall remove from the Project all Hazardous Materials used or brought onto the Premises during the Lease Term by anyone other than Lessor, its agents, employees or contractors.

(d) Lessee’s and Lessor’s Environmental Indemnities. Lessee agrees to indemnify and hold Lessor harmless from any liabilities, losses, claims, damages, penalties, fines, attorney fees, expert fees, court costs, remediation costs, investigation costs, or other expenses resulting from or arising out of the use, storage, treatment, transportation, release, presence, generation, or disposal of Hazardous Materials on, from or about the Project, and/or subsurface or ground water, after the Commencement Date from an act or omission of Lessee (or Lessee’s successor), its agents, employees, invitees, vendors, contractors, guests or visitors. Lessor agrees to indemnify and hold Lessee harmless from any liabilities, losses, claims, damages, penalties, fines, attorney fees, expert fees, court costs, remediation costs, investigation costs, or other expenses resulting from or arising out of the use, storage, treatment, transportation, release, presence, generation, or disposal of Hazardous Materials on, from or about the Premises, and/or subsurface or ground water, after the Commencement Date from an act or omission of Lessor (or Lessor’s successor), its agents or employees.

(e) Lessee’s Obligation to Promptly Remediate. If the presence of Hazardous Materials on the Premises after the Commencement Date results from an act or omission of Lessee (or Lessee’s successors), its agents, employees, invitees, vendors, contractors, guests, or visitors results in contamination or deterioration of the Premises or Project or any water or soil beneath the Premises or Project, Lessee shall promptly take all action necessary or appropriate to investigate and remedy that contamination, at its sole cost and expense, provided that Lessor’s consent to such action shall first be obtained. Lessor’s consent shall not be unreasonably withheld.

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(f) Notification. Lessor and Lessee each agree to promptly notify the other of any communication received from any governmental entity concerning Hazardous Materials or the violation of Environmental Laws that relate to the Premises.

Section 17.23. Modifications Required by Lessor’s Lender. If any lender of Lessor requires a modification of this Lease that will not increase Lessee’s cost or expense or materially and adversely change Lessee’s rights and obligations, this Lease shall be so modified and Lessee shall execute whatever documents are required by such lender and deliver them to Lessor within ten (10) days after the request.

Section 17.24. Brokers. Lessor and Lessee each represents to the other that it has had no dealings with any real estate broker or agent in connection with the negotiation of this Lease, except for the real estate brokers or agents identified on the signature page hereof (“Brokers”) and that they know of no other real estate broker or agent who is entitled to a commission or finder’s fee in connection with this Lease. Each party shall indemnify, protect, defend, and hold harmless the other party against all claims, demands, losses, liabilities, lawsuits, judgments, and costs and expenses (including reasonable attorney fees) for any leasing commission, finder’s fee, or equivalent compensation alleged to be owning on account of the indemnifying party’s dealings with any real estate broker or agent other than the Brokers. The terms of this Section 17.24 shall survive the expiration or earlier termination of the Lease Term.

Section 17.25. Right of First Offer to Lease Building 10.

(a) During the Lease Term, Lessee shall have a right of first offer (“Right of First Offer”) to lease the adjacent Building 10 as shown on Exhibit A (“Building 10”) subject to Paragraphs (b) through (g).

(b) At the time Lessee exercises the Right of First Offer: (i) The Lease must be in full force and effect; (ii) Lessee shall not be in Default under the Lease; nor shall Lessee be in Default under the Lease at the Commencement Date (defined in paragraph g(1)) for the Offer Building, (defined in Paragraph c); and (iii) Lessee’s then current financial condition, as revealed by its most recent financial statements (which shall include quarterly and annual financial statements, including income statements, balance sheets, and cash flow statements), must demonstrate that either: (1) Lessee’s net worth is at least equal to its net worth at the time this Lease was signed; or (2) Lessee meets the financial criteria reasonably acceptable to Lessor.

(c) Lessor shall not lease Building10 to another lessee unless and until Lessor has first offered Building 10 to Lessee in writing (the “Offer Notice”) and Lessee either rejects such offer or a period of ten (10) business days has elapsed from the date that Lessor has delivered the Offer Notice without Lessee having notified Lessor in writing of its acceptance of such Offer Notice and supplied Lessor with current financial statements pursuant to Paragraph b(3), which ever event occurs first. The Offer Notice shall contain the following information: (i) The date on which the Lessor expects Building 10 to become available; (ii) The Base Rent; (iv) The pro rata share of Additional Rent; and (v) Such other terms and conditions upon which Lessor wishes to lease Building 10.

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(d) If Lessee timely delivers to Lessor, in accordance with the conditions of this Section, written notice of Lessee’s exercise of the Right of First Offer (along with Lessee’s financial statements pursuant to Paragraph b(3)) and Lessor determines that Lessee meets all of the conditions provided in this Section, then Building 10 shall be deemed added to the Premises and subject to the then applicable terms and conditions in the Lease, as modified by the terms and conditions set forth in the Offer Notice.

(e) If Lessee declines or fails to duly and timely exercise its Right of First Offer or fails to meet all of the conditions provided in this Section, Lessor shall thereafter be free to lease the Building 10 in portions or in its entirety to any third-party tenant at any time without regard to the restrictions in this Section 17.25 and on whatever terms and conditions Lessor may decide in its sole discretion, without again complying with all the provisions of this Section 17.25.

(f) Within ten (10) business days after the Commencement Date for the Offer Building, Lessor and Lessee shall confirm the foregoing in a written amendment to the Lease.

(g) This Right of First Offer is personal to the Lessee and shall become null and void upon the occurrence of an assignment of the Lease or a sublet of all or a major part of the Premises.

Section 17.26. Acknowledgment of Notices. Lessor has provided and Lessee hereby acknowledges receipt of the Notices attached as Exhibits J and K hereto, concerning the presence of certain uses and operations of neighboring parcels of land.

Section 17.27. List of Exhibits.

	Ref. Page
EXHIBIT A: Real Property Legal Description, Site Plan, and Building Elevations
EXHIBIT B: Plans and Specifications for Shell Building
EXHIBIT C: Work Letter Agreement for Tenant Improvements and Interior Specification Standards
EXHIBIT D: Cost Responsibilities of Lessor and Lessee
EXHIBIT E: Memorandum of Commencement of Lease Term and Schedule of Base Rent
EXHIBIT F: SNDA
EXHIBIT G: Signage Exhibit
EXHIBIT H: Guaranty of Lease [Intentionally Omitted]

38

EXHIBIT I: Hazardous Materials Disclosure

EXHIBIT J: Notice to Tenants

EXHIBIT K: Notice to Tenants

EXHIBIT L: Rules and Regulations

EXHIBIT M: Estimate of Real Property Taxes

39

LESSOR AND LESSEE EACH HAS CAREFULLY READ AND HAS REVIEWED THIS LEASE AND BEEN ADVISED BY LEGAL COUNSEL OF ITS OWN CHOOSING AS TO EACH TERM AND PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOWS ITS INFORMED AND VOLUNTARY CONSENT THERETO. EACH PARTY HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS AND CONDITIONS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES.

Executed at San Jose, California, as of the reference date.

LESSOR:		ADDRESS:
By:	/s/ Jay Paul	c/o Jay Paul Company
	Jay Paul, President	353 Sacramento Street, Suite 1740
		San Francisco, California 94111
		With a copy to:
		Thomas G. Perkins, Esq.
		99 Almaden Blvd., 8th Floor
		San Jose, CA 95113
		Telephone: 408-993-9911
		Facsimile: 408-286-3312
LESSEE:		ADDRESS:
Phone.Com, Inc.
a California corporation
		(Before Commencement Date)
By:	/s/ Alain Rossmann	Pacific Shores Center
	(Type or print name)	Building 9
Its:		Redwood City, CA
		(After Commencement Date)

40

LESSOR AND LESSEE EACH HAS CAREFULLY READ AND HAS REVIEWED THIS LEASE AND BEEN ADVISED BY LEGAL COUNSEL OF ITS OWN CHOOSING AS TO EACH TERM AND PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOWS ITS INFORMED AND VOLUNTARY CONSENT THERETO. EACH PARTY HEREBY AGREE THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS AND CONDITIONS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES.

Executed at San Jose, California, as of the reference date.

LESSOR:		ADDRESS:
By:	/s/ Jay Paul	c/o Jay Paul Company
	Jay Paul, President	353 Sacramento Street, Suite 1740
		San Francisco, California 94111
		With a copy to:
		Thomas G. Perkins, Esq.
		99 Almaden Blvd., 8th Floor
		San Jose, CA 95113
		Telephone: 408-993-9911
		Facsimile: 408-286-3312
LESSEE:		ADDRESS:
Phone.Com, Inc.
a California corporation
		(Before Commencement Date)
By:	/s/ Alain Rossmann	Pacific Shores Center
	(Type or print name)	Building 9
Its:		Redwood City, CA
		(After Commencement Date)

BROKER EXECUTION

By signing below, the indicated real estate broker or agent is not being made a party hereto, but is signifying its agreement with the provisions hereof concerning brokerage.

LESSOR’S BROKER:		ADDRESS:
Cornish & Carey Commercial		2804 Mission College Boulevard
		Suite 120
By:		Santa Clara, California 95054
	(Type or print name)
Its:	Executive Vice President
LESSEE’S BROKER:		ADDRESS:
Wayne Mascia
By:
	(Type or print name)
Its:

41

EXHIBIT A

TO

PACIFIC SHORES CENTER LLC

LEASE

TO

PHONE.COM, INC.

FOR

Pacific Shores Center

Building 9

Redwood City, California

REAL PROPERTY LEGAL DESCRIPTION,

SITE PLAN AND BUILDING ELEVATIONS

(See Attached)

[MAP Page 1]

[MAP Page 2]

EXHIBIT B

TO

PACIFIC SHORES CENTER LLC

LEASE

TO

PHONE.COM, INC.

FOR

Pacific Shores Center

Building 9

Redwood City, California

SHELL BUILDING PLANS AND SPECIFICATIONS

(To be provided)

NOTE: Shell Building Plans and Specifications shall be consistent with DES Development Progress Plans dated February 7, 2000 for (a) exterior skin and (b) structural steel.

EXHIBIT C

TO

PACIFIC SHORES CENTER LLC

LEASE

TO

PHONE.COM, INC.

FOR

Pacific Shores Center

Building 9

Redwood City, California

WORK LETTER AGREEMENT FOR TENANT IMPROVEMENTS

AND INTERIOR SPECIFICATION STANDARDS

This agreement supplements the above referenced Lease executed concurrently herewith and is as follows:

1. Lessee shall devote such time and may be necessary to enable Lessor to complete and obtain by the respective dates specified in Section 2.04(d) of the Lease Lessee’s written approval, and approval by appropriate government authorities, of the final Working Drawings. The Working Drawings, as they may be modified or provided herein, shall be prepared by Lessor in accordance with the design specified by Lessee and reasonably approved by Lessor. Lessee shall be responsible for the suitability, for Lessee’s needs and business, of the design and function of all Tenant Improvements. All improvements to be constructed by Lessor as shown on the Working Drawings, standard or special, shall be defined as “Tenant Improvements.” All Tenant Improvements materials shall be of a quality equal to or greater than the quality of materials described on the Interior Specification Standards attached hereto as Schedule One.

2. Lessor shall cause General Contractor to complete the construction of the Tenant Improvements in a good and workmanlike manner and in substantial accordance with the Working Drawings. Lessor shall not, however, be responsible for procuring or installing in the Premises any trade fixtures, equipment, furniture, furnishings, telephone equipment or other personal property (“Personal Property”) to be used in the Premises by Lessee, and the cost of such Personal Property shall be paid by Lessee. Lessee shall conform to all Project standards in installing any Personal Property and shall be subject to any and all rules of the site during construction.

3. Payment for the Tenant Improvements shall be pursuant to Section 2.04(g) of the Lease.

4. Lessee shall, by signing the Working Drawings within the time set forth in Section 2.04(d) of the Lease, give Lessor authorization to complete the Tenant Improvements in accordance with such Working Drawings. If Lessee shall request any change, addition or alteration in the approved Working Drawings, Lessor shall promptly give Lessee a written estimate of the cost of engineering and design services to prepare a change order (the “Change Order”) in accordance with such request and the time delay expected because of such request. If

1

Lessee, in writing, approves such written estimate, Lessor shall have the Change Order prepared and Lessee shall concurrently reimburse Lessor for the cost thereof. Promptly upon the completion of such Change Order, Lessor shall notify Lessee in writing of the cost and delay which will be chargeable to Lessee by reason of such change, addition or deletion. Lessee shall within three (3) business days notify Lessor in writing whether it desires to proceed with such change, addition or deletion, and in the absence of such written authorization, the Change Order will be deemed canceled and Lessee shall be chargeable with any delay in the completion of the Premises resulting from the processing of such Change Order, including the three (3) business day approval period.

5. If the completion of the Tenant Improvements in the Premises is delayed (i) at the request of Lessee, (ii) by Lessee’s failure to comply with the foregoing provisions, (iii) by changes in the work ordered by Lessee or by extra work ordered by Lessee, or (iv) because Lessee chooses to have additional work performed by Lessor, then Lessee shall be responsible for all costs and any expenses occasioned by such delay including, without limitation, any costs and expenses attributable to increases in labor or materials; and there shall be no delay in the commencement of Lessee’s obligation to pay Rent because of Lessor’s failure to complete the Tenant Improvements on time and any such delay in completion shall constitute Lessee Delay for purposes of Section 3.01(a) of the Lease.

Each person executing this Work Letter Agreement certifies that he or she is authorized to do so on behalf of and as the act of the entity indicated.

Executed as of             , at Mountain View (Santa Clara County), California..

PACIFIC SHORES CENTER LLC		PHONE.COM, Inc.
		a California corporation
By:	/s/ Jay Paul	By:	/s/ Alain Rossmann
	Jay Paul		(Type or print name)
Its:	Manager	Its:
		By:
			(Type or print name)
		Its:

2

SCHEDULE ONE

TO

EXHIBIT C

TO

PACIFIC SHORES CENTER LLC

LEASE

TO

PHONE.COM, INC.

FOR

Pacific Shores Center

Building 9

Redwood City, California

INTERIOR SPECIFICATION STANDARDS

ABBREVIATED BUILDING STANDARDS

For Pacific Shores

GENERAL OFFICE

CUSTOM CABINETRY

SCOPE: All materials and labor for the construction and installation of Cabinetry and all related accessories per WIC Standards.

A. Trade Standards: Woodworking Institute of California (WIC) latest edition Section 15 and 16 for plastic laminated casework and plastic laminated countertops. Color of plastic laminate to be selected by Architect.

B. All cabinetry to be constructed to “Custom-Grade” Specifications. Cabinetry to be flush overlay construction.

C. Plastic Laminate: High Pressure thermoset laminated plastic surfacing material to equal or surpass NEMA LD3, Nevamar, WilsonArt or approved equal.

1. Countertops, shelf-tops, splashes, and edges: Grade GP 50, 0.050 inches thick.

2. All other exposed vertical surfaces: Grade GP 28, 0.028 inches thick

3. Semi-exposed backing sheet: Grade CI, 20, 0.020 inches thick

4. Concealed backing sheet: Grade BK 20, 0.020 inches thick D. Adhesives: Bond surfaces to Type 11 as recommended by Plastic Laminate Manufacturer.

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E. Hinges: Heavy-duty concealed self-closing hinges. Amount of hinges per Door per WIC. Stanley or approved equal

F. Door and Drawer Pulls: Wire-pull with 4-inch centers; Dull chrome finish; Stanley 4483 or approved equal.

G. Drawer slides: Heavy-duty grade with ball-bearings. Stanley, Klein or approved equal

H. Door Catches: Heavy-duty commercial friction type.

I. Recessed Adjustable Shelf Standards: Aluminum or zinc-plated recessed type; Knape & Vogt with clips or approved equal. J. Base and Wall Cabinets including doors: 3/4-inch thick medium-density particleboard;

1. Conceal all fastenings.

2. Provide clear spaces as required for mechanical and electrical fittings

3. Plastic laminate and self-edge all shelves.

4. Provide 3/4-inch thick doors and drawer faces.

5. Unless indicated otherwise, all shelving to be adjustable.

6. Provide back and ends on all cabinets.

7. All exposed cabinet faces to be plastic laminated.

K. Countertops and Shelving: 3/4-inch thick medium density particleboard. Backsplash to be 3/4 inches thick, glued and screwed into top with scribed edges. Joints in countertop to be not closer that 24 inches from sinks. Joints shall be shop fitted, spined, glued and mechanically fastened.

L. Installation of Cabinetry shall be per WIC instructions, Custom Grade.

WOOD DOORS

SCOPE: All materials and labor necessary for the installation of Wood Doors, required accessories and preparations for hardware.

A. Non-rated Wood Doors: 1 ³/4 inch thick, flush, solid core, plain sliced Birch veneer with Birch edge. Cores may be either of the following: Glued block Hardwood Core per NWMA or Particleboard Core per NWMA. Manufacturer: Algoma, Weyerhaeuser, or approved equal.

B. Fire-rated Wood Doors: 1 ³/4 inch thick, flush, solid core, plain sliced Birch face veneer with Birch Edge with mineral core per rating. Manufacturer: Algoma, Weyerhaeuser, or approved equal. Doors shall have a permanent UL label.

C. Vision Panels (where applies): Fire rated vision panel where required. Set in square metal stop to match metal doorstops as provided by doorframe manufacturer.

D. Doors shall be 8’-0” x 3’-0” leafs typical.

ALUMINUM DOOR AND WINDOW FRAMES

SCOPE: All materials and labor necessary for the installation of Aluminum Door Frames.

A. Frame Manufacturers: Raco, or Ragland Manufacturing Company, Inc.

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B. Door Frames: Non-rated and 20-minute label, Raco “Trimstyle” frame with Trim 700 (3/8 inch by 1 ¹/2 inch) with no exposed fasteners.

C. Finish, Door and Window Frame Extrusions, Wall Trim:

1. Painted and oven-cured with “Duralaq” finish.

2. Color: Clear.

3. Finish shall meet or exceed requirements of AAMA Specifications 603.

4. Coat inside of frame profile with bituminous coating to a thickness of 1/16 inch where in contact with dissimilar materials.

DOOR HARDWARE

SCOPE: All materials and labor for the installation of all Door Hardware, locksets, closers, hinges, miscellaneous door hardware.

A. Swinging Door Lockset and Cylinder: Schlage “L” series with lever handle with 6 pin cylinder.

B. Keyway: Furnish blank keyways to match existing master-key system. Match existing keyways.

C. Finishes: Satin Chrome, 626 finish. Paint closers to match.

D. Kickplates: 16 gauge stainless steel; 10 inches high: width to equal door width less 2 inches.

HARDWARE SCHEDULE

Hardware Group A (Typical, rated, single door)
1	Lockset	Schlage	L9050PD
1 1/2	pair Butt Hinges	Hager	BB1279
1	Closer	Norton	700 Series
1	Stop	Quality	(332 @ carpet)
1	Smoke Seal	Pemko
Hardware Group B (Typical, rated, closet/service door)
1	Lockset	Schlage	L9080PD
1 1/2	pair Butt hinges	Hager	BB1279
1	Closer	Norton	700 Series w/ hold-open
1	Stop	Quality	(332 @ carpet)
1	Smoke Seal	Pemko

3

Hardware Group C (Typical, non-rated door)
1	Lockset	Schlage	L9050PD
1 1/2	pair Butt hinges	Hager	BB1279
1	Stop	Quality	(332 @ carpet)
Hardware Group D (Typical, non-rated, closet/service door)
1	Lockset	Schlage	L9080PD
1 1/2	pair Butt hinges	Hager	BB1279
1	Stop	Quality	(332 @ carpet)
Hardware Group E (Card-access door)
1	Electric Lockset	Schlage	L9080PDGU
1 1/2	pair Butt hinges	Hager	BB1279 - NRP (2 pr @ 8’ door)
1	Electric Butt	Hager
1	Closer	Norton	700 Series w/ hold-open
1	Stop	Quality	(332 @ carpet)
Hardware Group F (typical, double door)
1	Electric Lockset	Schlage	L9050PD
3	pair Butt hinges	Hager	BB1270
1	Auto Flush Bolt	Glyn Johnson	FB-8
1	Dustproof Strike	Glyn Johnson	DP2
2	Closer	Norton	700 Series
2	Stop	Quality	(332 @ carpet)
1	Astragal	Pemko
1	Coordinator	Glyn Johnson
1	Smoke Seal	Pemko

GLAZING

SCOPE: All materials and labor for the installation of Glass.

A. Manufacturers: PPG Industries, or Viracom, Inc. See glazing schedule below.

B. Shop prepares all glazing. Edges to have no chips or fissures.

C. Glazing Materials:

1. Safety Glass: ASTM C1048, fully tempered with horizontal tempering. Condition A uncoated, Type 1 transparent flat, Class 1 clear, Quality q3 glazing select, conforming to ANSI Z97.1

2. Mirror Glass: Clear float type with copper and silver coating, organic overcoating, square polished edges, 1/4-inch thick.

3. Wire Glass: Clear, polished both sides, square wire mesh of woven stainless steel wire 1/2 inch x 1/2 inch grid: 1/4 inch thick.

4

4. Tempered Glass: 1/4 inch thick, no tong marks. UL rated for 1-hour rating.

5. Spacers: Neoprene.

6. Tape to be poly-iso-butylene.

D. Schedule:

1. Type A: 1/4-inch thick mirror, annealed, heat strengthened, or full tempered as required.

2. Type B: 1/4 inch thick clear float glass, annealed, heat strengthened, or full tempered as required.

3. Type C: 1/4-inch thick wire glass plate, square pattern “Baroque”

LIGHT GAUGE METAL FRAMING

SCOPE: All materials and labor necessary for the installation of metal framing and related accessories.

A. Structural Studs: 14 gauge punched channel studs with knurled screw-type flanges, prime-coated steel. Manufacturer: United States Gypsum SJ or approved equal: Submit cut-sheet of material.

B. Partition Studs: 20 gauge studs with key-hole shaped punch-outs at 24 inches on center. Manufacturer: United States Gypsum ST or approved equal.

C. Fasteners for Structural Studs: Metal screws as recommended by metal system manufacturer. Weld at all structural connection points.

D. Reinforce framed door and window openings with double studs at each jamb (flange-to-flange and weld) and fasten to runners with screws and weld. Reinforce head with 14 gauge double stud same width as wall. Screw and weld.

E. Provide all accessories as required to fasten metal-framing per manufacturers recommendations.

F. Provide and install flat-strapping at all structural walls (walls with concrete footings beneath the walls). Minimum bracing shall be 25% of structural walls shall be braced with flat-strapping per Manufacturer’s recommendations. Weld at all strap ends and at all intermediate studs.

G. Provide foundation clips at 4’-0” on center at structural walls. Anchor with 1/2 inch diameter by 10 inch long anchor bolts.

5

H. Non-structural interior partitions shall be anchored with power-driven fasteners at 4’-0” on center at the concrete slab.

ACOUSTIC CEILING SYSTEM

SCOPE: All materials and labor for the installation of the Acoustic Ceiling System including T-bar system, Acoustic Ceiling Panels, Suspension wiring and fastening devices and Glued-down Ceiling Panels.

A. Manufacturer: Armstrong, or approved equal. Exposed T-bar system; factory painted; steel construction; rated for the intermediate duty.

D. Acoustical Tile: “Second Look”, conforming to the following:

1. Size: 24 x 48 inches.

2. Thickness: 3/4 inches.

3. Composition: Mineral.

4. NRC Range: .55 to .60.

5. STC Range: 35 to 39.

6. Flame Spread: ASTME84,0-25, UL Label, 25 or under.

7. Edge: Tegular, Lay-in.

8. Surface Color: White.

9. Surface Finish: Factory-applied washable vinyl latex paint.

G. Installation to be per ASTM C636 structural testing. Lateral support for each 96 square feet of ceiling flared at 45 degrees in 4 directions.

H. Provide clips for panel uplift restraints at all panels, 2 per panel.

GYPSUM WALLBOARD

SCOPE: Provide all materials and labor for the installation of Gypsum Wallboard including all accessories and finishes.

A. Standard Gypsum Wallboard: ASTM C36; Ends square cut, tapered edges.

B. Fire Restraint Gypsum Wallboard: ASTM C36, 5/8 inches thick Type X. Ends square cut, tapered edges. See Drawings for locations.

C. Moisture-resistant gypsum wallboard: ASTM C630-90.

D. Joint-reinforcing Tape and Joint Compound: ASTM C475, as manufactured by or recommended by wallboard manufacturer. Minimum 3 coat application for a smooth finish.

E. Corner Bead: Provide at all exposed outside corners;

F. L-shaped edge trim: Provide at all exposed intersections with different materials.

6

G. All work shall be done in accordance with the USG recommended method of installation.

1. Finish: smooth.

PAINTING

A. Paint Manufacturers: ICI, Dunn-Edwards Corporation, Kelly Moore.

B. Paint colors shall be selected by the Architect.

C. Painting Schedule: Provide for 4 different color applications

1. P-1: “Field”. Color to be selected.

2. P-2: “Accent”. Color to be selected.

3. P-3: “Accent”. Color to be selected.

4. P-4: “Accent”. Color to be selected.

D. Interior Gypsum Wallboard:

1. Primer: Vinyl Wall Primer/Sealer.

2. 1 stand 2nd Coat: Eggshell Acrylic Latex.

E. Metal Framing:

1. Primer: Red Oxide, shop-primed (for non-galvanized) if exposed.

F. Wood Work, Wood Doors:

1. Two coats of transparent finish. Sand lightly between coats with steel wool.

INSULATION

A. R-15 in exterior walls.

B. R-25 on Roof.

C. Sound batts in conference, restroom and lobby walls.

ROOF EQUIPMENT

A. Stainless steel mechanical platform and associated access stairs and guard rail system

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B. EIFS roof screen to match detail of exterior GFRC Panel.

FULL HEIGHT GLAZED PARTITION

A. 1/4” glazed partition, in building standard aluminum frame

FINISHES

A. Vinyl Composite Tile: Armstrong stonetex, 12” x 12”

B. Resilient Base: Burke rubber wall base, 4” top set or cove, as appropriate for VCT or carpet.

C. Window Coverings: Miniblinds, Levelor, color: TBD D. Carpet:

Option 1: Designweave, Windswept Classic 30 oz. (Direct glue installation) or equal

Option2: (cut pile) Designweave, Tempest Classic 32 oz. (Direct glue Upgrade installation) or equal.

Option 3: (cut pile) Designweave, Sabre Classic, 38 oz. (Direct glue Upgrade installation) or equal.

KITCHEN FIXTURES

A. Sink: Ekkay stainless steel, GECR-2521-L&R, 20 gauge, 25”w x 211/4”D x 53/8” D, ADA compliant.

B. Kitchen Faucet: American Standard, Silhouette Single control, #4205 series, spout 93/4”.

KITCHEN APPLIANCES

A. Dishwasher

Option 1: GE GSD463DZWW, 24” W x 243/4” D x 34-35” H, 9 gallons/wash

Option 2: Bosch, SHU5300 series, 5.4 gallons/wash-with water heater

B. Refrigerator:

Full Size: GE, “S” series top-mount, TBX16SYZ, 16.4 cubic feet, recessed, recessed handles, 28” W x 29 1/8” D x 66 3/4” H, white, optional factory installed ice-maker.

Under-counter:

Option 1: U-Line, #29R, 3.5 cubic feet, white

Option 2: U-Line, Combo 29FF, Frost Free with factory installed icemaker, 2.1 cubic feet, white

8

C. Microwave: GE, Spacemaker II JEM25WY, Midsize, 9 cubic feet, 800 watts, 2313/16” W x 1113/16” D x 125/16” H

Option 1: Under counter Mounting Kit, #4AD19-4

Option 2: Accessory Trim Kit # JXB37WN, 261/8” W X 181/4” H

                    (built-in application)

D. Garbage Disposal: ISE #77, 3/4” horsepower

E. Water Heater: To be selected by DES.

PUBLIC SPACES

FRONT BUILDING LOBBY

Walk off Matts: Design Materials, Sisel, Calcetta #68, Natural, 100% coir

Floor Tile: 3/8” x 18” x 18” Stone or Marble set in mortar bed in recessed slab as approved by Owner

Transition Strips: 5/16” x 11/2” x random length strips, cherry wood flooring

Corridor Carpeting: Carpet over pad, Atlas, New Vista or as approved by Owner

Lobby Ceiling: Suspended gypsum board ceiling, Painted

Building Lobby: Akari shades hanging #J1-93/4” x 5’-2” or equal as Pendant Fixture approved by owner.

Stairs & P & P Railing, Modesto with custom cherry guard rail Mezzanine Railing: Rep: Oliver Capp (805) 241-8810. Hand and guard railing P & P Railings, Modesto stainless steel railing with horizontal spirals and custom cherry guard rail cap by others, fittings dark gray metallic or equal as approved by Owner.

BACK BUILDING LOBBY & EMERGENCY STAIRS

Walk off Matts: Design Materials, Sisal, Calcutta #68, Natural, 100% coir.

Treads & Landings: Carpet covered concrete, as approved by Owner

Stringers, Risers Painted steel stringer, eggshell & Handrails finish enamel.

Ceiling: Suspended gypsum board ceiling.

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ELEVATORS

Cars: (1) 2800 lb, (1) 3500 lb 150 ft/min by Otis

Elevator Doors: Stainless Steel

Elevator Interior Paneling: Cherry veneer with stainless steel reveals and railing

Elevator Floor: Slate 3/8” x 18” x 18” tile as approved by Owner.

RESTROOMS

Counter tops: Stone/marble or equal as approved by Owner

Walls at Lavatories: Eggshell finish, latex paint, Benjamin Moore

Floor at Toilets: 2” x 2” matte porcelain ceramic floor tiles, thin set, Dal-tile.

Walls at Toilets: 2” x 2” matte porcelain ceramic floor tiles, thin set, Dal-tile.

Ceiling: Suspended gypsum board ceiling.

Toilet compartments:

A. Manufactured floor-anchored metal toilet compartments and wall- hung urinal screens.

B. Approved Manufacturer, Global Steel Products Corp, or approved equal.

C Toilet Partitions: Stainless Steel finish.

D. Hardware: Hinges: Manufacturer’s standard self-closing type that can be adjusted to hold door open at any angle up to 90 degrees. Latch and Keeper: Surface-mounted latch unit, designed for emergency access, with combination rubber-faced door strike and keeper. Coat Hook: Combination hook and rubber-tipped bumper. Door Pull: Manufacturer’s standard.

Ceramic Tile

A. Manufacturer: Dal-Tile or approved equal.

B. Size: 41/4” x 41/4” for walls, 8 x 8 for floors, 3/4” liner strip as accent.

C. Glaze: Satin glaze for walls, unglazed tile for floors.

D. Color: As selected by Architect.

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E. Accessories: Base, corners, coved cap and glazed to match

F. Wall and floor installation: per applicable TCA

G. Waterproof Membrane: Chloraloy or approved equal:

H. Tile Backer Board: 1/2 inch thick wonderboard

I. Grout: Commercial Portland Cement Grout; Custom Building Products or approved equal

J. Mortar: Latex-Portland cement mortar; Custom Building Products or approved equal.

RESTROOM:

Toilet: Kohler/American Standard, commercial quality.

Urinal: Kohler/American Standard, commercial quality.

Lavatory: Kohler/American Standard, undercounter.

Lavatory Faucet: Kroin handicap lavatory faucet #HV1LH, polished chrome.

Soap Dispenser Bobrick, 8226, Lavatory mounted for soaps, 34 fl oz.

Counter:

Toilet accessories:

A. Manufacturer: Bobrick Washroom Equipment, or approved equal.

B. Schedule: Model numbers used in this schedule are Bobrick (134) unless otherwise noted.

C. Combination Paper Towel Dispenser/Waste Receptacle: Recessed Model B-3944, one per restroom #7151 and 7152, and two per restroom #7050 and 7061.

D. Feminine Napkin Vendor: Recessed, combination napkin/tampon vendor, Model B-3500 with 25 cent operation, one per each women’s toilet room.

E. Soap Dispenser: Lavatory mounted dispenser, Model B-822, one per each lavatory.

F. Toilet Paper Dispenser: Surface-mounted, Model JRT, JR Escort, “In-Sight” by Scott Paper Company, one per stall.

G. Toilet Seat Cover Dispenser: Recessed, wall-mounted, Model B-301, one per stall.

H. Sanitary Napkin Disposal: Recessed, wall-mounted, Model B-353, one per each women’s handicapped and odd stall.

I. Sanitary Napkin Disposal: Partition-mounted, Model B-354 (serves two stalls).

J. Grab Bars: Horizontal 36” B6206-36: 42”, B62-6-42: one per each handicapped stall.

K. Mop/Broom Holders: B223-24 (one per janitor closet).

L. Paper Towel Dispensers: Recessed mounted, Model B-359, one at side wall adjacent to sink.

TENANT CORRIDORS

Walls: Eggshell finish, latex paint, Benjamin Moore.

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Floors: Level loop carpet over pad with 4” resilient base as approved by Owner.

Ceiling 4” x 24” x 3/4” thick fine fissures type mineral fiber, Armstrong Circus acoustical tile (beveled regular edge) in a 24” x 24” Donn Fineline suspended grid, white finish.

Water Fountain: Haws Model #1114 Stainless Steel #4.

Cross Corridor 3’-6” x full height, 20 minute rated, pocket assembly, Smoke Detector: on magnetic hold opens.

Corridor Carpyen “Berta” 35 cm x 33 cm, engraved curved opaque Wall Sconce glass, 2 x 7-9W, #G-23 or equal as approved by owner

ELECTRICAL

A. 50 foot candles at working surface.

B. 3 Bulb 2x4 parbolic fixtures

C. 1/2 20 Amp circuit for each hard wall office

D. Electrical Devices: Recessed wall mounted devices with plastic cover plate. Color: white, multi-gang plate 80400 Series duplex wall outlets.

E. Telephone/Data Outlets: Recessed wall mounted, Standard 2x4 wall box with 3/4” EMT conduit from box to sub out above ceiling walls pull string, cabling, terminations and cover-plates, color: white, provided by tenants vendor. Tenant shall furnish telephone backboard.

F. Light Switches: Dual level rocker type, mounted at standard locations, with plastic cover plate, 5325-W cover plate single switch B0401-W, double switch B0409-W. Decors by Leviton, colors: white, and will comply with Title 24 Energy Codes. Decors by Leviton.

MECHANICAL

A. VAV Reheat system - design/build. Each floor to have a minimum of thirty zones. Provide reheat boxes on all zones on top floor and at all exterior zones on lower floor. System shall meet T-24 for ventilation. Design shall be for 73 deg. Ambient interior temperature and 2 ¹/2 watts per sq. ft. min.

FIRE SPRINKLER SYSTEM

As required by NFPA & factory mutual standard hazard, seismically braced.

12

EXHIBIT D

TO

PACIFIC SHORES CENTER LLC

LEASE TO

PHONE.COM, INC.

FOR

Pacific Shores Center

Building 9

Redwood City, California

COST RESPONSIBILITIES OF LESSOR AND LESSEE

FOR SHELL TENANT IMPROVEMENTS

(See Attached)

Exhibit D.

COST RESPONSIBILITIES OF LESSOR AND LESSEE

A. Lessor is responsible for the construction of the building shell improvements which shall include the following items.

Soils Engineer

Civil Engineer

Architectural and Structural Engineer

Landscaping

Empty Electrical Conduits will be provided from the street to the future electrical room for a 2500 Amp. Service 277/480 volt service capability for each building. The electrical conduits will be stubbed up above the floor level

Lessor to provide two vertical risers for fire sprinklers.

Testing and Inspection for the shell.

Building Permits for the Shell and exterior Premises. Utility Connection Fee (Fire Protection).

Area Fees

Construction Insurance

Construction Interest

Construction Taxes

Land Interest (if any)

Temporary Facilities

All site work to include:

Site clearing and grading

Excavating/Fill

Soil compaction

Site drainage

Site utilities

Paving

Curbs and gutters

Sidewalks

Parking lot lights

Curb painting and parking lot striping and markings as required by the City.

Fences, to include special enclosures for trash

Irrigation System

Lawns and planting

Building Shells to include:

Concrete Formwork

2

Concrete Reinforcement (if used)

Case in pace concrete (if used)

Metal decking (if used)

Metal framing (if used)

Rough carpentry as related to the Shell Millworks as related to Shell

Glue-Lam structure (if used)

Building roof installation

Roofing tiles

Flashing

Drainage Systems for Roof

Roof Pitch Pans

Caulking/Sealants

Exterior Metal Door/Frames related to the Shell Wood or Glass Doors as designated as related to the Shell Exterior Shell

Overhead Doors

Anodized Aluminum Windows

Finish Hardware as related to the Shell Doors

Glass Glazing as specific on plans Storefront if desired

Gutters over front and rear entrances Exterior Loading Docks as specific on plans Water Supply stubbed to the ground floor (first floor of each Building only)

Roof drainage

Gas piping to face of building at First Floor Telephone and computer conduits between Buildings All Government fees applying to the exterior premises and shell.

B. The following shall be considered interior improvements costs and shall be the responsibility of the Lessee subject to the tenant improvement allowance as provided in the Lease:

Interior Building Permits

Gypsum drywall

Ceramic File or elate Tile in Lobbies

Quarry Tile as specified

Flag Pole

Metal door framing

All interior Wood doors and Hardware

Custom Woodwork

Specialized Security Construction

Interior Glass doors 2nd windows

3

Acoustical Treatment (suspended ceiling)

Resilient flooring

Any special flooring

Carpeting

Sprayed fire proofing if required by the code on structural

Steel and metal deck surfaces

Lift and Lift Operator

Interior Painting

Wall Coverings including Ceramic Tiles

Grease Interceptor if required

Drapery, Blinds or Shades

Pedestal floors

Toilet Compartments

Demountable partitions

Firefighting devices (Extinguishers)

Toilet and bath accessories

Lift (dock levelers)

Plumbing fixtures, trims and vertical piping

Interior electrical distribution Lighting

Electrical controls

Electrical Power Equipment

Built in Audio-Visual facilities

Built in Projection screens

Water Treatment Discharge

Sinks in Coffee Rooms

Lunch Room plumbing for vending machines

Specialized security systems

Specialized Halon fire Extinguishing systems

Fire sprinkler head drops and horizontal distribution

Piping off owner-installed vertical risers Specialized caging

Special piping for Tank Farm (If installed)

Hot water heating system

Cool water system

HVAC units

Ducting controls

Air Tempering Systems

Elevators and elevator pits (Otis Elevator Lessor Specs)

Mechanical platforms, screens and associated roof accessories

Stairs

Electrical service (Lessor to provide exterior conduits)

4

EXHIBIT E

TO

PACIFIC SHORES CENTER LLC

LEASE

TO

PHONE.COM, INC.

FOR

Pacific Shores Center

Building 9

Redwood City, California

MEMORANDUM

OF

COMMENCEMENT OF LEASE TERM

Pursuant to Article III, Section 3.01, paragraph (a) of the above- referenced Lease, the parties to said Lease agree to the following:

1. The Commencement Date of the Lease is , 2001 and the Lease Term commenced on said date. The Expiration Date for the initial Lease Term is , 2013.

2. The date for commencement of rent for the Building is , 2001.

3. Attached hereto as a part hereof is a true and correct schedule of Base Rent.

4. The total Rentable Area of the Building is ( ) rentable square feet.

Each person executing this memorandum certifies that he or she is authorized to do so on behalf of and as the act of the entity indicated.

Executed as of             , 2000 at Redwood City (San Mateo County), California.

PACIFIC SHORES CENTER LLCPHONE.COM, Inc.

  a California corporation

By:		By:
Jay Paul
Its:   Manager			(Type or print name)
Its:
By:
	(Type or print name)
Its:

EXHIBIT E

PACIFIC SHORES CENTER LLC

LEASE

TO

PHONE.COM, INC.

FOR

Pacific Shores Center

Building 9

Redwood City, California

SNDA

(See Construction And Permanent SNDA Samples Attached)

RECORDING REQUESTED AND WHEN

RECORDED RETURN TO:

KEYBANK NATIONAL ASSOCIATION

Real Estate Division

Mailcode WA-31-10-5285

700 Fifth Avenue, 52nd Floor

Seattle, WA 98104-5099

Attn:

Loan No.

SUBORDINATION, ACKNOWLEDGEMENT OF LEASE ASSIGNMENT,

NONDISTURBANCE AND ATTORNMENT AGREEMENT

AND ESTOPPEL CERTIFICATE

(Lease to Deed of Trust)

NOTICE: THIS SUBORDINATION AGREEMENT RESULTS IN YOUR LEASE BECOMING SUBJECT TO AND OF LOWER PRIORITY THAN THE LIEN OF THE DEED OF TRUST (DEFINED BELOW).

THIS AGREEMENT AND CERTIFICATE is made this      day of                     , 1990, between KEYBANK NATIONAL ASSOCIATION, a national banking association (“Lender”) and                                 , a                                          (“Tenant”).

Recitals

A.                                      (“Landlord”), is the owner of real property (“Property”) located in                      County, California, and legally described on Exhibit A.

B. Tenant is a tenant of a portion of the Property (“Premises”) under a lease (“Lease”) with Landlord dated                     .

C. Lender has agreed to make a loan (“Loan”) to Landlord. In connection therewith, Landlord has executed or proposes to execute, a Construction Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing (“Deed of Trust”) encumbering the Property and securing, among other things, a promissory note (“Note”) in the principal sum of                      DOLLARS ($                    ), of even date herewith, in favor of Lender, which Note is payable with interest and upon the terms described therein. The Deed of Trust is to be recorded concurrently herewith.

D. The Deed of Trust constitutes a present assignment to Lender of all rights, title, and interest of Landlord under the Lease.

2

E. Lender’s agreement to make the Loan is conditioned on Tenant’s specific and unconditional subordination of the Lease to the lien of the Deed of Trust such that the Deed of Trust at all times remains a lien on the Property, prior and superior to all the rights of Lessee under the Lease, and Tenant’s agreement to attorn to Lender if Lender obtains possession of the Property by foreclosure or deed in lieu of foreclosure. Tenant is willing to do so in consideration of the benefits to Tenant from the Loan and the Lease and Lender’s agreement not to disturb Tenant’s possession of the Premises under the Lease.

NOW, THEREFORE, Lender and Tenant agree as provided below.

1. Subordination. Tenant hereby intentionally and unconditionally subordinates the Lease and all of Lessee’s right, title and interest thereunder an in an to the Property to the lien of the Deed of Trust and all of Lender’s rights thereunder, including any and all renewals, modifications and extensions thereof and agrees that the Deed of Trust and any and all renewals, modifications and extensions thereof shall unconditionally be an at all times remain a lien on the Property prior and superior to the Lease. Without limiting the generality of the foregoing, such subordination shall include all rights of Tenant in connection with any insurance or condemnation proceeds with respect to the Premises or Property.

2. Acknowledgment. Tenant understands that Lender would not make the Loan without this Agreement and the subordination of the Lease to the lien of the Deed of Trust as set forth herein and that in reliance upon, and in consideration of, this subordination, specific loans and advances are being and will be made by Lender and, as part and parcel thereof, specific monetary other obligations are being and will be entered into which would not be made or entered into but for reliance upon this subordination. This Agreement is and shall be the sole and only agreement with regard to the subordination of the Lease to the lien of the Deed of Trust and shall supersede and cancel, but only insofar as would affect the priority between the Deed of Trust and the Lease, any prior agreement as to such subordination, including, without limitation, those provisions, if any, contained in the Lease which provide for the subordination of the Lease to a deed or deeds of trust or to a mortgage or mortgages.

3. Use of Proceeds. Lender, in making disbursement pursuant to the Note, the Deed of Trust or any loan agreement with respect to the Property, is under no obligation or duty to, nor has Lender represented that it will, see to the application of such proceeds by the person or persons to whom Lender disburses such proceeds, and any application or use of such proceeds for purposes other than those provided for in such agreement or agreements shall not defeat this agreement to subordinate in whole or in part.

4. Nondisturbance. Lender agrees that Tenant’s possession of the Premises shall not be disturbed by Lender during the term of the Lease, and Lender shall not join Tenant in any action or proceeding for the purposes of terminating the Lease, except upon the occurrence of a default by Tenant under the Lease and the continuance of such default beyond any cure period given to Tenant under the Lease.

5. Attornment. If Lender obtains possession of the Property by foreclosure or deed in lieu of foreclosure, Tenant shall attorn to Lender, be bound to Lender in accordance with all of the

3

provisions of the Lease for the balance of the term thereof, and recognize Lender as the landlord under the Lease for the unexpired term of the Lease. Such attornment shall be effective without Lender being (i) subject to any offsets or defenses or otherwise liable, for any prior act or omission of Landlord, (ii) bound by any amendment, modification, or waiver of any of the provisions of the Lease, or by any separate agreement between Landlord and Tenant relating to the Premises or Property, unless any such action was taken with the prior written consent of Lender, (iii) liable for the return of any security or other deposit unless the deposit has been paid to Lender, (iv) bound by any payment of rent or other monthly payment under the Lease made by tenant more then one (1) month in advance of the due date, or (v) bound by any option, right of first refusal, or similar right of Tenant to Lease any portion of the Property (other than the Premise) or to purchase all or any portion of the Property. Lender’s obligations as landlord under the Lease after obtaining possession of the Property by foreclosure or deed in lieu of foreclosure shall terminate upon Lender’s subsequent transfer of its interest in the Property.

6. Termination of Lease. Notwithstanding any other provision of this Agreement, in the event Lender obtains ownership of the Property by foreclosure of deed in lieu of foreclosure and the Lease requires the landlord to construct any improvements on the Premises or Property, the Lease shall terminate unless (i) Lender delivers written notice to Tenant expressly assuming such obligation with ten (10) days after the foreclosure sale or acceptance of the deed in lieu of foreclosure, or (ii) Tenant waives such obligation by delivery of written notice to Lender within ten (10) days after receiving notice of foreclosure or deed in lieu of foreclosure.

7. Covenants of Tenant. Tenant covenants and agrees with Lender as follows:

(a) Tenant shall pay to Lender all rent and other payments otherwise payable to Landlord under the Lease upon written demand form Lender. the consent and approval of Landlord to this Agreement shall constitute an express authorization for Tenant to make such payments to Lender and a release and discharge of all liability of Tenant to Landlord for any such payments made to Lender.

(b) Tenant shall enter into no material amendment or modification of any of the provisions of the Lease without Lender’s prior written consent.

(c) Tenant shall not subordinate its rights under the Lease to any other mortgage deed of trust, or security instrument without the prior written consent of Lender.

(d) In the event the Lease is rejected or deemed rejected in any bankrupt proceeding with respect to Landlord, Tenant shall not exercise it option to treat the Lease as terminated under 11 U.S.C. (S) 365(h), as amended.

(e) Tenant shall not accept any waiver or release of Tenant’s obligations under the Lease by Landlord, or any termination of the lease by Landlord, without Lender’s prior written consent.

(f) Tenant shall promptly deliver written notice to Lender of any default by Landlord under the Lease. Lender shall have the right to cure such default within thirty (30) days after the receipt of such notice. Tenant further agrees not to invoke any of its remedies under the Lease

4

until the thirty (30) days have elapsed, or during any period that Lender is proceeding to cure the default with due diligence, or is attempting to obtain the right to enter the Premises and cure the default

8. Effect of Assignment. Notwithstanding that Landlord has made a present assignment of all of its rights under the Lease to Lender, Lender shall not be liable for any of the obligations of Landlord to Tenant under the Lease until Landlord has obtained possession of the Property by foreclosure or deed in lieu of foreclosure, and then only to the extent provided in paragraph 3 above.

9. Estoppel Certifications. Tenant hereby certifies and represents to Lender as provided below.

(a) The Lease constitutes the entire agreement between Landlord and Tenant relating to the Premises and the Property.

(b) The Lease is in full force and effect, and has not been amended, modified, or assigned by Tenant, either orally or in writing.

(c) No Payments to become due under the Lease have been paid more than one (1) month in advance of the due date.

(d) Tenant has no present claim, offset or defense under the Lease, and Tenant has no knowledge of any uncured breach or default by Landlord or Tenant under the Lease or of any event or condition which, with the giving of notice or the passage of time or both, could constitute a breach or default under the lease.

(e) Tenant has no knowledge of any prior sale, transfer, assignment, hypothecation or pledge of Landlord’s interest under the Lease or of the rents due under the Lease.

(f) Except as otherwise provided in the Lease, Tenant has made no agreements with Landlord concerning free rent, partial rent, rebate or rental payments, setoff, or any other type of rental concession.

10. Costs and Attorney’s Fees. In the event of any claim or dispute arising out of this Agreement, the party that substantially prevails shall be awarded , in addition to all other relief, all attorneys’ fees and other costs and expenses incurred in connection with such claim or dispute; including without limitation those fees, costs, and expenses incurred before or after suit, and in any arbitration, and any appeal, any proceedings under any present or future bankruptcy act or state receivership, and any post-judgement proceedings.

11. Notices. All notices to be given under this Agreement shall be in writing and personally delivered or mailed, postage prepaid, certified or registered mail, return receipt requested, to Lender at the address indicated on the first page of this Agreement, and to Tenant at its address indicated below. All notices which are mailed shall be deemed given three (3) days after the postmark thereof. Either party may change their address by delivery of written notice to the other party.

5

12. Miscellaneous. This agreement may not be modified except in writing and executed by the parties hereto or their successors in interest. This agreement shall inure to the benefit of and be binding upon the parties hereto and their successors and assigns. As used herein, “Landlord” shall include Landlord’s predecessors and successors in interest under the Lease, and “Lender” shall include any purchaser of the Property at any foreclosure sale. All rights of Lender herein to collect rents on behalf of Landlord under the Lease are cumulative and shall be in addition to any and all other rights and remedies provided by law and by other agreements between Lender and Landlord or others. If any provision of this Agreement is determined to be invalid, illegal or unenforceable, such provision shall be considered severed from the rest of this Agreement and the remaining provisions shall continue in full force and effect as if such provision had not been included. This Agreement shall be governed by the laws of the State of California. This Agreement may be executed in one or more counterparts, all of which together shall constitute one and the same original.

DATED this      day of                     , 1999

NOTICE: THIS SUBORDINATION AGREEMENT RESULTS IN YOUR LEASE BECOMING SUBJECT TO AND OF LOWER PRIORITY THAN THE LIEN OF THE DEED OF TRUST (DEFINED ABOVE).

IT IS RECOMMENDED THAT, PRIOR TO THE EXECUTION OF THIS AGREEMENT, THE PARTIES CONSULT WITH THEIR ATTORNEYS WITH RESPECT HERETO.

“LENDER”

KEYBANK NATIONAL
ASSOCIATION,a National banking association

By:

Its

6

“TENANT”

a

By:

Its

Address:

CONSENTED AND AGREED TO:

“LANDLORD”

a

By:

Its

ALL SIGNATURES MUST BE ACKNOWLEDGED

7

STATE OF CALIFORNIA	)
	)	ss.
COUNTY OF)	)

On                                     , 1999, before me,                                          the undersigned, a notary public in and for said state, personally appeared                                         , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that he/she executed the same in his/her authorized capacity, and that by his/her signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument.

WITNESS my hand and official seal.

Notary Public

8

EXHIBIT A

TO

SUBORDINATION, NONDISTURBANCE AND

ATTORNMENT AGREEMENT AND ESTOPPEL CERTIFICATE

Legal Description

The Property is located in                                  County, California and is legally described as follows:

9

SCHEDULE TWO

TO

EXHIBIT F

TO

PACIFIC SHORES CENTER LLC

LEASE

TO

PHONE.COM, INC.

FOR

Pacific Shores Center

Building 9

Redwood City, California

SNDA

(See Construction and Permanent SNDA Samples Attached)

These samples are subject to negotiation by Tenant.

SUBORDINATION, NON-DISTURBANCE

AND ATTORNMENT AGREEMENT

THIS SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT (this “Agreement”) made as of the [    ] day of [                    ], 1997, by and among Nomura Asset Capital Corporation (“Leader”),                          (“Tenant”) and                                  (“Landlord”).

WITNESSETH:

WHEREAS, Lender has agreed to make a loan (the “Loan”) of up to [                    ] to Landlord;

WHEREAS, the Loan will be evidenced by a deed of trust note (the “Note”) of even date herewith made by Landlord to order of Lender and will be secured by, among other things, a deed of trust, assignment of leases and rents and security agreement (the “Deed of Trust”) of even date herewith made by Landlord to Lender covering the land (the “Land”) described on Exhibit A attached hereto and all improvements (the “Improvements”) now or hereafter located on the land (the Land and the Improvements hereinafter collectively referred to as the “Property”); and

WHEREAS, by a lease dated as of [                    ] (which lease, as the same may have been amended and supplemented, is hereinafter called the “Lease”), Landlord leased to Tenant approximately [                    ] square feet of space located in the Improvements (the “Premises”); and

WHEREAS, the parties hereto desire to make the Lease subject and subordinate to the Deed of Trust.

NOW, THEREFORE, the parties hereto, in consideration of the covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, hereby agree as follows:

1. The Lease, as the same may hereafter be modified, amended or extended, and all of Tenant’s right, title and interest in and to the Premises and all rights, remedies and options of Tenant under the Lease, are and shall be unconditionally subject and subordinate to

the Deed of Trust and the lien thereof, to all the terms, conditions and provisions of the Deed of Trust, to each and every advance made or hereafter made under the Deed of Trust, and to all renewals, modifications, consolidations, replacements, substitutions and extensions of the Deed of Trust, so that at all times the Deed of Trust shall be and remain a lien on the Property prior and superior to the Lease for all purposes; provided, however, and Lender agrees, that so long as (A) no event has occurred and no condition exists, which would entitle Landlord to terminate the Lease or would cause, without further action of Landlord, the termination of the Lease or would entitle Landlord to dispossess Tenant from the Premises, (B) the term of the Lease has commenced and

Tenant is in possession of the Premises, (C) the Lease shall be in full force and effect and shall not have been otherwise modified or supplemented in any way without Lender’s prior written consent, (D) Tenant shall duly confirm its attornment to Lender or its successor or assign by written instrument as set forth in Paragraph 3 hereof, (E) neither Lender nor its successors or assigns shall be liable under any warranty of construction contained in the Lease or may implied warranty of construction, and (F) all representations and warranties made herein by Tenant shall be true and correct as of the date of such attornment; then, and in such event Tenant’s leasehold estate under the Lease shall not be terminated, Tenant’s possession of the Premises shall not be disturbed by Lender and Lender will accept the attornment of Tenant.

2. Notwithstanding anything to the contrary contained in the Lease, Tenant hereby agrees that in the event of any act, omission or default by Landlord or Landlord’s agents, employees, contractors, licensees or invitees which would give Tenant the right, either immediately or after the lapse of a period of time, to terminate the Lease, or to claim a partial or total eviction, or to reduce the rent payable thereunder or credit or offset any amounts against future rents payable thereunder, Tenant will not exercise any such right (i) until it has given written notice of such act, omission or default to Lender by delivering notice of such act, omission or default, in accordance with Paragraph 8 hereof, and (ii) until a period of not less than sixty (60) days for remedying such act, omission or default shall have elapsed following the giving of such notice. Notwithstanding the foregoing, in the case of any default of Landlord which cannot be cared within such sixty (60) day period, if Lender shall within such period proceed promptly to cure the same (including such time as may be necessary to acquire possession of the Premises if possession is necessary to effect such cure) and thereafter shall prosecute the curing of such default with diligence, then the time within which such default may be cured by Lender shall be extended for such period as may be necessary to complete the curing of the same with diligence. Lender’s cure of Landlord’s default shall not be considered an assumption by Lender of Landlord’s other obligations under the Lease. Unless Lender otherwise agrees in writing, Landlord shall remain solely liable to perform Landlord’s obligations under the Lease (but only to the extent required by and subject to the limitation included with the Lease), both before and after Lender’s exercise of any right or remedy under this Agreement. If Lender or any successor or assign becomes obligated to perform as Landlord under the Lease, such person or entity will be released from those obligations when such person or entity assigns, sells or otherwise transfers its interest in the Premises or the Property.

3. Without limitation of any of the provisions of the Lease, in the event that Lender succeeds to the interest of Landlord or any successor to Landlord, then subject to the provisions of this Agreement including, without limitation, Paragraph 1 above, the Lease shall nevertheless continue in full force and effect and Tenant shall and does hereby agree to attorn to and accept Lender and to recognize Lender as its Landlord under the Lease for the then remaining balance of the term thereof, and upon request of Lender, Tenant shall execute and deliver to Lender an agreement of attornment reasonably satisfactory to Lender.

4. If Lender succeeds to the interest of Landlord or any successor to Landlord, in no event shall Lender have any liability for any act or omission of any prior landlord under the Lease which occurs prior to the date Lender succeeds to the rights of Landlord under the Lease, nor any liability for claims, offsets or defenses which Tenant might have had against Landlord. In no

2

event shall Lender have any personal liability as successor to Landlord and Tenant shall look only to the estate and property of Lender in the Land and the Improvements for the satisfaction of Tenant’s remedies for the collection of a judgment (or other judicial process) requiring payment of money in the event of any default by Lender as Landlord under the Lease, and no other property assets of Lender shall be subject to levy, execution or other enforcement procedure for the satisfaction of Tenant’s remedies under or with respect to the Lease.

5. Tenant agrees that no prepayment of rent or additional rent due under the Lease of more than one month in advance, and no amendment, modification, surrender or cancellation of the Lease, and no waiver or consent by Landlord under the terms of the Lease, shall be binding upon or as against Lender, as holder of the Deed of Trust, and as Landlord under the Lease if it succeeds to that portion, unless consented to in writing by Lender. In addition, and notwithstanding anything to the contrary set forth in this Agreement, Tenant agrees that Lender, as holder of the Deed of Trust, and as Landlord under the Lease if it succeeds to that position, shall in no event have any liability for the performance or completion of any initial work or installations or for any loan or contribution or rent concession towards initial work, which are required to be made by Landlord (A) under the Lease or under any related Lease documents or (B) for any space which may hereafter become part of said Premises, and any such requirement shall be inoperative in the event Lender succeeds to the position of Landlord prior to the completion or performance thereof. Tenant further agrees with Lender that Tenant will not voluntarily subordinate the Lease to any lien or encumbrance without Lender’s prior written consent.

6. 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 and be construed as one and the same instrument.

7. All remedies which Lender may have against Landlord provided herein, if any, are cumulative and shall be in addition to any and all other rights and remedies provided by law and by other agreements between Lender and Landlord or others. If any party consists of multiple individuals or entities, each of same shall be jointly and severally liable for the obligations of such party hereunder.

8. All notices to be given under this Agreement shall be in writing and shall be deemed served upon receipt by the addressee if served personally or, if mailed, upon the first to occur of receipt or the refusal of delivery as shown on a return receipt, after deposit in the United States Postal Service certified mail, postage prepaid, addressed to the address of Landlord, Tenant or Lender appearing below, or, if sent by telegram, when delivered by or refused upon attempted delivery by the telegraph office. Such addresses may be changed by notice given in the same manner. If any party consists of multiple individuals or entities, then notice to any one of same shall be deemed notice to such party.

3

Lender’s Address:

Nomura Asset Capital Corporation

Two World Financial Center, Building B

New York, New York 10281-1198

Attention: Ms. Sheryl McAfee

Tenant’s Address:

Attention:

Landlord’s Address:

Attention:

9. This Agreement shall be interpreted and construed in accordance with and governed by the laws of the State of California.

10. This Agreement shall apply to, bind and inure to the benefit of the parties hereto and their respective successors and assigns. As used herein “Lender” shall include any subsequent holder of the Deed of Trust.

11. Tenant acknowledges that Landlord has assigned to Lender its right, title and interest in the Lease and to the rents, issues and profits of the Property and the Property pursuant to the Deed of Trust, and that Landlord has been granted the license to collect such rents provided no Event of Default has occurred under, and as defined in, the Deed of Trust. Tenant agrees to pay all rents and other amounts due under the Lease directly to Lender upon receipt of written demand by Lender, and Landlord hereby consents thereto. The assignment of the Lessee to Lender, or the collection of rents by Lender pursuant to such assignment, shall not obligate Lender to perform Landlord’s obligations under the Lease.

[NO FURTHER TEXT ON THIS PAGE]

4

IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first above written.

NOMURA ASSET CAPITAL
CORPORATION,

a Delaware corporation

By:

Name:

Title:

[LANDLORD]

By:

[TENANT]

By:

5

STATE OF CALIFORNIA	)
	)	ss.
COUNTY OF	)

On                             , before me, a Notary Public in and for said state, personally appeared                                              , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

WITNESS my hand and official seal.

(SEAL)

6

EXHIBIT G

TO

PACIFIC SHORES CENTER LLC

LEASE

TO

PHONE.COM, INC.

FOR

Pacific Shores Center

Building 9

Redwood City, California

SIGNAGE EXHIBIT

(To be provided)

EXHIBIT H

TO

PACIFIC SHORES CENTER LLC

LEASE

TO

PHONE.COM, INC.

FOR

Pacific Shores Center

Building 9

Redwood City, California

Guaranty of Lease

(Intentionally Omitted)

EXHIBIT I

TO

PACIFIC SHORES CENTER LLC

LEASE

TO

PHONE.COM, INC.

FOR

Pacific Shores Center

Building 9

Redwood City, California

HAZARDOUS MATERIALS DISCLOSURE

Lessor has provided Lessee, and Lessee acknowledges that it has received and pursuant to Section 17.22(b) of the Lease, reviewed same, a copy of each of those certain documents entitled: (i) PHASE I, ENVIRONMENTAL SITE ASSESSMENT PACIFIC SHORES CENTER, REDWOOD CITY, CALIFORNIA, Prepared for: The Jay Paul Company, San Francisco, California, Prepared by: IRIS ENVIRONMENTAL, Oakland, California, December 20, 1999, Job No. 99-122A; and (ii) PHASE II, ENVIRONMENTAL SITE ASSESSMENT, PACIFIC SHORES CENTER, 1000 SEAPORT BOULEVARD, REDWOOD CITY, CALIFORNIA, Prepared for: The Jay Paul Company, San Francisco, California, Prepared by: IRIS ENVIRONMENTAL, Oakland, California, January 14, 1999, Job No. 99-122-B

LESSEE
Phone.com, Inc.a California corporation
By:
	(Type or print name)
Its:
By:
	(Type or print name)
Its:

EXHIBIT J

TO

PACIFIC SHORES CENTER LLC

LEASE

TO

PHONE.COM, INC.

FOR

Pacific Shores Center

Building 9

Redwood City, California

NOTICE TO TENANTS AND TRANSFEREES OF

CURRENT OR FUTURE USES OF ADJACENT PORT PROPERTY

Notice is hereby given to all lessees, tenants and transferees of land or interests in land located within Pacific Shores Center of the presence or potential future presence of Port related industrial activities on Port property adjacent to and west of Pacific Shores Center. All recipients of this notice should be aware of the following facts:

1. The parcel of Port property adjacent to Pacific Shores Center to the northwest shown on the Exhibit          attached hereto (the “Port Parcel”) is now or may be developed for Port related maritime and industrial uses similar to those occupying other properties along the west side of Seaport Boulevard and to the west of Pacific Shores Center.

2. Such Port related maritime and industrial activities are those which are permitted by the general industrial zoning of the City of Redwood City and may include heavy industrial land uses, including uses which involve the receipt, transport, storage or management of hazardous wastes, aggregates, cement, gravel and similar materials, including the outdoor storage and handling of such materials.

3. Pacific Shores Center Limited Partnership, on behalf of itself, its successors and assigns, has recognized, accepted and approved such uses of the Port Parcel subject to the utilization of Best Available Management Practices in the development and use of the Port Parcel. Best Available Management Practices are defined on Exhibit          attached hereto.

4. Despite the use of Best Available Management Practices on the Port Parcel by the Port and its lessees and licensees and despite Pacific Shores Center Limited Partnership’s efforts to ensure compatibility between such uses and those in Pacific Shores Center, it is possible that such uses will cause emissions into the air of dust or other particulate matter, or noise or odorous substances which may be offensive to or be perceived as a nuisance by occupants of Pacific Shores Center.

5. Pursuant to covenants made by Pacific Shores Center Limited Partnership on behalf of its successors and assigns, tenants and lessees, the tenants, lessees and transferees of Pacific Shores Center Limited Partnership have approved and accepted such neighboring uses subject to their utilization of Best Available Management Practices.

6. Any actions to enjoin the continuation of such uses or to recover any damages to persons or property related to their operations are subject to a requirement for prior notice found in recorded covenants by Pacific Shores Center Limited Partnership. The following language is excerpted from such covenants:

“In the event that either party hereto believes that the other has failed to perform any covenant made herein in favor of the other, at least ten (10) days prior to the commencement of any action to enforce the covenants hereunder or to recover damages for the breach thereof, that party who believes that a failure to perform has occurred (the “Complaining Party”) shall give written notice (the “Notice”) to the party alleged not to have performed the covenant (the “Non-Complaining Party”) of the specific nature of the alleged failure and of the intent of the complaining Party to take action to remedy the breach by the Non-Complaining Party. In the event that the nature of the alleged failure to perform is such that the same cannot reasonably be cured within ten (10) days after receipt of the Notice (the “Notice Period”), the Non-Complaining Party shall not be deemed to be in violation of its covenants and no action shall be commenced by the Complaining Party if, within the Notice Period, the Non-Complaining Party commences such cure and thereafter diligently and continuously prosecutes the same to completion within a reasonable time. Provided, however, that the Complaining Party shall not be precluded from recovering any actual damages suffered by reason of the alleged failure to perform prior to or after delivery of the Notice, whether or not such failure is thereafter cured.”

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EXHIBIT K

TO

PACIFIC SHORES CENTER LLC

LEASE

TO

PHONE.COM, INC.

FOR

Pacific Shores Center

Building 9

Redwood City, California

NOTICE TO PACIFIC SHORES TENANTS, LESSEES,

SUCCESSORS, ASSIGNS AND TRANSFEREES REGARDING

CURRENT OR FUTURE USES OF ADJACENT RMC LONESTAR

AND PORT PROPERTY

Notice is hereby given to all tenants, lessees, successors, assigns and transferees of land or interest in land located within the Pacific Shores Center of the presence or potential future presence of maritime and industrial activities on RMC Lonestar and Port of Redwood City property west and adjacent to Pacific Shores Center. Recipients of this notice should be aware of the following:

1. The RMC Lonestar property and parcels of port property adjacent to and west of Pacific Shores Center are shown on the map attached to this notice. The RMC Lonestar and Port properties are now devoted to, or will be developed for, maritime and industrial uses.

2. These maritime and industrial uses are those which are permitted by the “Heavy Industry” General Plan designation and general industrial zoning of the City of Redwood City. These uses include, by way of example and not limitation, uses involving the receipt, transport, storage, handling, processing or management of aggregates, cement, concrete, asphalt, soil or other landscaping materials, recyclable metals and plastics, recyclable concrete and asphalt, chemicals, petroleum products, hazardous wastes, and similar materials, including indoor storage, mixing and handling of these materials.

3. These uses may cause, on either a regular or intermittent basis, air emissions, including without limitation, dust and other particles, odors, vibrations, loud noises, and heavy truck, rail or marine vessel traffic. These uses may have a visual, aesthetic or other aspects that may be offensive or perceived as a nuisance by occupants of Pacific Shores Center.

EXHIBIT L

TO

PACIFIC SHORES CENTER LLC

LEASE

TO

PHONE.COM, INC.

FOR

Pacific Shores Center

Building 9

Redwood City, California

RULES AND REGULATIONS

1. Lessee and Lessee’s employees shall not in any way obstruct the sidewalks, entry passages, pedestrian passageways, driveways, entrances and exits to the Project or the Building, and they shall use the same only as passageways to and from their respective work areas.

2. Any sash doors, sashes, windows, glass doors, lights and skylights that reflect or admit light into the Common Area of the Project shall not be covered or obstructed by the Lessee. Water closets, urinals and wash basins shall not be used for any purpose other than those for which they were constructed, and no rubbish, newspapers, food or other substance of any kind shall be thrown into them. Lessee shall not mark, drive nails, screw or drill into, paint or in any way deface the exterior walls, roof, foundations, bearing walls or pillars without the prior written consent of Lessor, which consent may be withheld in Lessor’s sole discretion. The expense of repairing any breakage, stoppage or damage resulting from a violation of this rule shall be borne by Lessee.

3. No awning or shade shall be affixed or installed over or in the windows or the exterior of the Premises except with the consent of Lessor, which may be withheld in Lessor’s discretion.

4. No boring or cutting for wires shall be allowed, except with the consent of Lessor, which consent may be withheld in Lessor’s discretion.

5. Lessee shall not do anything in the Premises, or bring or keep anything therein, which will in any way increase or tend to increase the risk of fire or the rate of fire insurance or which shall conflict with the regulations of the fire department or the law or with any insurance policy on the Premises or any part thereof, or with any rules or regulations established by any administrative body or official having jurisdiction, and it shall not use any machinery therein, even though its installations may have been permitted, which may cause any unreasonable noise, jar, or tremor to the floors or walls, or which by its weight might injure the floors of the Premises.

6. Lessor may reasonably limit weight, size and position of all safes, fixtures and other equipment used in the Premises. If Lessee shall require extra heavy equipment, Lessee shall notify Lessor of such fact and shall pay the cost of structural bracing to accommodate it. All damage done to the Premises or Project by installing, removing or maintaining extra heavy equipment shall be repaired at the expense of the Lessee.

7. Lessee and Lessee’s officers, agents and employees shall not make nor permit any loud, unusual or improper noises nor interfere in any way with other Lessees or those having business with them, nor bring into or keep within the Project any animal or bird or any bicycle or other vehicle, except such vehicle as Lessor may from time to time permit.

8. No machinery of any kind will be allowed in the Premises without the written consent of Lessor. This shall not apply, however, to customary office equipment or trade fixtures or package handling equipment.

9. All freights must be moved into, within and out of the Project only during such hours and according to such reasonable regulations as may be posted from time to time by Lessor.

10. No aerial or satellite dish or similar device shall be erected on the roof or exterior walls of the Premises, or on the grounds, without in each instance, the written consent of Lessor. Any aerial installed without such written consent shall be subject to removal without notice at any time. Lessor may withhold consent in its sole discretion.

11. All garbage, including wet garbage, refuse or trash shall be placed by the Lessee in the receptacles appropriate for that purpose and only at locations prescribed by the Lessor.

12. Lessee shall not burn any trash or garbage at any time in or about the Premises or any area of the Project.

13. Lessee shall observe all security regulations issued by the Lessor and comply with instructions and/or directions of the duly authorized security personnel for the protection of the Project and all tenants therein.

14. Any requirements of the Lessee will be considered only upon written application to Lessor at Lessor’s address set forth in the Lease.

15. No waiver of any rule or regulation by Lessor shall be effective unless expressed in writing and signed by Lessor or its authorized agent.

16. Lessor reserves the right to exclude or expel from the Project any person who, in the judgment of the Lessor, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of the law or the rules and regulations of the Project.

17. Lessor reserves the right at any time to change or rescind any one or more of these rules and regulations or make such other and further reasonable rules and regulations as in Lessor’s judgment may from time to time be necessary for the operation, management, safety, care, and cleanliness of the Project and the Premises, and for the preservation of good order therein, as well as for the convenience of other occupants and tenants of the Project. Lessor shall not be

2

responsible to Lessee or the any other person for the non-observance or violation of the rules and regulations by any other tenant or person. Lessee shall be deemed to have read these rules and have agreed to abide by them as a condition to its occupancy of the Premises.

18. Lessee shall abide by any additional rules or regulations which are ordered or requested by any governmental or military authority.

19. In the event of any conflict between these rules and regulations, or any further or modified rules and regulations from time to time issued by Lessor, and the Lease provisions, the Lease provisions shall govern and control.

20. Lessor specifically reserves to itself or to any person or firm it selects, (i) the right to place in and upon the Project, coin-operated machines for the sale of cigarettes, candy and other merchandise or service, and (ii) the revenue resulting therefrom.

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EXHIBIT M

ESTIMATED TAX ASSESSMENT FOR PACIFIC SHORES

$12,000,000 @ 6% with 15-year amortization divided by 1,641,534 SF = $0.06 (1)

For Phone.com:

279,584 x $0.06 = $16,775 per month

(1)   Interest rate subject to change.

EXHIBIT N

EARLY CONSTRUCTION ITEMS

·Shell Fire Protection

·Perimeter Stairs

·Fireproofing of Steel

·Elevator Pits

·Elevator Penthouse Structure

Openwave Sublease

EXHIBIT “B”

FORM OF BILL OF SALE

For the sum of One Dollar ($1.00) and other good and valuable consideration, the receipt of which is hereby acknowledged, Openwave Systems Inc., a Delaware corporation (“Seller”), does hereby sell, transfer, and convey to PDL BioPharma, Inc., a Delaware corporation (“Buyer”), the personal property and furniture, fixtures and equipment owned by Seller and located within that certain premises commonly known as 1400 Seaport Boulevard, Redwood City, California 94062 as more particularly described on Schedule 1 attached hereto and made a part hereof (“Personal Property”).

Buyer acknowledges that Seller is selling and Buyer is buying the Personal Property on an “as is, where is, with all faults” basis, and that Buyer is not relying on any representations or warranties of any kind whatsoever, express or implied, except as expressly set forth below, including, without limitation, any implied warranties as to merchantability or fitness for a particular purpose.

Seller represents and warrants to Buyer, however, that Seller is conveying title to the Personal Property to Buyer free and clear of any liens or encumbrances. Buyer shall take delivery of the Personal Property in its “as-is, where-is, with all faults” condition. Seller shall have no obligation to repair or replace any item of Personal Property.

This Bill of Sale shall be governed by and construed in accordance with the laws of the State of California. Any waiver by either party of any breach of any term or condition of this Bill of Sale shall not operate as a waiver of any other breach of such term or condition or of any other term or condition, nor shall any failure to enforce such provision hereof operate as a waiver of such provision or of any other provision hereof, nor constitute nor be deemed as a waiver or release of any other party for anything arising out of, connected with or based upon this Bill of Sale. In the event of any litigation involving the parties arising out of this Bill of Sale, the prevailing party shall be entitled to recover from the other party such reasonable attorneys’ fees and costs as may reasonably be incurred, as awarded by the court hearing the matter.

This Bill of Sale may be executed in one or more counterparts, each of which shall be deemed an original but all of which taken together shall constitute one and the same instrument.

[Signatures appear on next page.]

Openwave Sublease

Dated this      day of             , 20    .

SELLER:	OPENWAVE SYSTEMS INC.,
	a Delaware corporation
	By:
	Title:
BUYER:	PDL BIOPHARMA, INC.,
	a Delaware corporation
	By:
	Title:

Openwave Sublease

EXHIBIT “C”

PERMITTED HAZARDOUS MATERIALS

(See attached)

Openwave Sublease

EXHIBIT “D”

PDL BIOPHARMA, INC. LIST OF PLANS, LICENSES AND PERMITS

	Inspecting Authority	Frequency
Plans
Injury Illness Prevention Plan	Cal OSHA	Anytime
Biosafety Plan	”	”
Radiation Safety Plan	”	”
Chemical Hygiene Plan	”	”
Hazard Communication Plan	”	”
Emergency Action Plan	”	”
Hazardous Materials Business Plan	Fremont Fire	Annual
AAALAC Accreditation program	AAALAC	Complaint
Licenses
CA – Business License
DHS - Radiation Use License	DHS	Anytime
Permits
Fremont City - Hazardous Materials Permits A/B/D	Fremont Fire	Annual
Alameda County - Medical waste Permits A/B/D	Ala. County	Annual
BAAQMD – Emergency Generator Permits A/B/D	AQMD	Complaint
DEA – Controlled Substances	DEA	Violation

Openwave Sublease

EXHIBIT “E”

MOST RECENT RECONCILIATION

[to be attached]

Openwave Sublease

EX-10.13

EXHIBIT 10.13

Execution Version

CONFIDENTIAL PROVISIONS REDACTED

COLLABORATION AGREEMENT

THIS COLLABORATION AGREEMENT (the “Agreement”) is entered into as of September 12, 2005 (the “Effective Date”) by and between Protein Design Labs, Inc., a Delaware corporation having its offices at 34801 Campus Drive, Fremont, California 94555 (“PDL”), and Biogen Idec MA Inc., a Massachusetts corporation having offices at 14 Cambridge Center, Cambridge, Massachusetts 02142 (“Biogen Idec”). PDL and Biogen Idec may each be referred to in this Agreement individually as a “Party” and collectively as the “Parties.”

RECITALS

WHEREAS, PDL possesses worldwide rights to develop, manufacture, market, and sell certain proprietary antibodies directed at certain antigens (such antigens defined below as “Collaboration Targets”) and;

WHEREAS, PDL has research and development programs for such antibodies as well and for certain compounds relating to the Collaboration Targets; and

WHEREAS, Biogen Idec and PDL wish to collaborate in the research, development, manufacturing and commercialization of products for the Collaboration Targets, including such antibodies and compounds, under the terms and conditions set forth below.

NOW THEREFORE, in consideration of the foregoing premises and the mutual covenants contained herein, the Parties, intending to be legally bound, agree as follows:

ARTICLE 1

DEFINITIONS

The following capitalized terms, whether used in the singular or the plural, shall have the following meanings as used in this Agreement unless otherwise specifically indicated:

*Certain information on this page has been omitted and filed separately with the commission. Confidential treatment has been requested with respect to the omitted portions.

1.1	“5	1” means [****].
1.2	“5	1 Target Field” means the diagnosis, treatment or prevention of human diseases.
1.3	“5	1 Target Future Product” means [****].
1.4	“5	1 Target Product” means [****].

1.5“Affiliate” means any corporation or other business entity controlled by, controlling, or under common control with another entity, with “control” meaning: (a) direct or indirect beneficial ownership of at least fifty percent (50%) of the voting stock of, or at least fifty percent (50%) interest in the income of, such corporation or other business entity, or (b) the possession, directly or indirectly, of the power to direct the management or policies of a legal entity, whether through the ownership of voting securities or by contract relating to voting rights or corporate governance. For purposes of clarity, Affiliates of Biogen Idec shall include Biogen Dompé SRL and Biogen Dompé AG.

1.6“Annual Workplan/Budget” means, as to a Collaboration Product the detailed schedule of Development activities and budgets prepared pursuant to Section 3.3.

1.7“Antibody” means a molecule comprising or containing: (a) one or more immunoglobulin variable domains; (b) fragments, variants, modifications or derivatives of molecules described in the foregoing clause (a); and (c) the nucleic acid consisting of a sequence of nucleotides encoding (or complementary to a nucleic acid encoding) an antibody. Antibody shall include any antibody monospecific and bispecific antibodies; less than full-length antibody forms such as Fv, Fab, and F(ab’)₂; and  any antibody or fragment that is conjugated or fused to any other composition, including for example, a toxin, radionuclide, small molecule, polypeptide or polypeptide fragment. The term Antibody includes any human, humanized, primatized, chimeric or other antibody.

1.8“Antibody Product” means any pharmaceutical product having an Antibody as an active ingredient.

1.9“Approved Budget” means the then-current JSC approved aggregate annual budget for the current calendar year for the Development and/or Commercialization of all Collaboration Products.

1.10“Asthma Field” means the treatment and/or prevention of asthma or other respiratory diseases.

*Certain information on this page has been omitted and filed separately with the commission. Confidential treatment has been requested with respect to the omitted portions.

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1.11“Biogen Idec Indemnitees” shall have the meaning set forth in Section 15.1.

1.12“Biogen Idec Inventions” means all Inventions that (a) relate to or are useful with any Antibody Product or Non-Antibody Product that are directed against or incorporate a Collaboration Target, (b) are made during the Term by one or more employees of Biogen Idec or its Affiliates or persons contractually required to assign or license patent rights covering such inventions to Biogen Idec or its Affiliates, in the course of performing Biogen Idec’s obligations, or exercising Biogen Idec’s rights, under this Agreement, and (c) are not Joint Inventions.

1.13“Biogen Idec Know-How” means all Know-How that is (a) Controlled by Biogen Idec or its Affiliates at any time during the Term; (b) used by or on behalf of Biogen Idec or its Affiliates in the development or commercialization of a Collaboration Product and (c) reasonably necessary or useful for PDL to (i) perform its obligations under this Agreement or (ii) develop or commercialize a Collaboration Product or Royalty Product in the Field; provided that Biogen Idec Know-How shall not include methods of manufacturing, production and test methods, procedures and batch records, manufacturing and testing summary data, process and assay validation information, designing, developing or preparing Antibodies including methods of humanizing Antibodies, methods of reducing the immunogenicity of Antibodies, methods of modifying effector function, and methods of increasing the affinity or half-lives of Antibodies, unless necessary for PDL to perform its Development  or Commercialization obligations hereunder.

1.14“Biogen Idec Patent Rights” means Patent Rights that claim  Technology Controlled by Biogen Idec or its Affiliates at any time during the Term and that relate in whole or in part to the Collaboration Targets or the manufacture, use or sale of Products. Biogen Idec Patent Rights shall not include Joint Patents but shall include Biogen Idec Target Patent Rights. As of the Effective Date, to Biogen Idec’s knowledge, there are no Biogen Idec Patent Rights.

1.15“Biogen Idec Target Patent Rights” means Patent Rights that claim  Technology Controlled by Biogen Idec or its Affiliates at any time during the Term and that relate in substantial part to the Collaboration Targets or in substantial part to the manufacture, use or sale of Products.

1.16“Biogen Idec Technology” means Biogen Idec Patent Rights and Biogen Idec Know-How.

1.17“Calendar Quarter” means the respective periods of three consecutive calendar months ending on March 31, June 30, September 30 or December 31, for so long as this Agreement is in effect.

1.18“Change of Control” means with respect to a Party: (i) the sale of all or substantially all of such Party’s assets or business relating to this Agreement; (ii) a merger, reorganization or consolidation involving such Party in which the voting

3

securities of such Party outstanding immediately prior thereto cease to represent at least fifty percent (50%) of the combined voting power of the surviving entity immediately after such merger, reorganization or consolidation; or (iii) a person or entity, or group of persons or entities, acting in concert acquire more than fifty percent (50%) of the voting equity securities or management control of such Party.

1.19“Clinical Supplies” shall mean supplies of Collaboration Product or Royalty Products, as the case may be, in suitable form, whether Manufactured by PDL or by Biogen Idec, as specified under this Agreement or under any Manufacturing agreement between the Parties, Manufactured in compliance with GMP, if required given the intended use, and ready to be used for the conduct of pre-clinical and/or human clinical trials of such Product in the Field by the Parties pursuant to the Development Plan and Annual Workplan/Budget.

1.20“Collaboration” means the Parties’ program of collaborative Development, and Commercialization of Products contemplated by this Agreement.

1.21“Collaboration Committee” or “Committee” means any of the JSC, JDCs, JCCs, JPC or JFC, or any other committee formed with the approval of such other committees.

1.22“Collaboration Invention” means a Joint Invention, Biogen Idec Invention or PDL Invention.

1.23“Collaboration Product” means a Product being jointly Developed and Commercialized by the Parties under this Agreement pursuant to a Development Plan or a Commercialization Plan. For the avoidance of doubt, a Collaboration Product shall not be a Royalty Product.

1.24“Collaboration Product Profit” means the profits or losses resulting from the Commercialization of Collaboration Products in the Profit Sharing Territory and shall be equal to [****].

1.25“Collaboration Target” means [****].

1.26“Combination Product” shall have the meaning set forth in Exhibit C.

1.27“Combination Product Amount” shall have the meaning set forth in Exhibit C.

*Certain information on this page has been omitted and filed separately with the commission. Confidential treatment has been requested with respect to the omitted portions.

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1.28“Commercial Supplies” shall mean supplies of Collaboration Product or Royalty Product, as the case may be, in suitable final packaged form, as specified under a Commercial Supply Agreement, Manufactured in compliance with GMP, and ready to be offered for commercial sale for use in the Field in the Territory by Biogen Idec and/or PDL, and/or their Affiliates, or permitted licensees or sublicensees.

1.29“Commercial Supply Agreement” shall have the meaning set forth in Section 8.3(a).

1.30“Commercialization” means all activities undertaken relating to the manufacture, marketing, distribution, offer for sale and sale of a Product in the Field, including pre-marketing, advertising, education, planning, marketing, promotion, distribution, market and product support, post-Regulatory Approval product support and related medical affairs.

1.31“Commercialization Plan” shall have the meaning set forth in Section 6.1(a).

1.32“Confidential Information” means all Know-How, information (whether in written, oral, electronic, visual, tangible, or other form) and materials, including biological and other tangible materials, that are disclosed by one Party to the other Party prior to the Effective Date or during the Term and are either identified as confidential at the time of disclosure or should reasonably be believed to be of the type of information that would be considered confidential under the circumstances.

1.33“Controlled” means, with respect to a Party and its Affiliates, and any intellectual property right, that the Party owns or has a license to such intellectual property right and has the ability to grant to the other Party a license or sublicense to such intellectual property right without violating the terms of any agreement or other arrangements with any Third Party existing at the time such Party would be first required hereunder to grant the other Party such license or sublicense.

1.34“Controlling Party” shall have the meaning set forth in Section 12.5(b)(vi).

1.35“Co-Promoting Party” shall have the meaning set forth in Section 7.1(c).

1.36“Co-Promotion Option” shall have the meaning set forth in Section 7.1(a).

1.37“Co-Promote Product” shall have the meaning set forth in Section 7.4.

1.38“Cost of Clinical Supplies” shall have the meaning set forth in Exhibit C.

1.39“Cost of Goods Manufactured for Sale” or “COGM” shall have the meaning set forth in Exhibit C.

1.40“Cost of Sales” shall have the meaning set forth in Exhibit C.

5

1.41“Daclizumab Product” means [****].

1.42“Detail” or “Detailing” means a face-to-face presentation by a Party’s sales representative, to one or several medical professional(s) having prescribing authority in the applicable territory in the Field, as well as to other mutually agreed individuals or entities that have significant impact or influence on prescribing decisions in the applicable territory in the Field, where the principal objective of such presentation is to emphasize the features and function of such Collaboration Product in the Field in a balanced manner. A Detail does not include a reminder or sample drop.

1.43“Development” means all research and pre-Regulatory Approval development and regulatory activities in the Field regarding a Product. This includes (i) research, preclinical testing, toxicology, formulation, manufacturing-related technology development, and clinical studies of Products; and (ii) preparation, submission, review, and development of data or information for the purpose of submission to a governmental authority to obtain Regulatory Approval of Products, and outside counsel regulatory legal services related thereto. Development shall include development and regulatory activities for additional Indications for a Product after Regulatory Approval of such Product but shall not include Post-Approval Clinical Trials or Phase 4 Trials with respect to an approved Indication.

1.44“Development Expenses” shall have the meaning set forth in Exhibit C.

1.45“Development Plan” shall have the meaning set forth in Section 3.3(a).

1.46“Development Program” means any of the following: (a) the program of Development contemplated by this Agreement for [****], (b) the program of Development contemplated by this Agreement for [****], and (c) the program of Development contemplated by this Agreement for [****], in each case as such programs may be revised or amended from time to time.

1.47“Diligent Efforts” means reasonable and good faith efforts by a Party to accomplish such objective as that Party would normally use to accomplish a similar objective under similar circumstances, it being understood and agreed that, with respect to the Development or Commercialization of a Collaboration Product or Royalty Product, as the case may be, such efforts shall be similar to those efforts and resources commonly used by a Party for a similar pharmaceutical product owned by it or to which it has rights, which product is at a similar stage in its development or product life and is of similar market potential in the applicable market taking into account efficacy, safety, approved labeling, the competitiveness of all products in the applicable market, the

*Certain information on this page has been omitted and filed separately with the commission. Confidential treatment has been requested with respect to the omitted portions.

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patent and other proprietary position of the product, the likelihood of regulatory approval given the regulatory structure involved, the profitability of the product including the royalties payable to licensors of patent or other intellectual property rights, alternative products and other relevant factors. Diligent Efforts shall be determined on a market-by-market and Indication-by-Indication basis for a particular Product, and it is anticipated that the level of effort shall be different for different markets, and shall change over time, reflecting changes in the status of the Product and the market(s) involved.

1.48“Drug Approval Application” means a Biologics License Application or an equivalent application for Regulatory Approval required before commercial sale or use of a pharmaceutical product in a field in a regulatory jurisdiction.

1.49“EU Territory” means all countries that are officially recognized as member states of the European Union. There are twenty-five (25) such member states as of the Effective Date, namely:  Austria, Belgium, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden, and United Kingdom.

1.50“Executive” means the Chief Executive Officer of a Party or such other executive officer designated by such person. If the Chief Executive Officer position for either Party is vacant or does not exist, then the person having the most nearly equivalent position at such Party (or such individual’s designee) shall be deemed to be the Executive of such Party.

1.51“Existing Product” means any one or more of the Daclizumab Product, the Fontolizumab Product or the Volociximab Product.

1.52“Field” means: [****].

1.53“First Commercial Sale” means, for each Collaboration Product or Royalty Product, as the case may be, in each country, the first sale for end use or consumption to a Third Party of such Product in the country by a Party, its Affiliate, or its sublicensee, after the granting of Regulatory Approval in the relevant Field for the Collaboration Product or Royalty Product, as the case may be, by the relevant governing authorities. First Commercial Sale excludes any sale or other distribution for use in a clinical trial or other Development activity.

1.54“Fontolizumab Product” means [****].

1.55“FTE Rate” shall have the meaning set forth in Exhibit C.

*Certain information on this page has been omitted and filed separately with the commission. Confidential treatment has been requested with respect to the omitted portions.

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1.56“Future Product” means [****].

1.57“GMP” means current Good Manufacturing Practices, as defined under the rules and regulations of the United States Food and Drug Administration, as the same may be amended from time to time.

1.58“Gross Sales” shall have the meaning set forth in Exhibit C.

1.59“IFN-” means [****].

1.60“IFN- Target Field” means the diagnosis, treatment or prevention of human diseases.

1.61“IFN- Target Future Product” means [****].

1.62“IFN- Target Product” means [****].

1.63“[****] Product” means the [****].

1.64“IL-2R” means (a) the protein commonly known as the IL-2 receptor alpha subunit “p55” “TAC antigen”, “CD25 antigen “T-Cell Growth factor receptor”,  “TCGFR” and (b) fragments of the foregoing.

1.65“IL-2R Target Field” means the diagnosis, treatment or prevention of human diseases, but [****].

1.66“IL-2R Target Future Product” means [****].

1.67“IL-2R Target Product” means [****].

1.68“Independent Indication” means, with respect to a particular Collaboration Product, any Indication for which a Party has exercised its opt-out right pursuant to Section 4.1 and shall include all Opt Out Indications, provided that such Party has not exercised its opt-in right for such Indication pursuant to Section 4.4 (after which such Indication shall cease to be an Independent Indication).

*Certain information on this page has been omitted and filed separately with the commission. Confidential treatment has been requested with respect to the omitted portions.

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1.69“Independent Product” means a former Collaboration Product for which a Party terminated its participation in such Product pursuant to Section 4.1, and as to which no Indication is (i) being developed under the Collaboration, or (ii) is the subject of a proposal made in writing to the JSC under Section 3.10(a) as to which the JSC has not made a decision.

1.70“Indication” means an illness or sickness; or any interruption, cessation or disorder of a particular bodily function, system or organ; in any case regardless of the severity, frequency or route of any treatment.

1.71“Initial Development Program Budget” means the budget attached hereto as part of the initial draft Development Plan attached as Exhibit 3.3.

1.72“Invention” means any process, method, composition of matter, article of manufacture, discovery or finding that is conceived and/or reduced to practice (whether or not patentable).

1.73“Joint Commercialization Committee” or “JCC” shall have the meaning set forth in Section 2.4(a).

1.74“Joint Development Committee” or “JDC” shall have the meaning set forth in Section 2.3(a).

1.75“Joint Finance Committee” or “JFC” shall have the meaning set forth in Section 2.5(a).

1.76“Joint Inventions” means all Inventions that are jointly made during the Term by at least one (1) PDL employee or person contractually required to assign or license patent rights covering such inventions to PDL and at least one (1) Biogen Idec employee or person contractually required to assign or license patent rights covering such inventions to Biogen Idec.

1.77“Joint Patent Committee” or “JPC” shall have the meaning set forth in Section 2.6(a).

1.78“Joint Patent Rights” means all Patent Rights that claim or cover Joint Inventions.

1.79“Joint Steering Committee” or “JSC” shall have the meaning set forth in Section 2.2(a).

1.80“Know-How” means Inventions, discoveries, trade secrets, information, experience, data, formulas, procedures, technology and results (whether or not patentable), which at the time of use constitute Confidential Information, including discoveries, formulae, materials including biological materials, practices, methods, knowledge, know-how, processes, experience and test data (including physical, chemical, biological, toxicological, pharmacological, clinical, and veterinary data), dosage regimens, control assays, product specifications, analytical and quality control

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data, marketing, pricing, distribution cost and sales data or descriptions.

1.81“Losses” shall have the meaning set forth in Section 15.1.

1.82“Manufacturing” means any activities related to the manufacturing of a Collaboration Product or Royalty Product, as the case may be, or any ingredient thereof, including manufacturing process development, technology transfer, and scale-up, establishment of manufacturing capacity, evaluation, qualification and validation of manufacturing processes and facilities, manufacturing active ingredients or supplies of such Product for Development, manufacturing such Product for commercial sale, packaging, in-process and finished product testing, release of product or any component or ingredient thereof, and quality assurance activities related to manufacturing, ongoing stability tests and regulatory activities related to any of the foregoing.

1.83“Manufacturing Party” shall have the meaning set forth in Section 8.1.

1.84“Milestone Indication” means any Indication as to which a separate Drug Approval Application is required for approval in a jurisdiction. By way of example, (i) for ophthalmology Indications, macular degeneration and diabetic retinopathy are two separate Milestone Indications, (ii) with respect to autoimmune disease indications, Crohn’s disease and ulcerative colitis are two separate Milestone Indications and (iii) with respect to cancer Indications, “Milestone Indication” means a cancer of a particular organ or any metastatic progression thereof, including as distinct Milestone Indications, breast cancer, prostate cancer, colon cancer, rectal cancer, ovarian cancer, uterine cancer, gastric cancer, bladder cancer, brain cancer, bile duct cancer, pancreatic cancer, kidney cancer, stomach cancer, head-and-neck cancer, esophageal cancer, liver cancer, and lung cancer.

1.85“MS” means multiple sclerosis.

1.86“Net Sales” shall have the meaning set forth in Exhibit C.

1.87“Non-Antibody Product” means any pharmaceutical product having as an active ingredient any synthetic molecule or biologic molecule other than an Antibody, including a compound that has a molecular weight that is less than or equal to 1000 daltons, fusion protein (other than an Antibody), antisense molecule, siRNA, nucleic acid, peptide, polypeptide (other than an Antibody) or fragment thereof.

1.88“Non-Developing Party” shall have the meaning set forth in Section 4.1(a).

1.89“North American Territory” means the United States (including its possessions and territories) and Canada.

1.90“Ongoing Development Expense” shall have the meaning set forth in Exhibit C.

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1.91“Operating Expenses” shall have the meaning set forth in Exhibit C.

1.92“Opt Out Indications” shall have the meaning set forth in Section 4.1(b)(iii).

1.93“Other Out-of-Pocket Costs” shall have the meaning set forth in Exhibit C.

1.94“Patent Expenses” means the sum of all out-of-pocket expenses reasonably incurred by a Party to prepare, file, prosecute and maintain PDL Target Patent Rights, Biogen Idec Target Patent Rights and Joint Patent Rights, including the costs of interferences/oppositions proceedings with respect to such Patent Rights, provided in each case such expenses have been incurred in accordance with Sections 12.4 and 12.5 and subject to Section 12.7 (b)(vii) below. In addition, Patent Expenses shall include the costs of freedom to operate searches and analyses with respect to Collaboration Products, to the extent such searches or analyses have been authorized by the JPC and approved by the JSC.

1.95“Patent Rights” means (a) all patents and patent applications in any country or supranational jurisdiction, and (b) any substitutions, divisions, continuations, continuations-in-part, reissues, renewals, registrations, confirmations, re-examinations, extensions, supplementary protection certificates and the like, and any provisional applications, of any such patents or patent applications.

1.96“PDL Inventions” means all Inventions that (a) relate to or are useful with any Antibody Product or Non-Antibody Product that are directed against or incorporate a Collaboration Target, (b) are made during the Term by one or more employees of PDL or its Affiliates or persons contractually required to assign or license patent rights covering such inventions to PDL or its Affiliates, in the course of performing PDL’s obligations, or exercising PDL’s rights, under this Agreement, and (c) are not Joint Inventions.

1.97“PDL Know-How” means all Know-How that is (a) Controlled by PDL or its Affiliates at any time during the Term and (b) reasonably necessary or useful for Biogen Idec to (i) perform its obligations under this Agreement; or (ii) develop or commercialize a Collaboration Product or a Royalty Product in the Field; provided that PDL Know-How shall not include methods of manufacturing, production and test methods, procedures and batch records, manufacturing and testing summary data, process and assay validation information, designing, developing or preparing Antibodies including methods of humanizing Antibodies, methods of reducing the immunogenicity of Antibodies, methods of modifying effector function, and methods of increasing the affinity or half-lives of Antibodies unless necessary for Biogen Idec to perform its Development or Commercialization obligations or to exercise its rights hereunder.

1.98“PDL Patent Rights” means Patent Rights that claim  Technology Controlled by PDL or its Affiliates at any time during the Term and that relate in whole or in part to the Collaboration Targets or the manufacture, use or sale of Products. PDL

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Patent Rights shall not include Joint Patents but shall include the Queen Patents and PDL Target Patent Rights. As of the Effective Date, to PDL’s knowledge, all PDL Patent Rights are listed on Exhibit A hereto.

1.99“PDL Target Patent Rights” means Patent Rights that claim Technology Controlled by PDL or its Affiliates at any time during the Term and that relate in substantial part to the Collaboration Targets or the manufacture, use or sale of Products. PDL Target Patent rights shall not include the Queen Patents.

1.100“PDL Technology” means PDL Patent Rights and PDL Know-How.

1.101“Phase 1 Trial” means, as to a specific pharmaceutical product, a well conducted and lawful study in humans of the safety of such product, which is prospectively designed to generate sufficient data (if successful) to commence a Phase 2 Trial (or foreign equivalent) of such product, as further defined in Federal Regulation 21 C.F.R. 312.21(a), as amended from time to time, or the corresponding regulation in jurisdictions other than the United States. A Phase 1 Trial shall be deemed initiated upon the enrollment of the first patient.

1.102“Phase 2 Trial” means, as to a specific pharmaceutical product, a well conducted and lawful study, conducted anywhere in the world in diseased humans, of the feasibility, safety, dose ranging and efficacy of such product, that is prospectively designed to generate sufficient data (if successful) to commence a Phase 3 Trial (or foreign equivalent) of such product, as further defined in 21 C.F.R. 312.21(b), as amended from time to time, or the corresponding regulation in jurisdictions other than the United States. For the avoidance of doubt, a Phase 2 Trial requires enrollment of patients with the applicable disease or condition and is aimed to provide a measure of efficacy in addition to short-term tolerability. A Phase 2 Trial shall be deemed initiated upon the enrollment of the first patient.

1.103“Phase 3 Trial” means, as to a specific pharmaceutical product, a well conducted and lawful study in humans performed to gain evidence of the efficacy of such product in a target population, and to obtain expanded evidence of safety for such product that is needed to evaluate the overall benefit-risk relationship of such product and provide an adequate basis for physician labeling, as described in 21 C.F.R. 312.21(c), as amended from time to time, or the corresponding regulation in jurisdictions other than the United States. A Phase 3 Trial shall be deemed initiated upon the enrollment of the first patient.

1.104“Phase 4 Trial” means any clinical trial in an Indication to be conducted after a Regulatory Approval which was mandated by the applicable Regulatory Authority as a condition of such Regulatory Approval.

1.105“Physician Group” means a category of physicians and other medical professionals to whom one or more Products is being Promoted, or will be Promoted if then-current Development activities are successful. For purposes of this definition, all  oncologists (without regard to whether they treat a particular type or stage of cancer)

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shall be a single Physician Group.

1.106“Post-Approval Clinical Trial” shall have the meaning set forth in Exhibit C.

1.107“Product” means [****].

1.108“Profit Sharing Territory” means, with respect to a particular Product, those countries or territories outside the Royalty Territory, if any, for such Product.

1.109“Promotion” or “Promote” means the marketing and advertising of a Collaboration Product in the relevant Field in the applicable territory in accordance with the relevant Commercialization Plan, including medical education, information and communication, market development and medical liaison activities, but not including Detailing.

1.110“Queen Patents” means those issued patents and patent applications Controlled by PDL that claim priority under 35 USC §120 to U.S. Patent Application Serial No. [****].

1.111“Recipient” shall have the meaning set forth in Section 14.2.

1.112“Regulatory Approval” means, with respect to a particular regulatory jurisdiction, all approvals (including pricing and reimbursement approvals), product and/or establishment licenses, registrations or authorizations of any regional, federal, state or local regulatory agency, department, bureau or other governmental entity, necessary for the commercial sale of Products in such regulatory jurisdiction.

1.113“Regulatory Filings” means all applications, filings, dossiers and the like submitted to a regulatory authority for the purpose of obtaining Regulatory Approval from that regulatory authority. Regulatory Filings shall include all Drug Approval Applications.

1.114“[****]” means the [****] except to the extent such rights are later included within the scope of this Agreement pursuant to Section 3.8.

1.115“Responsible Commercialization Party” means the Party having the responsibilities set forth in Article 6 for the execution and implementation of the JSC-approved Commercialization Plan for the Commercialization of a particular Collaboration Product, but excluding regulatory activities specifically assigned to the Responsible Regulatory Party hereunder.

*Certain information on this page has been omitted and filed separately with the commission. Confidential treatment has been requested with respect to the omitted portions.

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1.116“Responsible Development Party” means the Party having the responsibilities set forth in Article 3 for the execution and implementation of the JSC-approved Development Plan for the Development of a particular Collaboration Product, but excluding any regulatory or Manufacturing activities.

1.117“Responsible Regulatory Party” means the Party having the responsibilities set forth in Article 5 for the execution and implementation of the regulatory activities set forth in the JSC-approved Development Plan for a particular Collaboration Product.

1.118“[****]” means [****].

1.119“[****] Agreements” means (a) [****], and (b) [****].

1.120“ROW Territory” means all parts of the Territory not included in the North American Territory or EU Territory.

1.121“Royalty Product” means (a) an Independent Product; (b) a Collaboration Product with respect solely to any Independent Indication; or (c) with respect solely to the ROW Territory, a Collaboration Product, an Independent Product or Independent Indication.

1.122“Royalty Territory” means, with respect to a particular Product, those countries or territories in which such Product is a Royalty Product.

1.123“Sales Costs” shall have the meaning set forth in Exhibit C.

1.124“Sales Returns & Allowances” shall have the meaning set forth in Exhibit C.

1.125“Strategic Plan” means, on a Collaboration Product-by-Collaboration Product basis, a written document establishing, for such Collaboration Product, a specific multi-year global strategic plan and budget.

1.126“Sublicensing Revenues” means [****] approved pursuant to Section 3.7(c) [****].

1.127“Technology” means any technical and other information, discoveries, inventions, modifications, improvements, data, results, designs, formulae, ideas, analyses, methods, techniques, assays, research plans, procedures, tests, processes (including manufacturing processes, specifications and techniques), laboratory records,

*Certain information on this page has been omitted and filed separately with the commission. Confidential treatment has been requested with respect to the omitted portions.

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chemical, pharmacological, toxicological, clinical, analytical and quality control data, reports, summaries, and information contained in submissions to, and information from, regulatory authorities (in each case whether patentable or not).

1.128“Term” shall have the meaning set forth in Section 16.1.

1.129“Territory” means all the countries of the world, and their territories and possessions.

1.130“Third Party” means any person or entity other than a Party or its Affiliates.

1.131“Third Party License” means (a) any of the license agreements set forth on Exhibit B and (b) any license agreement entered into by a Party with a Third Party after the Effective Date that the Parties (or the JSC, to the extent authorized) agree in writing is necessary for the Development, Manufacture or Commercialization of one or more Products in the applicable territory under this Agreement.

1.132“Third Party License Fees” shall mean license fees, royalties and other amounts incurred by a Party under a Third Party License or in-license after the Effective Date.

1.133“Transplant Field” means all indications that involve the suppression of rejection of transplanted organs, bone marrow or other tissue, including, solid organ transplantation (including tolerance induction and xenotransplantation), bone marrow transplantation, graft versus host disease and cell transplantation.

1.134“Valid Claim” means a claim in any (a) [****]; or (b) [****].

1.135“Volociximab Product” means [****].

Any reference in this Agreement to an Article, Section, subsection, paragraph, clause, Schedule or Exhibit shall be deemed to be a reference to an Article, Section, subsection, paragraph, clause, Schedule or Exhibit, of or to, as the case may be, this Agreement, unless otherwise indicated. Unless the context of this Agreement otherwise requires, (a) words of any gender include each other gender, (b) words such as “herein”, “hereof”, and “hereunder” refer to this Agreement as a whole and not merely to the particular provision in which such words appear, (c) words using the singular shall include the plural, and vice versa, and (d) the words “include,” “includes” and “including” shall be deemed to be followed by the phrase “but not limited to”, “without limitation”, “inter alia” or words of similar import.

*Certain information on this page has been omitted and filed separately with the commission. Confidential treatment has been requested with respect to the omitted portions.

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ARTICLE 2

GOVERNANCE OF THE COLLABORATION

2.1Scope of the Agreement. Pursuant and subject to the terms of this Agreement, within the Field and the Territory, the Parties agree to engage in Development activities with the goal of obtaining Regulatory Approval for Collaboration Products, as soon as reasonably practicable. Each Party agrees, during the Term, to Develop Collaboration Products only under the terms of this Agreement except as contemplated under the terms of the [****] Agreements. The Parties’ intent is to Develop Collaboration Products as expeditiously as reasonably practicable with the resources and responsibilities allocated between the Parties on the basis of each Party’s respective capabilities and availability of adequate capacities. Unless otherwise specified in this Agreement, the guiding principles to be followed by the Parties are attached hereto as Exhibit 2.1.

2.2Joint Steering Committee.

(a)Formation and Purpose. As of the Effective Date, the Parties shall create a Joint Steering Committee (the “JSC”) to oversee the overall strategy of the Development and Commercialization of Collaboration Products and carry out the functions described in this Section 2.2. The purposes of the JSC shall be to provide overall strategic decision-making and oversight of the Development and Commercialization of Collaboration Products, including the development of a Strategic Plan, a [****] high-level budget forecast and Approved Budget (consistent with the Development Plans to be prepared pursuant to Section 3.3), oversight of the activities of the Collaboration Committees, review of recommendations from the Collaboration Committees regarding strategic and aggregate budget issues, allocation of financial and other resources among collaboration projects, and resolution of any matters not resolved by any other Collaboration Committee. The JSC shall operate by the procedures set forth in this Section 2.2 and in Section 2.7. The members of the JSC appointed by a party shall collectively exercise one vote as to any matter upon which a vote is taken

(b)Membership of the JSC. Each Party shall designate representatives who are employees of such Party or an Affiliate of such Party (not to exceed [****] for each Party) with appropriate expertise to serve as members of the JSC. Each representative may serve on more than one Committee as appropriate in view of the individual’s expertise and may be substituted by another person with notice

*Certain information on this page has been omitted and filed separately with the commission. Confidential treatment has been requested with respect to the omitted portions.

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to the other Party. Each party may replace any or all of its representatives at any time upon prior written notice to the other Party.

(c)Specific Responsibilities of the JSC. In addition to its general responsibilities set forth in Section 2.2(a), the JSC shall, in particular:

(i)prepare and approve a Strategic Plan for the Collaboration and all Collaboration Products, a [****] high-level budget forecast and an Approved Budget for the Collaboration, and within such Approved Budget, make high-level budget allocations among particular Development Programs. Such Strategic Plan will guide the management of the Collaboration, and strategic decision-making regarding Collaboration Products. The Strategic Plan shall be in a form to be determined by the JSC (it being understood that the Parties will endeavor to approve such Strategic Plan, [****] high-level budget forecast, and Approved Budget within [****] following the Effective Date);

(ii)review and approve the Development Plan and Commercialization Plan for each Collaboration Product, and the Annual Workplans/Budget including any amendments and revisions thereto, submitted to it by the JDC and JCC, respectively, as soon as reasonably practicable after receipt thereof, but in no event later than the dates specified in Section 3.3(c);

(iii)review and approve decisions to terminate Collaborative efforts on Collaboration Products, including with respect to specific Indications;

(iv)review and approve decisions to proceed with the Development of any Future Products as part of a Development Plan therefor;

(v)establish subcommittees pursuant to Section 2.7(c), oversee the activities of all subcommittees so established, and address disputes or disagreements arising in all such subcommittees;

(vi)attempt to resolve disputes or disagreements arising in any other Collaboration Committee or pursuant to Section 5.2(a);

(vii)review and approve any changes in the Responsible Regulatory Party, the Responsible Development Party, the Responsible Commercialization Party or the Manufacturing Party, when and as necessary;

(viii)[****]; and

*Certain information on this page has been omitted and filed separately with the commission. Confidential treatment has been requested with respect to the omitted portions.

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(ix)perform such other functions as the Parties may agree in writing or as otherwise assigned by this Agreement.

(d)Meetings of the JSC. The JSC shall meet at least twice every calendar year, on such dates and at such times as agreed to by PDL and Biogen Idec, with all scheduled in-person meetings to alternate between Fremont, California and a Biogen Idec site to be designated by Biogen Idec prior to such meeting, or at other locations as determined by the JSC. In addition, either Party may convene a special meeting of the JSC by no less than ten (10) business days’ prior written notice. Meetings may be held by audio or video conference with the consent of each Party, provided that at least one (1) meeting per calendar year shall be held in person. Additional representatives or consultants may from time to time, by mutual consent of the Parties, be invited to attend JSC meetings, subject to such representative’s or consultant’s written agreement to comply with the requirements of this Agreement. Each Party shall be responsible for its own expenses for participating in the JSC. Meetings of the JSC shall be effective only if at least three (3) representatives of each Party are present or participating.

2.3Joint Development Committees.

(a)Formation and Purpose. Within thirty (30) days after the Effective Date, the Parties shall create a Joint Development Committee (the “JDC”) for each Development Program to oversee the Development of the Existing Products in such program. In addition, within thirty (30) days after a decision by the JSC to Develop a Future Product, the JSC shall decide whether to create a JDC to oversee the Development of such Future Product hereunder or include such Development within the scope of an existing JDC. The purposes of each JDC shall be to (i) review and recommend to the JSC Development Plans and Annual Workplan/Budgets prepared by the Responsible Development Party for its particular Collaboration Products and (ii) monitor and facilitate, as necessary, the implementation of the Development Plans by the Parties. Each JDC shall operate by the procedures set forth in this Section 2.3 and in Section 2.7.

(b)Membership of the JDC. Each Party shall designate representatives who are employees of such Party or an Affiliate of such Party (not to exceed six (6) for each Party) with appropriate expertise to serve as members of each JDC. Each Party shall include representatives from the functions for which it is the Responsible Party. Each representative may serve on more than one Committee as appropriate in view of the individual’s expertise and may be substituted by another person with notice to the other Party. Each party may replace any or all of its representatives at any time upon prior written notice to the other Party.

(c)Specific Responsibilities of the JDC. In addition to its general responsibilities set forth in Section 2.3(a), the JDC shall, in particular:

(i)consult with the Responsible Development Party on its preparation of a Development Plan and the Annual Workplans/Budget for each

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Collaboration Product, including with respect to budgets, clinical trial strategy, Regulatory Approval requirements and clinical supply requirements;

(ii)review and recommend to the JSC for approval each Development Plan as soon as reasonably practicable after receipt thereof, but in no event later than the dates specified in Section 3.3(c);

(iii)review and recommend to the JSC for approval the Annual Workplan/Budget proposed by the Responsible Development Party as soon as reasonably practicable after receipt thereof, but in no event later than the dates specified in Section 3.3(c);

(iv)review changes to the Development Plan proposed by the Responsible Development Party and recommend to the JSC for approval as soon as reasonably practicable after receipt thereof, but in no event later than the dates specified in Section 3.3(c);

(v)establish subcommittees pursuant to Section 2.7(c), oversee the activities of all subcommittees so established, and address disputes or disagreements arising in all such subcommittees;

(vi)present disputes not resolvable by the JDC to the JSC for resolution; and

(vii)perform such other functions as the Parties may agree in writing or as otherwise assigned by this Agreement.

(d)Meetings of the JDC. The JDC shall meet as frequently as members of the JDC determine is required (but in no event, less frequently than once every month during the first six (6) months following the Effective Date and once every Calendar Quarter thereafter), on such dates and at such times as agreed to by PDL and Biogen Idec, with all scheduled in-person meetings to alternate between a PDL site and a Biogen Idec site as designated by the respective Party prior to such meeting prior to such meeting, or at other locations as determined by the JDC. Meetings may be held by audio or video conference with the consent of each Party, provided that at least two (2) meetings per calendar year shall be held in person. Additional consultant’s or representatives may from time to time, by mutual consent of the Parties, be invited to attend JDC meetings, subject to such consultant’s or representative’s written agreement to comply with the requirements of this Agreement. Each Party shall be responsible for its own expenses for participating in each JDC. Meetings of the JDC shall be effective only if more than one-half of the representatives of each Party are present or participating.

2.4Joint Commercialization Committees.

(a)Formation and Purpose. The Parties shall form a Joint Commercialization Committee (the “JCC”) for such Collaboration Product to oversee the Commercialization thereof not later than the date that is six (6) months prior to the

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anticipated commencement of the first Phase 3 Trial with respect to a Collaboration Product or such earlier date as the JSC may determine. The purpose of each JCC shall be to (i) review and recommend to the JSC Commercialization Plans prepared by the Responsible Commercialization Party for its particular Collaboration Products and (ii) monitor and facilitate, as necessary, the implementation of such Commercialization Plans by the Parties. Each JCC shall operate by the procedures set forth in this Section 2.4 and in Section 2.7.

(b)Membership of the JCC. Each Party shall designate representatives who are employees of such Party or an Affiliate of such Party (not to exceed three (3) for each Party) with appropriate expertise to serve as members of each JCC. Each Party may replace any or all of its representatives at any time upon prior written notice to the other Party. Each representative may serve on more than one Committee as appropriate in view of the individual’s expertise and may be substituted by another person with notice to the other Party.

(c)Specific Responsibilities of the JCC. In addition to its general responsibilities set forth in Section 2.4(a), the JCC shall, in particular:

(i)promptly following the formation of each JCC, develop and recommend to the JSC a Strategic Plan for the Commercialization of the applicable Collaboration Product prior to the submission by the Responsible Commercialization Party of a Commercialization Plan for such Product;

(ii)consult with the Responsible Commercialization Party on its preparation of a Commercialization Plan for each Collaboration Product, including budgets to be included therein;

(iii)review and recommend to the JSC for approval each annual Commercialization Plan as soon as reasonably practicable after receipt thereof, but in no event later than the dates specified in Section 3.3(c);

(iv)review changes to the Commercialization Plan proposed by the Responsible Commercialization Party and recommend to the JSC for approval as soon as reasonably practicable after receipt thereof, but in no event later than the dates specified in Section 3.3(c);

(v)review initial Collaboration Product launch concepts for such Collaboration Product Promotional material prior to the creation and use thereof;

(vi)serve as a forum for discussion of issues presented by a Party with respect to the Commercialization of Collaboration Products;

(vii)establish subcommittees pursuant to Section 2.7(c), oversee the activities of all subcommittees so established, and address disputes or disagreements arising in all such subcommittees;

(viii)present disputes not resolvable by the JCC to the JSC for

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resolution; and

(ix)perform such other functions as the Parties may agree in writing or as otherwise assigned by this Agreement.

(d)Meetings of the JCC. The JCC shall meet as frequently as members of the JCC determine is required (but in no event, less frequently than once every Calendar Quarter), on such dates and at such times as agreed to by PDL and Biogen Idec, with all scheduled in-person meetings to alternate between a PDL site and a Biogen Idec site as designated by the respective Party prior to such meeting, or at other locations as determined by the JCC. Meetings may be held by audio or video conference with the consent of each Party, provided that at least two (2) meetings per calendar year shall be held in person. Additional representatives or consultants may from time to time, by mutual consent of the Parties, be invited to attend JCC meetings, subject to such representative’s or consultant’s written agreement to comply with the requirements of this Agreement. Each Party shall be responsible for its own expenses for participating in each JCC. Meetings of each JCC shall be effective only if more than one-half of the representatives of each Party are present or participating.

2.5Joint Finance Committee.

(a)Formation and Purpose. Within thirty (30) days after the Effective Date, the Parties shall create a single Joint Finance Committee (the “JFC”) for the Collaboration. The JFC shall operate under the direction of the JSC to provide services to and consult with the JDC and the JCC in order to address the financial, budgetary and accounting issues that arise in connection with the Development Plans and updates thereto as described in Exhibit C, as well as Commercialization Plans and updates thereto. Additionally, the JFC will lead the economic analysis to help drive decisions on future Collaboration investments, and lead the reporting and reconciliation processes outlined in Exhibit C. The JFC shall operate by the procedures set forth in this Section 2.5 and in Section 2.7.

(b)Membership of the JFC. Each Party shall designate two (2) employees of such Party or an Affiliate of such Party. Each Party may replace any or all of its representatives at any time upon prior written notice to the other Party. Such representatives will include individuals with expertise and responsibilities in the areas of accounting, cost allocation, budgeting and financial reporting. Each representative may serve on more than one Committee as appropriate in view of the individual’s expertise.

(c)Meetings of the JFC. The JFC shall meet as frequently as members of the JSC determine is required (but in no event, less frequently than twice every calendar year), on such dates and at such times as agreed to by PDL and Biogen Idec, with all scheduled in-person meetings to alternate between a PDL site and a Biogen Idec site as designated by the respective Party prior to such meeting, or at other locations as determined by the JFC. All meetings shall be held in person or by audio or videoconference. Additional representatives or consultants may from time to time, by mutual consent of the Parties, be invited to attend JFC meetings, subject to such

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representative’s or consultant’s written agreement to comply with the requirements of this Agreement. Each Party shall be responsible for its own expenses for participating in the JFC. Meetings of the JFC shall be effective only if all representatives of each Party are present or participating.

2.6Joint Patent Committee.

(a)Formation and Purpose. Within thirty (30) days after the Effective Date, the Parties shall create a single Joint Patent Committee (the “JPC”) for the Collaboration. The purposes of the JPC shall be to prepare, file and prosecute the PDL Patent Rights, the Biogen Idec Patent Rights and the Joint Patent Rights, as described in and subject to the terms of Article 12. The JPC shall operate by the procedures set forth in this Section 2.6 and in Section 2.7.

(b)Membership of the JPC. Each Party shall designate an employee of such Party or an Affiliate of such Party with appropriate expertise to serve as members of the JPC. Each Party may replace any or all of its representatives at any time upon prior written notice to the other Party. Each representative may serve on more than one Committee as appropriate in view of the individual’s expertise.

(c)Specific Responsibilities of the JPC. In addition to its general responsibilities set forth in Section 2.6(a), the JPC shall, in particular be responsible for:

(i)Managing continued prosecution of the PDL Patent Rights, the Biogen Idec Patent Rights and the Joint Patent Rights as described and in accordance with the terms of Article 12;

(ii)Reviewing invention disclosures and publications in accordance with the terms of Article 12 and Section 14.3;

(iii)Reviewing and managing licensing, enforcement activities and conflicts involving intellectual property rights to the extent provided in Article 12;

(iv)Providing advice, periodic updates and reports to the JSC regarding intellectual property matters;

(v)Using reasonable efforts to provide a freedom to operate analysis relating to Collaboration Products prior to the Phase 2 Trial completion;

(vi)Using good faith efforts to keep the Parties informed as to material developments with respect to the prosecution of, and any adversarial proceedings involving intellectual property rights, to the extent a Party’s representative on the JPC concludes that such prosecution or proceeding directly affects a Collaboration Product; and

(vii)Performing such other functions as the Parties may agree in writing or as otherwise assigned by this Agreement.

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(d)Meetings of the JPC. The JPC shall communicate on such dates and at such times as agreed upon by its members but in no event, less frequently than once every other Calendar Quarter. Meetings may be held by audio or video conference with the consent of each Party, provided that at least two (2) meetings per calendar year shall be held in person with all scheduled in-person meetings to alternate between a PDL site and a Biogen Idec site as designated by the respective Party prior to such meeting, or at other locations as determined by the JPC. Each Party may permit visitors to attend meetings of the JPC. Each Party shall be responsible for its own expenses for participating in the JPC. Meetings of the JPC shall be effective only if the representative of each Party is present or participating.

(e)Decisions; Actions Without Meetings. Subject to Article 12 below, any approval, determination or other action of the JPC shall require unanimous agreement of both members of the JPC. In the event that a decision can not be reached by the JPC, then the matter shall be referred to the respective senior management of the in-house legal department of each Party. In the event such senior management is unable to resolve the matter, then the matter will be resolved pursuant to Section 2.8 (b) and (c) and Article 17. Unless otherwise agreed by the Parties, decisions of the JPC shall be determined in a manner designed to ensure a reasonable scope of protection for the PDL Patent Rights, the Biogen Idec Patent Rights and the Joint Patent Rights, to obtain broad patent protection for Collaboration Products and to strengthen the Parties’ ability to broadly protect and enforce such Patent Rights against infringers within the scope of Collaboration Products.

2.7General Committee Procedures.

(a)Chairperson. Each Collaboration Committee will be led by a representative of one of the Parties (the “Chairperson”), appointed as follows:  [****] shall select from its representatives a Chairperson for each of the Committees for the period commencing on the Effective Date and ending on [****] and [****] shall select from its representatives a Chairperson for each of the Committees for the period commencing on [****] and ending on [****]. Thereafter, selection of the Chairperson for each of the Committees will [****].

(b)Responsibilities. The Chairperson shall have only those responsibilities set forth in this Section 2.7(b). The Chairperson of each Collaboration Committee shall be responsible for calling meetings, preparing and circulating an agenda in advance of each meeting of such Collaboration Committee, provided, that a Chairperson shall call a meeting of the applicable Collaboration Committee promptly upon the written request of either Party to convene such a meeting. In addition, each

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Chairperson shall bear the responsibility for preparing written draft minutes of that Collaboration Committee’s meetings in reasonable detail and for distributing such draft minutes to all members of that Collaboration Committee for comment and review within [****] after the relevant meeting. The members of the Collaboration Committee shall have [****] to provide comments. Each Chairperson shall incorporate timely received comments and distribute revised minutes to all members of that Collaboration Committee for their final review and approval within [****] after the relevant meeting.

(c)Subcommittees. From time to time, each Committee may establish and delegate duties to other committees or sub-committees on an “as-needed” basis to oversee particular projects or activities. Each such subcommittee shall be constituted and shall operate as the JSC, JDC, JCC, JFC or JPC, as the case may be, determines; provided, that each Party shall have the right to equal representation on any such subcommittee. Subcommittees may be established on an ad hoc basis for purposes of a specific project for the life of a Collaboration Product, or on such other basis as the applicable Committee may determine. Each subcommittee and its activities shall be subject to the oversight, review and approval of, and shall report to, the Committee that established such subcommittee. In no event shall the authority of the subcommittee exceed that specified for the relevant Committee in this Article 2.

(d)Limitations of Committee Powers. Each Committee shall have only such powers as are specifically delegated to it hereunder and shall not be a substitute for the rights of the Parties. Without limiting the generality of the foregoing, no Committee shall have any power to amend this Agreement. Any amendment to the terms and conditions of this Agreement shall be implemented pursuant to Section 18.3 below.

(e)Authority. The Parties agree that, in voting on matters as described in this Article 2, it shall be conclusively presumed that each voting member of the JSC or other Committee has the authority and approval of such member’s respective senior management in casting his or her vote.

2.8Committee Decision-Making.

(a)Consensus; Good Faith; Action Without Meeting. Subject to the terms of this Section 2.8, each Committee will take action by [****], assuming a quorum for such Committee is present. Consistent with Exhibit 2.1, the members of each Committee shall act in good faith to cooperate with one another to reach agreement with respect to issues to be decided by the Committee. Action that may be taken at a meeting of a Committee also may be taken without a meeting if a written

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consent setting forth the action so taken is signed by all of the Committee representatives of each Party.

(b)Failure to Reach Consensus by a Collaboration Committee. If a Collaboration Committee is unable to reach [****] within [****] of its initial consideration of any matter over which such Committee has authority and responsibility, then the Committee shall escalate the matter to the JSC for decision; provided, that such Committee may escalate the matter to the JSC prior to the expiration of such [****] with the consent of both Parties.

(c)[****]:

(i)With respect to any [****] shall [****] with respect to all matters, except as described below in clause (ii) and (iv) and provided that [****];

(ii)Each Party shall possess final decision-making authority with respect to Manufacturing processes during the time that such Party is the Manufacturing Party under this Agreement, but for avoidance of doubt in each case, such authority does not include the ability to terminate Manufacturing of a Product in contravention of the terms of any Clinical Supply arrangement or a Commercial Supply Agreement or to unilaterally alter the terms of any Clinical Supply arrangement or Commercial Supply Agreement including quantities or forecasts.

(iii)[****].

(iv)[****].

2.9Compliance with [****] Agreements. PDL shall have no obligation to act in any way that would breach its obligations under the [****] Agreements.

2.10[****].

ARTICLE 3

DEVELOPMENT OF COLLABORATION PRODUCTS

3.1Overview. The Collaboration between the Parties is divided into three Development Programs, one for each Collaboration Target. This Article 3 describes the rights and obligations of the Parties with respect to the Development of Collaboration Products within the various Development Programs, including both Existing Products and Future Products.

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3.2Responsible Development Party. Subject to the roles of the various Collaboration Committees described in Article 2, the allocation of primary responsibility for the creation of Development Plans and the implementation of Development activities of Collaboration Products described in such Development Plans shall be given to the Responsible Development Party. The allocation of such responsibilities shall be as follows:

	[****]	[****]	[****]	[****]	[****]
North American Territory	[****]	[****]	[****]	[****]	[****]
EU Territory and ROW Territory	[****]	[****]	[****]	[****]	[****]

3.3Development Plan.

(a)Scope. All Development of Collaboration Products shall be conducted pursuant to a Collaboration Product specific, multi-year, global development plan and budget (in each case, a “Development Plan”), which shall set forth all anticipated Development activities and timelines, allocate responsibility for carrying out such activities between PDL and Biogen Idec and include an associated [***] development budget with respect to each such Collaboration Product, plus a forecast of the total, multi-year costs of any clinical trials included within such plan. Primary responsibility for developing and implementing each such Development Plan shall reside with the Responsible Development Party for its respective Collaboration Product. The non-Responsible Development Party will have the right to consent to any Development activities assigned to such Party under the terms of a Development Plan. The initial draft Development Plans, including the Initial Development Program Budget, for the Existing Products are attached hereto as Exhibit 3.3. The Parties intend that the draft Development Plans attached in Exhibit 3.3 will serve as the Development Plans until first Development Plans are prepared and approved pursuant to Section 3.3(b).

(b)Development Plan and First Annual Workplan/Budget. The Responsible Development Party shall in consultation with the relevant JDC pursuant to Section 2.3(c)(i) prepare a Development Plan for each Existing Product as soon as practicable following the Effective Date, and each such Development Plan, when

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approved, shall supersede the applicable draft Development Plan attached as Exhibit 3.3. The Responsible Development Party will also prepare a draft of an Annual Workplan/Budget for [****] after consultation with the relevant JDC, specifying in detail the Development activities to be performed during the year, designation of which Party is responsible for each task, staffing levels (which levels shall be reasonably necessary for the attainment of the Development goals, as applicable), any approved use of Third Party contractors required to carry out such activities, a budget setting forth the estimated expenditures required to carry out such activities and a timeline for completion of such activities. Such draft will be prepared as soon as practicable following the Effective Date.

(c)Yearly Updates and Subsequent Annual Workplan/Budget. The Responsible Development Party shall, on an annual basis, update the Development Plan to reflect any changes necessary given the progress and the results of the Development work as of such date or any change in strategy, timelines, or long range plans going forward. In addition, prior to the start of each year, the Responsible Development Party shall prepare an Annual Workplan/Budget which shall specify in detail the Development activities to be performed during such year, designation of which Party is responsible for each task, staffing levels (which levels shall be reasonably necessary for the attainment of the Development goals, as applicable), any approved use of Third Party contractors required to carry out such activities, a budget setting forth the estimated expenditures required to carry out such activities, a timeline for completion of such activities and annual production requirements, as specified in Section 8.2. Each update to the Development Plan and adoption of each Annual Work-plan/Budget under this paragraph and any modifications and updates under paragraph (d) below shall automatically be deemed to constitute an amendment to the Development Plans upon JSC approval and ratification of the meeting minutes related thereto, and shall not constitute an obligation of either Party until such approval and ratification. The schedule for yearly updates to the Development Plan and the drafting and approval of each Annual Workplan/Budget commencing with the calendar year [****], shall occur no later than the dates set forth below:

EVENT	TIMING
[****]	[****]
[****]	[****]
[****]	[****]
[****]	[****]

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(d)Interim and Annual Workplan/Budget Modifications and Updates. The Responsible Development Party shall review each Annual Workplan/Budget on a [****] during the course of each year to review actual activities and expenditures compared to plan and to determine if any changes are necessary given the progress and the results of the Development work as of such date. Other interim modifications to each Annual Workplan/Budget during the course of the year may also be adopted by the Responsible Development Party, as necessary, but shall be subject to the approval of the JSC if material. All changes to any Annual Work-plan/Budget shall be subject to review and approval of the JSC where such modifications exceed the authority delegated to the Responsible Development Party by the JSC or under this Agreement.

3.4Standards of Conduct; Diligence.

(a)Each Party shall perform the Development activities for which it is responsible under the Development Plan in good scientific manner and in compliance with applicable laws, rules and regulations. Each Party will keep the other Party fully informed regarding the progress and results of such Party’s Development activities with respect to the Collaboration Products through the Collaboration Committee meetings.

(b)Each Party shall use Diligent Efforts to execute and carry out the activities assigned to it in the Development Plan within each Annual Workplan/Budget; [****].

(c)The Parties shall cooperate in good faith to establish appropriate and consistent medical information support relating to Collaboration Products.

3.5Shared Development Expenses.

(a)Payment of Development Expenses. Subject to a Party’s right to opt out as set forth in Article 4, all Development Expenses or Other Out of Pocket Costs shall be shared between Biogen Idec and PDL as provided below and in accordance with Exhibit C, so that Biogen Idec bears fifty percent (50%) of such costs and PDL bears fifty percent (50%) of such costs, provided that such costs were part of an Annual Workplan/Budget, or were incurred pursuant to the draft Development Plans attached as Exhibit 3.3 prior to approval of a Development Plan under Section 3.3(b), or were otherwise approved by the JSC. There shall be a Reconciliation Statement, prepared by the Responsible Development Party as set forth in Section A.2.2 of Exhibit C, of such costs which are to be shared and which are incurred during a reporting period by each Party, in accordance with Section A.2.2 of Exhibit C, with a payment by one Party to the other, pursuant to Section A.5 of Exhibit C, to the extent necessary so that each Party bears its appropriate percentage of such shared Development Costs. [****].

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(b)Development Cost Accounts. Subject to the limitations set forth in Section 3.6, each Party shall charge all Development Expenses or Other Out-of –Pocket Costs so incurred by it or its Affiliates on its books and records to enable the tracking of expenses incurred in connection with each Development Plan and each Annual Workplan/Budget (each, a “Development Cost Project Account”). Within [****] after the end of each Calendar Quarter, each Party shall submit to the other Party a written summary of all expenses charged to its Development Cost Project Account during such Calendar Quarter, which summary shall be accompanied by reasonable supporting documentation for such expenses. Each Party shall provide the other Party with interim [****] reports of [****] estimates of current Calendar Quarter charges within [****] after the end of [****] in a Calendar Quarter (other than the [****], for which only a quarterly report will be due).

3.6Excluded Development Expenses. Notwithstanding the terms of Section 3.5, [****] will bear any [****], incurred by the Parties primarily in connection with the Development of any and all Royalty Products for approval and sale in the ROW Territory.

3.7Third Parties.

(a)Contractors. Any Third Party retained by a Party to perform Development activities must be approved in advance in writing by the other Party, unless such Third Party is specifically named in a Development Plan. Each Party shall remain liable for the performance of its obligations hereunder which it delegates to such Third Parties. Any Third Parties performing Development activities hereunder shall be subject to confidentiality and non-use obligations at least as stringent as those set forth in Article 14 and must comply with the terms of Article 12.

(b)Intellectual Property. The Parties intend not to knowingly introduce to any Collaboration Product any Technology that is not Controlled by a Party, except with the prior approval of the JPC and the JSC. If the JSC in consultation with the JPC determines that a license to certain Third Party technology is reasonably necessary to advance the successful Development of a Collaboration Product, then the JSC shall [****]. Upon approval of the terms of such Third Party license, the [****] may execute such Third Party license and any payments that become due pursuant to a Third Party License agreement executed pursuant to this Section 3.7(b) will, during the course of Development of the applicable Collaboration Products, be treated as [****].

(c)Sublicensing. The JSC may elect to license the further Development or Commercialization of a Collaboration Product to a Third Party in one or more Indications and/or territories. In such event, the JSC shall designate a Party to negotiate the terms on which such a Third Party license would be granted and to serve

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as the primary point of contact with the applicable Third Party sublicensee following the execution of the license agreement, provided that the JSC may condition approval of such sublicense upon submission of the final agreement with the Third Party to the JSC for final approval. The parties acknowledge that any grant of rights to a distributor shall not constitute a license of Development or Commercialization rights hereunder.

3.8[****]. If, after the Effective Date, [****]. If the Parties fail to agree on the payment and other terms under which such [****] would be included within this Agreement prior to the termination of the Negotiation Period, then such [****] shall not be included within the scope of this Agreement and [****] shall have no further obligation to [****] in respect of such rights except as set forth in this Section 3.8. If the Parties were unable to execute an agreement prior to the termination or expiration of the Negotiation Period, [****] will not, for a period of [****] from the termination or expiration of the Negotiation Period, enter into a license or other agreement with a Third Party providing for the development or commercialization of such [****] on terms which are in the aggregate less favorable to [****] than the last bona fide offer made in writing by [****] to [****] without first offering to [****] for a period of [****] the right to include the [****] within the scope of this Agreement upon such alternative terms.

3.9Development of Products in the ROW Territory.

(a)Responsibility. Biogen Idec shall be solely responsible, at its sole cost and expense and at its sole discretion, for the Development of any Royalty Product in the ROW Territory. Biogen Idec shall use Diligent Efforts in proceeding with the development and registration of Royalty Products in Japan.

(b)Updates. Biogen Idec will inform PDL of the status of Biogen Idec’s Development and Commercialization of Royalty Products in the ROW Territory through [****] progress reports submitted in writing to PDL. In addition, upon reasonable notice to Biogen Idec, it will provide PDL with copies of any information or data reasonably requested by PDL and reasonably necessary for the development or commercialization of Royalty Products. Through the JSC, Biogen Idec shall advise and consult with PDL with respect to any significant issues or questions raised by any regulatory authorities in the ROW Territory with respect to a Royalty Product that Biogen Idec believes would have an adverse impact on the corresponding Collaboration  Product in the Profit Sharing Territory.

(c)Regulatory Cross-Referencing. Biogen Idec will allow the Responsible Regulatory Party in a Territory to cross-reference, in furtherance of JSC-approved activities under this Agreement, Biogen Idec regulatory filings and clinical data

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with respect to any Royalty Product developed or commercialized by Biogen Idec in the ROW Territory and will grant PDL reasonable access during normal business hours to such regulatory filings and clinical data.

3.10Consideration of Future Products and Additional Indications or New Formulations of Collaboration Products; Scope and Exclusivity

(a)Future Products Brought to Joint Steering Committee

(i)From time to time during the Term, the JSC shall consider proposals that the Parties jointly Develop and Commercialize any (A) new Product as a Future Product in accordance with the terms of this Agreement; (B) additional Indication for an existing Collaboration Product; or (C) new formulation of an existing Collaboration Product.

(ii)Either Party may initiate the foregoing proposal at any time during the Term. In addition, the Parties must initiate a proposal with respect to a Product under the circumstances discussed below. A Party initiating a proposal under this Section 3.10 shall be deemed a “Proposing Party.”

(1)A Party must bring a proposal to the JSC that the Parties Collaborate on [****] at the following times:

(a)With respect to a [****], prior to negotiation of such license; or

(b)With respect to all other Products that are [****], after the Proposing Party has performed Development on such Product, [****];

(2)PDL must [****] at the following times:

(a)With respect to a [****]; or

(b)With respect to all other Products that are [****], after PDL has performed Development on such Product, [****];

(b)Consequences of JSC Consideration of Future Products and Additional Indications or New Formulations of Collaboration Products

(i)Full Approval. If the JSC approves the addition of a new Product as a Future Product or an additional Indication for an existing Collaboration Product or a new formulation of an existing Collaboration Product, then such Product

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shall be a Collaboration Product and the JSC shall appoint a Responsible Development Party that shall create a new Development Plan for such Collaboration Product or update the applicable Development Plan to include the Development activities to be performed by the Parties in the case of an additional Indication for or new formulation of an existing Collaboration Product. The JSC will take into consideration a Party’s current abilities, expertise and infrastructure when appointing new Responsible Development Parties and will make such appointments accordingly. The Responsible Development Party for each such Collaboration Product shall implement such Development activities as contemplated by this Article 3. Any such Development Plan or update shall be prepared and approved in accordance with the provisions of Articles 2 and 3.

(ii)Partial Approval. If, after a proposal is made under Section 3.10(a), the JSC does not approve the addition of a new Product as a Future Product or an additional Indication for an existing Collaboration Product or a new formulation of an existing Collaboration Product, but determines that such Product or additional Indication or formulation should be subject to further evaluation then such Product or additional Indication or formulation shall be subject to this Section 3.10(b)(ii). At the request of the Proposing Party, the JSC shall develop a proposed work plan, which shall include specific goals (such as a clinical trial, with primary endpoints) for such Product or additional Indication or formulation and the Proposing Party shall provide all information reasonably requested by the JSC that would be material to making a determination as to whether such proposed work plan should be approved and to the appropriateness of the proposed goals. If the JSC agrees that if the specific goals set forth in work plan are met, the Indication, formulation or new Product would become a Collaboration Product, then the following shall apply:

(1)The Proposing Party shall have the right to undertake the work specified in the work plan at its own expense;

(2)If the Proposing Party carries out the work plan and meets all of the JSC-approved specific goals, then

(a)the other Party shall reimburse the Proposing Party an amount equal to [****] of the Development Expenses related to such trial that such Party would have otherwise been responsible for if the JSC had approved such trial as part of the Development Plan,  and

(b)the formulation, Indication or new Product shall be developed jointly by the Parties and the JSC shall take the actions described in Section 3.10(b) in respect of such new Collaboration Product or additional Indication or new formulation of an existing Collaboration Product.

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(3)If the JSC-approved specific goals are not met, the Proposing Party shall be solely responsible for all related costs without the right of reimbursement from the other Party and neither Party will be allowed to continue development except in the following circumstances:

(a)If [****] is the Proposing Party, it may [****];

(b)If [****] is the Proposing Party [****] it may [****].

For purposes of clarity, the Parties agree that if the JSC is unable to agree on the specific goals for the foregoing work plan or is unable to agree that if the work plan meets its goals the Parties would jointly Develop the new product as a Future Product or an additional clinical indication for an existing Collaboration Product or a new formulation of an existing Collaboration Product, such disagreement shall not be subject to dispute resolution hereunder and shall be considered final.

(iii)No Approval. If, after a proposal is made under Section 3.10(a), the JSC does not approve the addition of a new Product as a Future Product or an additional Indication for an existing Collaboration Product or a new formulation of an existing Collaboration Product, and does not determine that such Product or additional Indication or formulation should be subject to further evaluation, [****] except in the following circumstances, and provided that the Proposing Party did not block the approval of any such proposal:

(1)If [****] is the Proposing Party, it may [****];

(2)If [****] is the Proposing Party [****], it may [****].

Any such Product which is permitted to be pursued outside the Collaboration shall not be subject to the terms, obligations, rights and responsibilities in this Agreement.

(c)Lapse of Obligations [****]. The obligations to propose [****] under this Section 3.10 shall lapse as to any [****].

3.11Transfer of Materials. During the Term, the Parties anticipate that each Party will transfer certain of its proprietary tangible research materials to the other Party. Each Party agrees during the Term that it will use such materials of the other Party only for the purposes set forth in this Agreement, and will not transfer such materials to any Third Party, except in compliance with Section 14.1 and Section 14.2 of this Agreement. Each Party shall have the right to use proprietary tangible research materials provided

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to it by the other Party during the Term and in furtherance of the purposes set forth in this Agreement, solely for the purposes hereunder. Such proprietary materials received from the other Party which are directly related to Collaboration Products may be transferred to Third Parties only with consent of the JDC and JPC, subject to the form of material transfer agreements or collaboration agreements, as applicable, covering such materials, such form agreements to be drafted and agreed upon by the JPC.

ARTICLE 4

OPT OUT RIGHTS; ROYALTY PRODUCTS

4.1Opt Out Rights for Collaboration Products or Indications

(a)Opt Out Right. Each Party will have the option to terminate its participation in the Development and Commercialization of one or more Collaboration Products as set forth in this Section 4.1 (the Party exercising such right referred to as the “Non-Developing Party”). A Non-Developing Party may terminate its participation with respect to: (i) [****]; (ii) [****]; (iii) [****]; or (iv) [****], everywhere in the world; provided, however, that (A) [****] and (B) [****].

(b)Limitations. The rights of each party to terminate its participation pursuant to this Section 4.1 shall be subject to the following limitations:

(i)[****] may not exercise its opt out rights described in this Section 4.1 with respect to [****].

(ii)[****] can opt out of Development or Commercialization except at one of the points shown at Exhibit 4.1(b)(ii) with respect to the Existing Products and at such other points as determined by the Parties with respect to other Collaboration Products or as provided in Section 4.1(b)(iv). The Parties agree that they will include such opt out points in the Development Plans for other Collaboration Products at the time of preparation thereof.

(iii)If a Party elects to opt out of an Indication for a Collaboration Product, it shall automatically be deemed to have opted out of all other Indications for which that Collaboration Product would be marketed to the same Physician Group (collectively the “Opt Out Indications”) and if a Party opts out of an oncology Indication it shall be deemed to have opted out of all oncology Indications.

(iv)If a Party elects to opt out of Commercialization, the election shall not be effective until [****] after written notice of such election (or such earlier date

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as specified in writing by the Independent Development Party (as defined in Section 4.1(d) below)) and may not be made until [****] following the [****]. A party may not opt out of Commercialization of a Collaboration Product if the opt out would result in a higher profit to the Party electing to opt-out, based on a comparison of the royalty payments and Collaboration Product Profit payments that such Party would have received in the four full calendar quarters prior to the election.

(v)Neither Party can elect to opt out of Development or Commercialization with respect to a Product if such Party has received notice pursuant to Section 16.2 that it is in material breach of this Agreement with respect to such Product and it has not cured such breach or resolved in its favor any dispute regarding whether there was a breach or whether such breach was cured.

(c)Timing. Subject to the limitations in Section 4.1(b) a Party may exercise its opt out right with respect to Development of a particular Collaboration Product or an Opt Out Indication(s) of a particular Collaboration Product at the decision points described in Section 4.1(b). The Non-Developing Party shall provide written notice to the other Party of its decision to exercise such right (the “Opt Out Notice”) during the time period described in each opt out point.

(d)Effects of Exercise. Effective upon timely delivery of an Opt Out Notice, (i) the Party that is not the Non-Developing Party will be deemed the “Independent Development Party” with respect to the applicable Independent Product or Independent Indication, (ii) the Non-Developing Party will be deemed the “Non-Developing Party” with respect to the applicable Independent Product or Independent Indication and responsibility shall be as set forth in Section 4.3, (iii) if such exercise was made with respect to [****], such Collaboration Product will become an Independent Product in [****], and (iv) if such exercise was made with respect to [****]. In any event, the further Development of such [****] by the Independent Development Party will be subject to the terms set forth in Sections 4.2 and 4.3. For purposes of the following Section 4.2, [****] is not [****] with respect to the [****].

4.2Development of Independent Products and Independent Indications.

(a)Generally. For each Independent Product and Independent Indication, the Independent Development Party will have the right, at its own option and expense, to plan and conduct the Development of and to Commercialize such Independent Product or Independent Indication, as the case may be, in accordance with the terms of Sections 4.2, 4.3 and 4.5.

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(b)Transition of Development Activities. Upon a Party giving the Opt Out Notice with respect to a Collaboration Product or one or more Indications of a Collaboration Product, the applicable Development Plan or Commercialization Plan, as the case may be, for such Collaboration Product or Indication, as the case may be, shall automatically be amended to provide that the Parties shall carry out and share the costs with respect to only those particular Development or Commercialization activities under the applicable Development Plan or Commercialization Plan, respectively, that have commenced on or before the date of such Opt Out Notice. By way of example, an activity for purposes of this Section would include a clinical trial that has commenced. Notwithstanding the foregoing, the Non-Developing Party shall transfer responsibility for such ongoing activities to the Independent Development Party as of the date of such Opt Out Notice or as soon as reasonably practicable after such date.

4.3Rights and Obligations Upon Opt-Out.

(a)Prior to the Opt-In Trigger. Prior to the date of the Opt-In Trigger, the Independent Development Party shall be obligated to Develop the Independent Indication, at its sole cost (subject to Section 4.2(b)), and shall use Diligent Efforts in such development. The Independent Development Party shall keep the JSC reasonably informed regarding matters that would adversely affect Development or Commercialization of the Collaboration Product in other Indications then being Developed or Commercialized by the Parties jointly.

(b)Following the Opt-In Trigger and As to Independent Products. The Independent Development Party will assume unilateral control over the Development and Commercialization of (i) an Independent Product after opt out has occurred as to such Product, and (ii) as to an Independent Indication from and after the date of the Opt-in Trigger if such option is not exercised by the other Party, except that:

(1)The Independent Development Party shall give the JSC annual updates regarding the status and results of any development and commercialization activities conducted regarding an Independent Indication.

(2)If PDL is the Independent Development Party, then PDL shall use Diligent Efforts to Develop and Commercialize  such Independent Product or Independent Indication.

(3)If Biogen Idec is the Independent Development Party, then Biogen Idec shall use Diligent Efforts to Develop and Commercialize such Independent Product or Independent Indication.

(4)If [****] is the Independent Development Party and [****] PDL, at its option, may [****].

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(c)Manufacturing. If the Non-Developing Party as to a Product is responsible for Manufacturing the applicable Collaboration Product pursuant to Article 8, then such Non-Developing Party will continue to supply the Independent Development Party with clinical and/or commercial supply of the applicable Collaboration Product until such time as the Parties have effected a technology transfer of the applicable Manufacturing process, at the Independent Development Party’s request, and the Independent Development Party has validated such process in its or its CMO’s designated facility and has all necessary regulatory approvals to Manufacture and such Manufacture has commenced. The Non-Developing Party shall use commercially reasonable efforts to effect a technology transfer of the applicable Manufacturing process to the Independent Development Party or its designated CMO as soon as practicable, but in no event more than [****] after the Opt Out Notice is delivered The Non-Developing Party shall supply such Product to the Independent Development Party during the [****] at a cost of [****]  Between [****] and [****], the Non-Developing Party shall supply such Product to the Independent Development Party at a cost of [****]. Between [****] and [****], the Non-Developing Party shall supply such Product to the Independent Development Party at a cost of [****].

(d)Remaining Program Obligations. The portion of the applicable Development Program with respect to which the Non-Developing Party has not exercised its option to opt out will continue unaffected by such opt out.

(e)Data Transfer. Commencing at the time of delivery of the Opt Out Notice, the Non-Developing Party promptly shall provide, at the sole cost of the Non-Developing Party, the Independent Development Party with copies of all data and information, and samples of all tangible items, comprising Know-how and other Technology of the Non-Developing Party relating to such Independent Product or Independent Indication, as the case may be.

(f)Assignment of Regulatory Filings. The Non-Developing Party promptly shall, as applicable, assign or make available by cross-reference to the Independent Development Party, at the Non-Developing Party’s sole cost, all registrations for such Independent Product (at the time of exercising its opt out rights) or Independent Indication (an assignment shall only occur after the expiration of the Non-Developing Party’s  right to opt in; a cross reference right shall be available from the time of exercise of the Non-Developing Party’s opt out rights until the expiration of such party’s opt in rights or longer, as appropriate), as the case may be, and shall notify the appropriate Regulatory Authorities and take any other action reasonably necessary to effect such transfer of ownership or access to regulatory filings; provided, however, that a Non-Developing Party shall not have any obligation to assign to the Independent

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Development Party the Drug Master File for any Independent Product if and for so long as the Non-Developing Party is engaged in the Manufacture of such Independent Product on behalf of the Independent Development Party or with respect to Indications or territories for which such Non-Developing Party has retained rights.

(g)Obligations with Respect to Third Party Contracts. Each Party shall include provisions in its contracts with Third Parties entered into after [****] and specifically related to Development or Commercialization of a Collaboration Product or an Indication of a Collaboration Product that would permit (i) [****] or (ii) [****]. Except as otherwise set forth in this Article 4, the Non-Developing Party shall use Diligent Efforts to effect assignment (and full release of the Non-Developing Party) or the granting of a sublicense or equivalent right of access (and partial release of the Non-Developing Party) to the Independent Development Party, whether through novation or sublicensing of such contracts or otherwise, of any and all rights under any contract between the Non-Developing Party and any Third Party that are necessary for Independent Development Party to continue with Development or Commercialization of such Collaboration Product or Indication, as the case may be, and the Independent Development Party shall reasonably cooperate in connection therewith. If such assignment, novation or sublicense is not permissible, the Parties shall discuss in good faith potential alternatives that would enable the Independent Development Party to exercise the rights and obligations of the Non-Developing Party under such contracts with respect to such Independent Product while minimizing the continuing obligations of the Non-Developing Party.

(h)Technical Assistance. During the period commencing with delivery of an Opt Out Notice and ending [****] following the effective date of such Opt Out Notice, the Non-Developing Party shall provide reasonable technical assistance as requested by the Independent Development Party to effectuate an orderly transition of the Development and Commercialization of such Independent Product or Independent Indication, as the case may be, to the Independent Development Party. Such assistance shall be at the expense of the Non-Developing Party until the effective date of the Opt Out Notice and thereafter shall be at the expense of the Independent Development Party.

(i)Termination of License Rights. Unless and until the Non-Developing Party decides to Opt-in pursuant to the Opt In Trigger described herein, it shall have no further rights under the licenses provided to it under Article 11 with respect to such Independent Product or Independent Indication.

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(j)Transfer of Trademarks. If the Non-Developing Party owns the Product Trademarks (as defined in Section 12.13(a)) relating to the Independent Product (or Independent Indication, if there are Product Trademarks that relate specifically to such Indication), ownership of such Product Trademarks shall be transferred to the Independent Development Party in the Territories as to which the opt out occurs.

4.4Rights to Opt In to Independent Indication During Development.

(a)General. Subject to the terms of this Section 4.4, a Non-Developing Party will have the option to opt-in to the independent development of an Independent Indication on a one-time basis, exercisable by providing a notice in writing to the Independent Development Party within (i) the [****] (the “Opt In Trigger”)  [****] or (ii) the [****]. Within [****] of receipt of such written notice, the Independent Development Party shall provide to the Non-Developing Party a package of data and other information concerning the Independent Indication reasonably necessary to permit the Non-Developing Party to make an informed decision on its desire to opt in to Development and Commercialization in the manner set forth in this Agreement (the “Data Package”). Following receipt of the Data Package, the Non-Developing Party shall have [****] within which to elect to opt-in. Any such election shall become effective upon receipt by the Independent Development Party of a final written determination by the Non-Developing Party stating its decision to opt-in. Failure to deliver timely notice of an intent to opt-in shall be conclusively deemed to be a waiver of such rights.

(b)Limitations. A Non-Developing Party shall not have the right to opt in to the Commercialization of a Collaboration Product in the event that it delivers an Opt Out Notice for such Product at any time following final regulatory approval for the marketing of such Collaboration Product anywhere in the Territory.

(c)Expense Reimbursement. Upon exercise of an opt in right as described in this Section 4.4, the Non-Developing Party shall reimburse the Independent Development Party for [****] of that portion of the Development Expenses that would have been incurred by the Non-Developing Party, had such Party not opted out, during the period in which such Party had opted out.

(d)Effects of Opt In. Upon exercise of an opt in right and payment of all amounts due under subsection (c) above, the Independent Indication shall cease being an Independent Indication and will automatically return to the scope of the Collaboration. Thereafter, the Parties shall continue Development and Commercialization of such Indication jointly as described in this Agreement; provided, that for the [****] following the exercise of an opt in right, the Party that had been the

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Independent Development Party shall be the Responsible Development Party, notwithstanding the provisions of Section 3.2 and the Parties shall agree on the allocation of responsibilities thereafter.

4.5Royalty Products.

(a)Effective upon the exercise of a Party’s opt-out right with respect to a Collaboration Product, either on a Product or Indication basis, the applicable Product will be a Royalty Product. The Independent Development Party will pay the Opt-Out Party the royalty payments described in Section 9.5 for such Royalty Product.

(b)With respect to Collaboration Products developed by [****], [****] is the Independent Development Party and [****] is the Non-Developing Party, such Products are Royalty Products with respect to the [****] and the [****] is within the Royalty Territory for such Products. [****] will pay to [****] the royalty payments described in Section 9.5 for all such Royalty Products Commercialized in the [****].

ARTICLE 5

REGULATORY

5.1Responsible Regulatory Party. Subject to the roles of the various Committees described in Article 2, the allocation of Responsible Regulatory Party for Collaboration Products under this Agreement is as follows:

(a)[****] will be the Responsible Regulatory Party in the [****] and the [****] for all Collaboration Products; and

(b)[****] will be the Responsible Regulatory Party in the [****] for all Collaboration Products during the Development of such Collaboration Product. At the time of receipt of first Regulatory Approval for the [****].

5.2Regulatory Filings for Collaboration Products.

(a)The Responsible Regulatory Party identified in Section 5.1 above shall primarily be responsible for preparing and filing all Regulatory Filings and seeking all Regulatory Approvals in the relevant territory, including preparing all reports necessary as part of a Drug Approval Application. All Regulatory Filings for all Collaboration Products shall be filed in the name of the Responsible Regulatory Party for a particular Territory. The Parties anticipate that Regulatory Filings for the EU and North America Territories will be based on a common set of technical documents. Such

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common set of technical documents shall be prepared by the Responsible Development Party (or collectively by both of the Responsible Development Parties where there are two for a Collaboration Product). The Responsible Regulatory Party and the Responsible Commercialization Party (to the extent they are different Parties) shall jointly prepare all Regulatory Filings. All reasonable comments of the Responsible Commercialization Party for an applicable Collaboration Product shall be incorporated into such Regulatory Filing for any Collaboration Product. The Responsible Regulatory Party shall, at all times, consult with the Responsible Commercialization Party on all communications and other dealings with the regulatory agencies relating to such Collaboration Product in the applicable territory. However, the Manufacturing Party shall be solely responsible for all communications and other dealings with the regulatory agencies throughout the world pertaining to the Manufacture of such Collaboration Products. The Responsible Regulatory Party and the Responsible Commercialization Party shall jointly develop and implement procedures for drafting and review of Regulatory Filings for the relevant Collaboration Products in the applicable territory, which procedures shall provide for sufficient time for the Responsible Commercialization Party to provide comments to such Regulatory Filings. If the Parties are unable to resolve any disputes related to such Regulatory Filings content or strategy, such disputes shall be resolved as set forth in Article 2 hereof. In addition to the right to cross-reference set forth in Section 3.9(c), the other Party shall have the right of cross-reference to all such Regulatory Filings or Regulatory Approvals obtained hereunder for purposes of Collaboration Products.

(b)The Responsible Regulatory Party shall promptly provide the other Party with a copy (which may be wholly or partly in electronic form) of all Regulatory Filings with respect to such Collaboration Products that it makes hereunder. The Responsible Regulatory Party will provide the other Party with reasonable advance notice of any meeting with any regulatory agency relating to Development, Commercialization and/or any Drug Approval Application in the relevant territory, and the other Party shall have the right to observe and, if the Parties mutually agree in advance or if such Party is the Responsible Commercialization Party, participate in any such meeting. The Responsible Regulatory Party also shall promptly furnish the other Party with copies of all material correspondence or minutes of material meetings with any regulatory agency relating to Development, Regulatory Filings and/or a Drug Approval Application in the relevant territory. As between the Parties, the Responsible Regulatory Party shall be the initial legal and beneficial owner of all Regulatory Filings and related approvals in the relevant territory for such Collaboration Product. The Responsible Regulatory Party shall assign all Regulatory Filings in the North American Territory to the Responsible Commercialization Party promptly following filing of the NDA (or its foreign equivalent). No such assignment shall take place in the ROW Territory.

(c)The Manufacturing Party shall provide the Responsible Commercialization Party (if a different Party) with reasonable advance notice of any scheduled regulatory inspection of the Manufacturing Party’s Manufacturing facilities for a Product. The Manufacturing Party shall control all interactions with regulatory

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authorities with respect to such inspection. The  other Party if applicable, shall have the right to be present, but not participate, during such inspection.

5.3Safety Data. [****] will ensure that [****] has complete access to any and all safety data regarding the [****] or any [****] thereof. [****] will ensure that [****] have complete access to any and all safety data regarding the [****] or any [****]. If and to the extent that a single global safety database is required for the [****],  [****] will be the recognized holder of the global safety database for such Product, which will be searched to provide answers to safety queries, for signal evaluation, for the preparation of analyses of similar events and for the preparation of periodic safety update reports.

5.4Adverse Event Reporting. Each Party shall notify the other of all information coming into its possession concerning any and all side effects, injury, toxicity, pregnancy or sensitivity event associated with commercial or clinical uses, studies, investigations or tests with any of the Collaboration Products or Royalty Products, throughout the world, whether or not determined to be attributable to such Products (“Adverse Event Reports”).  The Parties shall each identify a person to coordinate the exchange of Adverse Event Reports (“Report Coordinators”) so as to enable timely reporting of such Adverse Event Reports to appropriate governmental and regulatory authorities consistent with all laws, rules and regulations. Within a reasonable time after the Effective Date, the Parties shall agree in writing on formal procedures for such exchange in a separate pharmacovigilance agreement. Provided that [****] is under a similar obligation under the [****] Agreements, the Parties agree to engage in good faith negotiations regarding a three-party pharmacovigilance agreement. The Parties acknowledge and agree that such procedures, as well as the Parties’ exchange of Adverse Event Reports in general, must not be in contravention with the [****] Agreements relating to safety issues involving the [****] that is a Collaboration Product, or a Royalty Product.

5.5Copies of Responses. Within a reasonable time frame prior to submission of responses to any regulatory authority on product safety issues regarding a Collaboration Product, a copy of a near final draft response will be provided to the other Party for review.  Final copies of responses submitted to any regulatory authority will be provided to the other Party within [****] of document finalization. [****] acknowledges that such responses may need to be coordinated under the [****] Agreements with respect to the [****] and agrees to use commercially reasonable efforts to facilitate such coordination.

5.6Regulatory Actions. The Party responsible for interacting with regulators on a specific safety issue regarding a Collaboration Product or Royalty Product shall communicate material action requested by regulators to the other Party without delay.

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Such actions may include, for example, change in label, Dear Doctor letter, trial on hold for clinical safety reasons and the like.

5.7Other Safety Issues. Either Party may request that specific safety issues be discussed, and the parties will establish a Safety Committee (the “SC”) consisting of an equal number of representatives from each Party, for such purpose. The role of the SC shall be to advise each Party concerning the collection and evaluation of safety data, and to respond to any significant safety issues raised, or requests made, by regulatory authorities.

ARTICLE 6

COMMERCIALIZATION

6.1Overview. Subject to the roles of the various Committees described in Article 2, the allocation of primary responsibility for the creation of Commercialization Plans and the implementation of Commercialization activities of Collaboration Products described in such Commercialization Plans shall be given to the Responsible Commercialization Party. The allocation of such responsibilities with respect to the Existing Products shall be as follows:

	[****]	[****]	[****]
North American Territory	[****]	[****]	[****]
EU Territory	[****]	[****]	[****]
ROW Territory	[****]	[****]	[****]

(a)Commercialization Plans. All Commercialization of Collaboration Products shall be conducted pursuant to a Collaboration Product specific, multi-year, global commercialization plan and budget (in each case, a “Commercialization Plan”), which shall set forth the anticipated activities (including market studies, launch plans, Detailing and Promotion) and timelines, and shall allocate responsibility for carrying out such activities between PDL and Biogen Idec. Each Commercialization Plan shall include the plan for: (i) Detailing and Promotion activities for the applicable Collaboration Product in the applicable Indication for the next [****] (as to the initial Commercialization Plan, the [****] following launch) and timelines for performing such activities, (ii) target audience, (iii) anticipated expenses other than personnel,

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(iv) assumptions regarding product profile, (v) sales force size, and (vi) Promotional efforts. Any Commercialization Plan, together with any updates thereto, shall be prepared and approved as follows:

(i)The Responsible Commercialization Party with strategic guidance from the JSC shall prepare the initial Commercialization Plan for a Collaboration Product and submit such plan to the JCC for recommendation for approval and, following such recommendation, to the JSC for its review and approval; provided that the JCC must recommend and the JSC must approve the Commercialization Plan if it is consistent with the then-current Strategic Plan and Approved Budget for that year. The Parties agree and acknowledge that any such Commercialization Plan will reasonably allocate between the Parties the performance of any Post-Approval Clinical Trials for Collaboration Products in the North American Territory, giving equal consideration to each Party’s abilities when making such allocation.

(ii)The Responsible Commercialization Party will, from time to time, prepare and submit an update to each Commercialization Plan for its territory for a Collaboration Product as necessary to reflect changes in the progress, strategy, or costs of Commercialization of such Collaboration Product, but in no event more frequently than quarterly.

(iii)the Responsible Commercialization Party for a Collaboration Product will prepare and submit an update to the applicable Commercialization Plan for its territory on an annual basis thereafter until the Parties cease Commercializing the applicable Collaboration Product.

(iv)the Responsible Commercialization Party will lead the implementation of the Commercialization Plan in accordance with the allocation of responsibilities set forth therein.

Once approved by the JSC, a Commercialization Plan shall become effective and supersede any previous Commercialization Plan, if any, as of the date of such approval. Unless the Parties otherwise agree, in the event that a Commercialization Plan is inconsistent with or contradicts the terms of this Agreement, the terms of this Agreement shall prevail.

(b)Commercialization Plans for Additional Collaboration Products. Promptly following the JSC’s request for a Commercialization Plan for a particular Collaboration Product, the Responsible Commercialization Party shall create an initial Commercialization Plan for such Collaboration Product. Such Commercialization Plan shall be approved as described in this Section 6.1.

6.2Commercialization Reports. The Responsible Commercialization Party will keep the JCC fully informed regarding the progress and results of its Commercialization activities under this Agreement.

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6.3Standards of Conduct.

(a)Each Party shall perform, or shall ensure that its Affiliates and permitted sublicensees and Third Party contractors perform, all Commercialization activities assigned to it in a good scientific and ethical business manner and in compliance with applicable laws, rules and regulations.

(b)The Parties shall use Diligent Efforts in Commercializing Collaboration Products.

(c)Each Party shall use Diligent Efforts to execute and carry out the activities assigned to it in the Commercialization Plan within the associated annual budget; provided that if a Party exceeds the associated annual budget by greater than [****] without the prior approval of the JSC, any amount in excess of such number shall not be considered expenses reimbursable hereunder and such Party shall be solely responsible for payment of such excess.

6.4Sales Force Training. The Responsible Commercialization Party shall develop and conduct training programs for its sales representatives and for the other Party’s sales representatives in the event such Party has exercised its Co-Promotion Option hereunder, specifically relating to the Collaboration Products to be Commercialized by such Party. Each Party agrees to utilize such training programs on an ongoing basis to assure a consistent, focused promotional strategy.

6.5Branding. Each Product Commercialized under this Agreement shall be Commercialized under and in connection with the trademarks and trade dress selected in accordance with Section 12.13. To the extent that a Party is granted rights under this Agreement to Commercialize a Product, it shall Commercialize such Product solely under and in connection with the trademarks and trade dress selected and approved pursuant to the terms of Section 12.13 (except for a Party’s use of its house marks, which do not require such approval).

6.6Pricing. [****].

6.7Booking of Sales.

(a)[****] will be solely responsible for the invoicing and booking of sales of [****] that are Collaboration Products in the [****] and the supply and distribution of product in respect to such sales. [****] shall also be responsible for handling inventory, receivables, managing relationships with the trade, returns, reimbursements, and charge-backs, trade-customer complaints and inquiries regarding [****] that are Collaboration Products in the [****].

(b)The JSC will jointly determine which Party will book sales in

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accordance with U.S. GAAP, including handling inventory, receivables, managing relationships with the trade, returns, reimbursements, and charge-backs, trade-customer complaints and inquiries with respect to all other Collaboration Products.

(c)For clarity, each Party’s expenses in connection with the activities described in this Section 6.7 will be included as Marketing Costs or Distribution Costs, as appropriate.

6.8Special Provisions Relating to Sales Tracking for [****].

(a)The Parties recognize that [****] marketed by [****] or its licensees for indications in the [****] may nonetheless be sold in the [****], and [****] marketed by [****] and [****] for indications in the [****] may nonetheless be sold in the [****]  (collectively, “Cross-Field Sales”). In order to detect and limit these Cross-Field Sales of such Collaboration Products, the Parties agree as follows:

(i)If, at any time following the receipt of Regulatory Approval in the [****] for an [****] that is a Collaboration Product or Royalty Product (Collectively, “Collaborative Field Products”), a Party believes that either (i) sales of such Collaborative Field Products are occurring or will occur for uses both inside and outside the [****], or (ii) that sales by [****] of a [****] licensed to it in the [****] by [****] (a “Non-Collaborative Field Product”) are occurring in any Indication in which a Collaboration Product or Royalty Product is marketed, then such Party may provide notice to the other Party of its desire to track sales of the Collaborative Field Products and the Non-Collaborative Field Products for the relevant Indications in the relevant territory.

(ii)Upon receipt of notice under Section 6.8(a)(i) [****] and [****] shall meet and agree upon a method of tracking sales of each such product (“Sales Tracking Methodology”) for use in the relevant Indications including (A) the acquisition of one or more prescription data products or services (including, by way of example, IMS Xponent or DDD data) or other relevant pharmaceutical sales tracking research services (including, for example, use of random sampling, use of data regarding distribution channels as a proxy for indication-specific sales and development of mathematical models for approximating indication-specific sales) generally recognized in the pharmaceutical industry as having a high degree of accuracy and reliability in the tracking of sales of pharmaceutical products that have a similar nature as and are prescribed by similar physicians as the relevant [****] in the [****] and, if applicable, outside the [****] (the “Data Services”), and (B) the methodology for applying any such resulting data and information provided by such Data Services to determine the extent to which sales of the relevant [****] are Cross-Field Sales in the relevant territory. At the request of either Party, any meeting held under this Section 6.8(a) shall include licensees of [****] to whom [****] has granted rights in the [****], provided such licensee

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agrees to be bound to confidentiality provisions similar to those contained in this Agreement.

(b)If [****] (as applicable) are unable to agree on a Sales Tracking Methodology pursuant to Section 6.8(a), then the following default methodologies shall apply:

(i)With respect to each of the U.S., United Kingdom, France, Germany, Italy, or Spain (each a “Major Regulatory Jurisdiction”) in which a Collaborative Field Product and a Non-Collaborative Field Product have received Regulatory Approval and in which Data Services are available at a reasonable cost (evaluated in light of the anticipated accuracy of such data and anticipated magnitude of Cross-Field Sales in such country), sales in the Field in such country and sales outside the Field in such country shall be calculated for each Collaborative Field Product and each Non-Collaborative Field Product based on the sales levels reported by the Data Services for such country. For clarity, the sum of sales of a product in the Field and sales of such product outside the Field (both as calculated for such country in accordance with the preceding sentence) shall always be equal to the total sales for such product in the relevant country.

(ii)With respect to each country in which a Collaborative Field Product and a Non-Collaborative Field Product have received Regulatory Approval and to which Section 6.8(b)(i) is inapplicable, the percentage of sales of each Collaborative Field Product attributable to use outside the Field and the percentage of sales of each Non-Collaborative Field Product attributable to use in the Field shall be calculated from total sales of such products based on the assumption that the ratio of Cross-Field Sales to total sales in such country is equal to the ratio of Cross-Field Sales to total sales calculated across all Major Regulatory Jurisdictions in which Cross-Field Sales are evaluated pursuant to Section 6.8(b)(i). If there are no Major Regulatory Jurisdictions in which Cross-Field Sales are evaluated pursuant to Section 6.8(b)(i), then no Sales Tracking Methodology shall apply unless and until the Parties agree on a Sales Tracking Methodology pursuant to Section 6.8(a).

(c)All costs associated with the acquisition and application of such Data Services and Sales Tracking Methodology shall be shared equally by the Parties and any licensee of PDL participating in the negotiations contemplated by Section 6.8(a). All such costs that are attributable to PDL and Biogen Idec shall be included in the Operating Expenses for the applicable [****]. In addition, the Parties shall also meet and confer with respect to: (A) how to account for prescriptions to patients with multiple afflictions, both within and outside the [****]; (B) the right for each Party to audit, on a periodic basis, the application of the Data Services and Sales Tracking

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Methodology; and (C) a mechanism for addressing prescriptions that are tracked back to sole source purchasing agreements.

(d)If in the course of applying the foregoing Sales Tracking Methodology of the Collaborative Field Product and Non-Collaborative Field Product pursuant to this Section 6.8, or in the course of performing an audit of such application by the other Party, a Party determines that Cross-Field Sales are occurring at more than [****] or such [****] as may be agreed under the [****] Agreements [****] (with written notice of such amount to be provided to [****]), the Parties shall confer, together with the [****], regarding an appropriate method either to curtail such Cross-Field Sales and to compensate any affected Party (or affected [****]) for the economic effects thereof. [****] will ensure that [****] is reimbursed for any such Cross-Field Sales as if such Cross-Field Sales were included in Collaboration Product Profit. The Parties shall also negotiate with each other and with such licensee in good faith (provided that such licensee is bound by a substantially similar obligation) to reach an agreement implementing a Sales Tracking Methodology that is as accurate as reasonably possible given the then-available information and the costs associated therewith.

(e)In the event of any unresolved issues, dispute or disagreement under this Section 6.8 the Parties will submit such dispute, issue or disagreement for resolution pursuant to Article 17.

6.9Other Cross Field Sales. If either Party is marketing a Product for an Independent Indication and cross field sales may be occurring with the same Product that is a Collaboration Product, the Parties shall meet and negotiate in good faith provisions similar to or designed to have the same economic effect as Section 6.8.

6.10Product Recalls. Decisions with respect to recalls, withdrawals or other corrective actions (“Recall”) with respect to any Collaboration Product related to manufacturing or product quality issues shall be handled in accordance with the Commercial Supply Agreement. Decisions with respect to any other Recall  related to any Collaboration Product in the Profit Sharing Territory or Royalty Product in its applicable territory shall be made only upon mutual agreement of the Parties; provided, however, that nothing herein shall prohibit either Party from initiating or conducting any Recall (i) mandated by a regulatory authority or applicable law, (ii) which in its reasonable judgment is, or such Party reasonably believes will result in, a Class I or Class II recall (under U.S. Food and Drug Administration regulations or its equivalent outside of the U.S.) or (iii) if a Party is the Independent Development Party in its sole discretion. The Parties shall cooperate with respect to any actions taken or public statements made in connection with any such Recall. Except as otherwise provided in this Section 6.10, the Parties will share all costs of a Recall with respect to any Collaboration Product in the Profit Sharing Territory as a Shared Promotion Expense.

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An Independent Development Party shall bear all costs of a Recall with respect to any Royalty Product in the Royalty Territory. Notwithstanding the foregoing, a Party shall bear any and all costs of a recall, market withdrawal or other corrective action with respect to a Collaboration Product in the Territory, including the COGM for the Collaboration Product in question, to the extent the Recall is attributable to the fault of such Party and results from (a) a grossly negligent or reckless act or omission or intentional misconduct of such Party (or its Affiliate, agent or sublicensee), (b) the failure of the Manufacturing Party to perform its responsibilities and Manufacture the Collaboration Product in compliance with specifications or with applicable laws, including applicable Good Manufacturing Practices, or (c) a breach of any laws or the terms of this Agreement.

6.11[****]. [****] hereby covenants that it shall not, nor shall it cause any Affiliate or sublicensee to, [****] that are Collaboration Products or Independent Products for any use outside the [****]. Except as permitted pursuant to Section 3.8, [****] hereby covenants that it shall only [****] in the [****] pursuant to the [****] Agreements.

ARTICLE 7

CO-PROMOTION OF COLLABORATION PRODUCTS

7.1Option to Co-Promote.

(a)Subject to this Section 7.1, PDL and Biogen Idec shall each have the right, to the extent it is not the Responsible Commercialization Party (the “Co-Promotion Option”) to elect at specified times to Commercialize a particular Indication of a Collaboration Product in either or both of the North American Territory or the EU Territory jointly with the Responsible Commercialization Party for such Collaboration Product.

(b)[****] may exercise its Co-Promotion Option in respect of a particular Territory only if it has and only with respect [****] shall reasonably be expected to be in place at the time of Co-Promotion. [****] may exercise its Co-Promotion Option in respect of a particular Territory only with respect [****] which shall reasonably be expected to be in place at the time of Co-Promotion.

(c)A Party may exercise its Co-Promotion Option with respect to a particular Indication of a Collaboration Product in a particular territory by providing written notice of such exercise to the Responsible Commercialization Party and the JCC. Such exercise must be provided for a particular territory no later than the date

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[****] prior to the anticipated filing date for Regulatory Approval in such territory for such Indication for the Collaboration Product and will be effective [****] following receipt of such notice by the Responsible Commercialization Party. Thereafter, the Party exercising the Co-Promotion Option shall be deemed a co-promoting Party (the “Co-Promoting Party”) of such Indication for such Collaboration Product in such territory.

(d)If a Co-Promotion Option is exercised, then responsibility for Detailing will be shared on a basis to be determined by the JCC taking into account the resources and capabilities of each Party as well as each Party’s prior efforts under Co-Promotion Options previously exercised and the nature of the market and Indication for which the Co-Promotion Option has been exercised. The Parties agree and acknowledge that, in allocating such Detailing activities between the Parties, the JCC shall apply the following principle in the event that both Parties have resources and capabilities in respect of a specific sales force (or neither Party has such resources and capabilities):  the JCC shall give first consideration to using [****] and first consideration to using [****].

7.2Co-Promotion Period. The “Co-Promotion Period” will commence upon the Co-Promoting Party’s exercise of the Co-Promotion Option and will expire upon the earlier of: (a) termination of the Parties’ Commercialization of the applicable Collaboration Product for the applicable Indication in the relevant portion of the Profit Sharing Territory, and (b) [****] following the date that the Co-Promoting Party provides written notice to the Responsible Commercialization Party terminating the Co-Promoting Party’s Co-Promotion activities hereunder (or such lesser period of time as the Responsible Commercialization Party is able to satisfactorily fill the sales force commitments previously filled by the Co-Promoting Party) .

7.3Co-Promotion in Commercialization Plan. The Parties’ co-promotion activities for any Collaboration Product in the relevant territory shall be governed by the Commercialization Plan for such Collaboration Product prepared by the  Responsible Commercialization Party. Each Commercialization Plan for a Co-Promote Product shall set forth the allocation between the Parties of the co-promotion activities for the Collaboration Product in the applicable territory determined pursuant to Section 7.1(d), the sales and marketing strategy determined by the JSC and the means by which to maximize the overall gross profit from sales of such Collaboration Product.

7.4Scope. The Co-Promotion by the Co-Promoting Party of any Collaboration Products under this Agreement shall be subject to the terms and conditions set forth in this Article 7. For purposes of this Article 7, a Collaboration Product subject to co-promotion under this Agreement shall be referred to as a “Co-Promote Product.”

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7.5Advertising and Promotional Materials.

(a)The Responsible Commercialization Party shall be responsible for designing and supplying all advertising and promotional materials for each Co-Promote Product. The Responsible Commercialization Party shall provide samples of such advertising and promotional materials to the JCC for its information.

(b)Each Party agrees that:

(i)it will instruct its sales representatives to use only promotional materials, Co-Promote Product samples, and literature approved for use under this Section 7.5 for the Promotion of the Co-Promote Product; and

(ii)all written, electronic and visual communications provided by a Party to its sales representatives regarding the positioning, selling messages or product strategy of the applicable Co-Promote Product will be subject to prior review and approval by the Responsible Commercialization Party; provided, that a communication, once approved, need not be re-submitted for approval again prior to its re-use unless the Co-Promote Product labeling applicable to such communication has been changed since such prior approval date.

7.6Training.

(a)The Responsible Commercialization Party will develop and implement training programs for the Co-Promoting Party’s sales representatives as to matters relating specifically to the Co-Promote Product in a manner as set forth in the applicable Commercialization Plan. Training shall be carried out at a time that is mutually acceptable to the Parties, and that is prior to but reasonably near the commencement of the co-promoting Party’s co-promotion of the Co-Promote Product. All costs associated with such product-specific training shall be shared equally by the Parties, except that the Co-Promoting Party shall pay all travel costs for its sales representatives to attend such training.

(b)The Responsible Commercialization Party shall provide continuing education regarding each Co-Promote Product for sales representatives of the Co-Promoting Party on substantially the same schedule as it provides continuing education for its own sales representatives for such Co-Promote Product.

7.7Sales and Distribution of Co-Promote Product.

(a)For each Co-Promote Product, other than [****], the Responsible Commercialization Party shall be solely responsible for handling all returns, recalls,

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order processing, invoicing and collection, distribution, and inventory and receivables. With respect to [****], [****] shall solely be responsible for such activities. The Co-Promoting Party may not accept orders for Co-Promote Product or make sales for its own account or for the Responsible Commercialization Party’s account. If the Co-Promoting Party receives any order for a Co-Promote Product, it shall refer such orders to the Responsible Commercialization Party for acceptance or rejection.

(b)The Responsible Commercialization Party shall have the right and responsibility for establishing and modifying the terms and conditions with respect to the sale of the Co-Promote Product, other than [****], including any terms and conditions relating to or affecting the price at which the Co-Promote Product will be sold, discounts available to managed care providers, any discount attributable to payments on receivables, distribution of the Co-Promote Product, and credits, price adjustments, or other discounts and allowances to be granted or refused. With respect to [****], [****] shall solely be responsible for such activities.

ARTICLE 8

MANUFACTURE AND SUPPLY

8.1Overview. The Party primarily responsible for the Manufacturing Clinical Supplies or Commercial Supplies of Collaboration Products (the “Manufacturing Party”) will be determined by the JSC (except for the Existing Products, with respect to which such responsibility is allocated by the table below) and shall be subject to the terms of this Article 8 and any Clinical Supply arrangement or Commercial Supply Agreement entered into by the Parties after the Effective Date. Unless determined otherwise by the JSC, the Manufacturing Party for the Existing Products will be as follows:

[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]

8.2Clinical Manufacturing.

(a)Clinical Supply. Each Manufacturing Party shall Manufacture a clinical supply of bulk or finished Collaboration Products pursuant to a plan and on terms set by the Manufacturing Party, as approved by the JSC (a “Supply Plan”). Notwithstanding the aforementioned, [****] shall ensure a supply of [****] necessary to complete dosing in the [****] as of the Effective Date, provided that such supply shall be not less than [****].

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(b)Supply Plan. The Supply Plan shall be in accordance with the supply schedule dictated by the applicable Development Plan for each Collaboration Product and shall set forth, among other things, the quantities of and specifications for such Collaboration Products to be supplied by the Manufacturing Party for Development purposes and an approximate delivery schedule therefor.

(c)Cost of Clinical Supply. The Manufacturing Party will notify the JDC of the COGM for such Collaboration Products under the applicable Development Program for quantities of Collaboration Products supplied for clinical use.

8.3Commercial Manufacturing.

(a)Commercial Supply Agreement. No later than [****] prior to the anticipated First Commercial Sale of a Collaboration Product as specified in the Commercialization Plan for such Collaboration Product, PDL and Biogen Idec shall negotiate in good faith one or more definitive supply agreements (each, a “Commercial Supply Agreement”). Each such agreement will set forth the specific terms and conditions governing the supply of bulk and/or finished Collaboration Products by the Parties for commercial use. Any Commercial Supply Agreement shall include terms substantially similar to those set forth in Exhibit 8.3 as well as additional reasonable and customary terms relating to commercial supply.

(b)Cost of Commercial Supply. Each Commercial Supply Agreement will provide for a transfer price from the Manufacturing Party to the Collaboration based on the total quantity of finished Collaboration Product ordered per calendar year (including material for Collaboration Product samples) calculated as follows:  Transfer Price = [****].

8.4Exclusivity. Each Responsible Commercialization Party, its Affiliates and sublicensees, shall purchase all of their respective requirements for the supply of Collaboration Products from the Manufacturing Party, unless otherwise agreed in writing by the Parties. The Manufacturing Party may not supply Collaboration Product for use in any field to any party other than the Responsible Commercialization Party, its Affiliates and sublicensees, except that [****] may provide material manufactured by [****] to [****] to support [****].

8.5Good Manufacturing Practice. Each Collaboration Product, regardless of the form or formulation delivered by the Manufacturing Party, shall be Manufactured by the Manufacturing Party in accordance with GMP and the specifications for such Collaboration Product.

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ARTICLE 9

FINANCIAL TERMS

9.1Licensing Fee. As partial payment for the rights and licenses granted by PDL pursuant to this Agreement, Biogen Idec shall pay to PDL, within five (5) days following the Effective Date, the following non-refundable and non-creditable license fees with respect to each Collaboration Product, as follows:

(a)With respect to the [****], total license fees of twenty-five million dollars ($25,000,000); and

(b)With respect to the [****], total license fees of fifteen million dollars ($15,000,000).

9.2Milestone Payments. Biogen Idec shall make the following non-creditable and non-refundable milestone payments to PDL within [****] after the achievement by Biogen Idec of each of the following milestones (or, in the event that any such milestone is achieved by PDL, after PDL shall have given Biogen Idec sufficient written documentation evidencing the achievement of such milestone). For the avoidance of doubt, the milestone payments to be paid under this Section 9.2 shall be paid even following the delivery of an Opt Out Notice by PDL under Article 4 provided that Biogen Idec continues Development of the product. However, such milestone payments shall not be paid following the delivery of an Opt Out Notice by Biogen Idec under Article 4.

(a)Milestone Payments for [****] and [****] that are Collaboration Products or [****]. The following milestone payments shall be paid by Biogen Idec to PDL upon the [****] of each of the designated milestone events for any [****] that are Collaboration Products or [****] for which [****]:

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Milestone Event	Milestone Payment [****]	Milestone Payment [****]	Milestone Payment [****]
[****]	[****]	n/a	n/a
[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]

*  [****], Biogen Idec shall pay an additional [****] to PDL.

For the avoidance of doubt, the foregoing milestone payments will only be made a maximum of [****] per milestone event, regardless of the number of Collaboration Products, applicable Independent Products or Indications Developed.

(b)Milestone Payments for [****] that are Collaboration Products or Independent Products. The following milestone payments shall be paid by Biogen Idec to PDL upon the [****] occurrence of each of the designated milestone events: (i) for an [****] that is an Antibody Product and a Collaboration Product or Independent Product, and (ii) for an [****] that is a Non-Antibody Product and a Collaboration Product or Independent Product. For clarity, each milestone below will be payable a maximum of [****], [****] for a Product in category (i) and [****] for a Product in category (ii), irrespective of the number of such [****] that may trigger the milestone events.

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Milestone Event	Milestone Payment
[****]	[****]
[****]	[****]
[****]	[****]
[****]	[****]
[****]	[****]
[****]	[****]
[****]	[****]
[****]	[****]
[****]	[****]
[****]	[****]
[****]	[****]
[****]	[****]

9.3R&D Funding. Biogen Idec shall make a [****] non-creditable, non-refundable R&D funding payment to PDL within [****] after approval by the JSC of a [****] to the JSC following the Effective Date.

9.4Profit Sharing. PDL and Biogen Idec shall share equally in the Collaboration Product Profit for each Collaboration Product as set forth Exhibit C. The Parties shall share Collaboration Product Profit hereunder with respect to each Collaboration Product in the Profit Sharing Territory until each such Collaboration Product is permanently withdrawn from and is no longer being sold anywhere in the Profit Sharing Territory or otherwise ceases to be a Collaboration Product.

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9.5Royalties.

(a)Royalties.

(i)For the term specified below, the Independent Development Party shall pay to the Non-Developing Party incremental royalties on Net Sales of the relevant Royalty Product in the Royalty Territory, at a royalty rate as determined in accordance with the schedules set forth in Exhibit D, as applicable. The term of the Independent Development Party’s obligation to pay a royalty under this Section 9.5(a)(i) for a particular Royalty Product (collectively, the “Royalty Term”) shall expire on a country-by-country and Royalty Product-by-Royalty Product basis, upon the later of:

(1)In the event that Biogen Idec is the Independent Development Party for [****] that is an Antibody Product, (i) [****], and (ii) [****];

(2)In the event that Biogen Idec is the Independent Development Party for any Products other than an [****] that is an Antibody Product (i) [****], and (ii) [****]; or

(3)In the event that PDL is the Independent Development Party, (i) [****], and (ii) [****].

(ii)For purposes of calculating Net Sales under this Section 9.5, the Independent Development Party may make the additional deductions described herein.

(1)In the event that pursuant to a Third Party License, the Independent Development Party must pay such Third Party royalties on sales of the Royalty Product in a particular country in the Royalty Territory, then the Independent Development Party may deduct [****] of such royalties paid to such Third Party from Net Sales of the applicable Royalty Product in such country.

(2)Following the expiration in a particular country in the Royalty Territory of the last to expire Valid Claim of a relevant Patent Right claiming the Manufacture, use or sale of a particular Royalty Product, the royalty rates set forth in Exhibit D with respect to such Royalty Product will be decreased [****] until expiration of the Royalty Term.

(3)If, during the Royalty Term, a Third Party receives regulatory approval for and commences commercial sale of a Generic Product in a country of the Royalty Territory, then the Independent Development Party shall have the right to reduce any royalties due under Section 9.5(a)(i) on account of the sale of such

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Royalty Products for such Indication by [****] during such time as such Third Party continues sales of such Generic Product in such country. As used in this Section, “Generic Product” means a Third Party product (a) [****]; and (b) [****]. Notwithstanding the foregoing, Generic Products do not include Royalty Products sold by either Party’s sublicensees or distributors pursuant to this Agreement. For the avoidance of doubt, the reduction in royalties pursuant to Section 9.5(a)(ii)(3) for generic competition or Section 9.5(a)(ii)(2) for patent expiration, shall not, in the aggregate, [****].

(b)Special Provision Relating to ROW Territory. With respect to any definitive sublicense agreement under which Biogen Idec grants a Third Party a license to develop or commercialize one or more Royalty Products in the ROW Territory which is entered into prior to the [****], Biogen Idec will pay to PDL [****] of any Sublicensing Revenues received by Biogen Idec in connection with such sublicense agreement(s). As used in this Section 9.5(b) ONLY, “Sublicensing Revenues” means any [****], but excluding: (1) [****]; and (2) [****].

(c)Reporting and Payment.

(i)Until the expiration of the Independent Development Party’s royalty obligations under Section 9.5, the Independent Development Party agrees, within [****] after the end of each Calendar Quarter, to make payments and written reports to the Non-Developing Party based upon Net Sales of the Royalty Products (substituting “Royalty Products” for “Collaboration Products” in the Net Sales definition) in the relevant Field in the Royalty Territory by the Independent Development Party, its Affiliates or sublicensees during such Calendar Quarter and provide written reports to the Non-Developing Party detailing for the period in question Net Sales by Product, royalty rate and royalty due.

(ii)The information contained in each report under Section 9.5(c)(i) shall be considered Confidential Information of the Independent Development Party. Concurrent with the delivery of each quarterly report, the Independent Development Party shall make the payment due the Non-Developing Party hereunder for the Calendar Quarter covered by such report.

(iii)It is understood that only one royalty payment under Section 9.5 shall be payable on a given unit of Royalty Product disposed of under this Agreement. In the case of transfers or sales of any Royalty Product between the Independent Development Party and an Affiliate or sublicensee of the Independent Development Party, such royalty shall be payable with respect to the sale of such Royalty Product to (i) an independent Third Party not an Affiliate of the seller or (ii) if the end user is an Affiliate of the seller, then such end user.

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9.6Provisions Regarding [****]. After the Effective Date, PDL will use Diligent Efforts to renegotiate the terms of that certain License Agreement between [****] to extend the diligence deadline for [****] (as defined in the [****]) to [****]. If, as a result of such renegotiations, the royalty rate payable by PDL on sales of licensed antibody products [****] (and provided the calculation of such royalty remains subject to the same offset provisions as included in the form of the [****] as of the Effective Date, then PDL may not charge as Third Party License Fees hereunder any royalty amount paid under the [****] in [****].

ARTICLE 10

PAYMENT TERMS

10.1Accounting.

(a)Product Sales Records. Each Party (a “Selling Party”) agrees to keep complete and accurate records for a period of at least [****] after the relevant payment is owed pursuant to this Agreement, setting forth the sales and other disposition of Collaboration Products or Royalty Products sold or otherwise disposed of pursuant to this Agreement in sufficient detail to enable compensation payable to either Party hereunder to be determined. The Selling Party further agrees to permit its books and records to be examined by an independent accounting firm selected by the other Party to verify reports provided for in Section 9.5. Unless the other Party obtains the prior written consent of the Selling Party, such accounting firms must be selected from among the four largest U.S. accounting firms. Such audit shall not be performed more frequently that [****] nor more frequently than once with respect to records covering any specific period of time. Such examination is to be made at the expense of auditing Party, except in the event that the results of the audit reveal a discrepancy in favor of the Selling Party of [****] or more over the period being audited, in which case reasonable audit fees for such examination shall be paid by the Selling Party.

(b)Expense Records. Each Party (an “Expense Incurring Party”) agrees to keep full, clear and accurate records for a period of at least [****] after the relevant report is made pursuant to Section 9.5(c) setting forth its incurred Development Expenses, Operating Expenses, Ongoing Development Expenses, Other Out-of-Pocket Costs in sufficient detail to enable compensation payable to the other Party (an “Expense Reimbursing Party”) hereunder to be determined. Each Expense Incurring Party further agrees to permit its books and records to be examined by an independent accounting firm selected by the Expense Reimbursing Party to verify reports made

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pursuant to Section 9.5(c). Unless the Expense Reimbursing Party obtains the prior written consent of the Expense Incurring Party, such accounting firms must be selected from among the four largest U.S. accounting firms. Such audit shall not be performed more frequently that [****]. Such examination is to be made at the expense of the Expense Reimbursing Party, except in the event that the results of the audit reveal a discrepancy in favor of the Expense Incurring Party of [****] or more over the period being audited, in which case reasonable audit fees for such examination shall be paid by the Expense Incurring Party.

10.2Methods of Payments. All payments due to either PDL or Biogen Idec under this Agreement shall be paid in Dollars by wire transfer to a bank in the U.S. designated in writing by the Party to which the payment is due. Payments due on Collaboration Products or Royalty Products distributed in countries or jurisdictions outside of the U.S. shall be made in U.S. Dollars after being converted at the rate of exchange for such country’s or jurisdiction’s currency in U.S. Dollars as listed in the Wall Street Journal, Eastern Edition on the last business day of the Calendar Quarter in which such sales were made.

10.3Taxes. If provision is made in law or regulation of any country for withholding of taxes of any type, levies or other charges with respect to the any amounts payable hereunder to a Party, the other Party (a “Withholding Party”) shall promptly pay such tax, levy or charge for and on behalf of the Party to the proper governmental authority, and shall promptly furnish the Party with receipt of such payment. The Withholding Party shall have the right to deduct any such tax, levy or charge actually paid from payment due the Party or be promptly reimbursed by the Party if no further payments are due the Party. Each Withholding Party agrees to assist the other Party in claiming exemption from such deductions or withholdings under double taxation or similar agreement or treaty from time to time in force and in minimizing the amount required to be so withheld or deducted.

ARTICLE 11

LICENSES

11.1Licenses to Biogen Idec.

(a)Subject to the terms and conditions of this Agreement, PDL and its Affiliates hereby grant to Biogen Idec:

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(i)a worldwide license, under the PDL Technology and Joint Inventions, to conduct Development of the Collaboration Products in the applicable Field in accordance with the Development Plans (which shall not include any Independent Indications for such Products);

(ii)a license, under the PDL Technology and Joint Inventions, to use, import, offer for sale and sell Collaboration Products in the applicable Field and in the North American Territory and EU Territory (i.e., the Profit Sharing Territory) in accordance with the Commercialization Plans (which shall not include any Independent Indications for such Products);

(iii)a worldwide license, under the PDL Technology and Joint Inventions, to make and have made Collaboration Products for which Biogen Idec is the Manufacturing Party, provided that such manufacture is solely for use in the applicable Field;

(iv)a worldwide license, under the PDL Technology and Joint Inventions, to develop, make, have made, use, have used, import, offer for sale and sell, in the applicable Field, Independent Products for which Biogen Idec is the Independent Development Party;

(v)a worldwide license, under the PDL Technology and Joint Inventions, to develop, use, have used, import, offer for sale and sell, in the applicable Field and in the Independent Indications, those Royalty Products for which Biogen Idec is the Independent Development Party with respect to such Indications; and

(vi)a license, under the PDL Technology and Joint Inventions, to use, have used, import, offer for sale and sell, in the applicable Field and in the ROW Territory (i.e., the Royalty Territory), Royalty Products.

(b)The licenses set forth in Sections 11.1(a)(i), (ii) and (iii) shall be exclusive in the Field (except as to PDL) for all PDL Know-How, for all PDL Patent Rights other than the Queen Patents, and with respect to PDL’s interest in the Joint Inventions. The licenses set forth in Section 11.1(a)(iv)-(vi) shall be exclusive (even as to PDL) for all PDL Know-How, for all PDL Patent Rights other than the Queen Patents, and with respect to PDL’s interest in the Joint Inventions. Subject to all of the restrictions of Section 11.1(a) and this Section 11.1(b), all licenses set forth in Section 11.1(a) are non-exclusive with respect to the Queen Patents.

(c)The licenses set forth in Section 11.1(a) may only be sublicensed to Biogen Idec Affiliates and permitted Third Parties.

11.2Licenses to PDL.

(a)Subject to the terms and conditions of this Agreement, Biogen Idec and its Affiliates hereby grant to PDL:

(i)a worldwide license, under the Biogen Idec Technology and

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Joint Inventions, to conduct Development of the Collaboration Products in the applicable Field in accordance with the Development Plans (which shall not include any Independent Indications for such Products);

(ii)a license, under the Biogen Idec Technology and Joint Inventions, to use, import, offer for sale and sell Collaboration Products in the applicable Field and in the North American Territory and EU Territory  in accordance with the Commercialization Plans (which shall not include any Independent Indications for such Products);

(iii)a worldwide license, under the Biogen Idec Technology and Joint Inventions, to make and have made Collaboration Products for which PDL is the Manufacturing Party, provided that such manufacture is solely for use in the applicable Field;

(iv)a worldwide license, under the Biogen Idec Technology and Joint Inventions, to develop, make, have made, use, have used, import, offer for sale and sell, in the applicable Field, Independent Products for which PDL is the Independent Development Party;

(v)a worldwide license, under the Biogen Idec Technology and Joint Inventions, to develop, use, have used, import, offer for sale and sell, in the applicable Field and in the Independent Indications, those Collaboration Products for which PDL is the Independent Development Party with respect to such Indications; and

(vi)a license, under the Biogen Idec Technology and Joint Inventions, to use, have used, import, offer for sale and sell, in the applicable Field and in the ROW Territory  Royalty Products, if the right to Develop and Commercialize any Royalty Product in the ROW Territory revert to PDL.

(b)The licenses set forth in Sections 11.2(a)(i), (ii) and (iii) shall be exclusive in the Field (except as to Biogen Idec) for all Biogen Idec Technology and with respect to Biogen Idec’s interest in the Joint Inventions. The licenses set forth in Section 11.2(a)(iv)-(vi) shall be exclusive (even as to Biogen Idec) for all Biogen Idec Technology and with respect to Biogen Idec’s interest in the Joint Inventions.

(c)The licenses set forth in Section 11.2(b) may only be sublicensed to PDL Affiliates and permitted Third Parties.

11.3No Implied Licenses. Except as expressly provided in this Agreement, neither Party grants to the other Party any right or license in any intellectual property right, whether by implication, estoppel or otherwise. No implied licenses are granted under this Agreement. Each Party hereby covenants and agrees not to use or

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sublicense any of its rights under the licenses set forth in this Article 11 except as expressly permitted in this Agreement. In particular, for the avoidance of doubt, PDL has no right to, and is not hereby granting any license to, [****].

11.4Affiliates. The licenses granted pursuant to this Article 11 include the right of each licensee to use its Affiliates in exercising such rights and carrying out its obligations under this Agreement; provided that in the event any such Affiliate ceases to meet the definition of an Affiliate (whether due to the transfer or sale of all or substantially all of the assets or stock of such Affiliate or otherwise) then such right with respect to such Affiliate shall terminate

11.5Third Party Licenses.

(a)Certain license rights granted by one Party to the other Party under this Article 11 may include a sublicense of Patent Rights and/or Know-How of Third Parties under Third Party Licenses. Notwithstanding anything to the contrary in this Agreement, the licenses granted under the provisions of this Article 11 (i) are subject to the applicable terms and conditions of such Third Party Licenses, and (ii) the Party receiving a sublicense under such Third Party License shall, in exercising such sublicense rights, comply with the applicable provisions of such Third Party Licenses. The Parties agree and acknowledge that the licenses granted to Biogen Idec under this Article 11 shall be subject to the following Third Party License provisions (as such Third Party Licenses and specific provisions may be amended from time to time upon notice to and consent of the JPC) and such provisions shall supersede anything to the contrary contained in this Agreement:  (i) [****]; (ii) [****]; (iii) [****]; (iv)  [****]; (v) [****];  (vi) [****]; (vii) [****]; (viii) [****]; and (ix) [****]. The Parties agree and acknowledge that the provisions of [****] are incorporated by reference herein solely for the benefit of [****]. The Parties agree and acknowledge that a copy of Paragraphs [****] is attached hereto as Exhibit 11.5 and shall be binding on Biogen Idec as if it were a party to the [****].

(b)PDL represents and warrants to Biogen Idec that, as of the Effective Date, (i) [****]; (ii) [****]; (iii) [****]. [****].

(c)With respect to each Third Party License to which a Party is a party, such Party (i) shall use Diligent Efforts to maintain such Third Party License in full force and effect, including without limitation seeking amendments or modifications of such agreements if necessary or useful as agreed by the Parties to continue Development or Commercialization of a Product, (ii) shall not amend, modify or permit to be amended or modified such Third Party License to reduce or impair the right sublicensed hereunder or to increase the obligations or burdens on the other Party hereunder without the other Party’s consent, not to be unreasonably withheld, except as

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to the [****] as specifically provided herein, (iii) shall provide the other Party with a copy of each notice received by such Party under such Third Party License Agreement material to the rights granted to the other Party under this Agreement and derivative of rights granted under such Third Party License Agreement, and (iv) shall use Diligent Efforts to cause such Third Party License, as to rights licensed hereunder, to convert to a direct license to the other Party hereunder upon the termination of such Third Party License (provided that the other Party agrees to be bound by the terms and conditions of such Third Party License) and subject to the terms of such Third Party Licenses, including the following provisions (as such Third Party Licenses and specific provisions may be amended from time to time upon notice to and consent of the JPC):  (a)  [****]; (b) [****]; (c) [****]; (d) [****]; and (e) [****].

ARTICLE 12

INTELLECTUAL PROPERTY OWNERSHIP AND PATENT RIGHTS

12.1Ownership of Intellectual Property.

(a)Generally. [****].

(b)Joint Ownership. All Joint Inventions will be owned jointly by PDL and Biogen Idec.

(c)Inventorship Procedure. The JPC shall, within a reasonable time after the Effective Date, establish and oversee a mutually agreeable procedure for (i) identifying Collaboration Inventions, and (ii) determining inventorship of Inventions made by a Party in connection with the Collaboration, provided that such determination shall be made in accordance with the applicable patent laws relating to inventorship in the country where each patent application is to be filed in instances where U.S. law regarding determinations of inventorship may be at variance with the laws of the said country. All such determinations shall be documented to ensure that any divisional or continuation patent application reflect appropriate inventorship and that inventions and patent rights are assigned to the appropriate assignee.

12.2Disclosure of Patentable Inventions. Each Party shall provide to the other Party any invention disclosure submitted in the normal course of its business which discloses a Collaboration Invention within [****] after the Party determines that an Invention has been made.

12.3Patent Due Diligence. Each Party agrees to use good faith efforts to bring to the attention of the JPC in a timely manner any Third Party Patent Right it

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discovers, or has discovered, and which the disclosing Party reasonably believes relates to, the Development or Commercialization of a Collaboration Product.

12.4Prosecution of Patents

(a)PDL Patent Rights

(i)PDL Target Patent Rights. Decisions regarding the preparation, filing, prosecution and maintenance of PDL Target Patent Rights shall be made by the JPC. PDL shall be responsible, using in-house counsel or outside patent counsel selected by PDL and reasonably acceptable to Biogen Idec to implement the decisions of the JPC regarding the preparation, filing, prosecution and maintenance of such PDL Target Patent Rights. PDL shall provide the JPC with a copy of each patent application within such PDL Target Patent Rights as filed, together with its filing date and serial number. PDL shall keep the JPC advised of the status of all communications, actual and prospective filings or submissions regarding the PDL Target Patent Rights, and shall give the JPC an opportunity to review and comment on any such communications, filings and submissions proposed to be sent to any patent office. PDL shall consult with, and obtain the approval of, the JPC before deciding that it is no longer interested in maintaining or prosecuting the PDL Target Patent Rights contemplated by Section 12.10, provided, however, that if the JPC cannot reach agreement as to whether or not to maintain or prosecute such PDL Target Patent Rights, then PDL shall continue to maintain and prosecute such PDL Target Patent Rights. [****].

(ii)Queen Patents.Decisions regarding the preparation, filing, prosecution and maintenance of the Queen Patents shall be made solely by PDL. Notwithstanding the foregoing, [****]. PDL shall provide the JPC with a copy of each patent application within the Queen Patents that contains claims that specifically relate to a Collaboration Target or Collaboration Product, as filed, together with its filing date and serial number. PDL shall keep the JPC advised of the status of all communications, actual and prospective filings or submissions regarding the [****] and shall give the JPC an opportunity to review and comment on any such communications, filings and submissions proposed to be sent to any patent office. Subject to Section 12.12, PDL shall consult with, and obtain the approval of, the JPC before deciding that [****] or Collaboration Product, provided, however, that if the JPC cannot reach agreement as to whether or not [****].

(iii)Other PDL Patent Rights. Decisions regarding the preparation, filing, prosecution and maintenance of the PDL Patent Rights, to the extent not addressed in Section 12.4(a)(i) or Section 12.4(a)(ii), shall be made solely by PDL.

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(b)Biogen Idec Patent Rights.

(i)Biogen Idec Target Patent Rights. Decisions regarding the preparation, filing, prosecution and maintenance of Biogen Idec Target Patent Rights shall be made by the JPC. Biogen Idec shall be responsible, using in-house counsel or outside patent counsel  selected by Biogen Idec and reasonably acceptable to PDL, to implement the decisions of the JPC regarding the preparation, filing, prosecution and maintenance of such Biogen Idec Target Patent Rights. Biogen Idec shall provide the JPC with a copy of each patent application within such Biogen Idec Target Patent Rights as filed, together with its filing date and serial number. Biogen Idec shall keep the JPC advised of the status of all communications, actual and prospective filings or submissions regarding the Biogen Idec Target Patent Rights, and shall give the JPC an opportunity to review and comment on any such communications, filings and submissions proposed to be sent to any patent office. [****].

(ii)Other Biogen Idec Patent Rights. Decisions regarding the preparation, filing, prosecution and maintenance of Biogen Idec Patent Rights that are not Biogen Idec Target Patent Rights shall be made solely by Biogen Idec.

(c)Prosecution of Joint Inventions.

(i)Decisions regarding the preparation, filing and prosecution and maintenance of Joint Patents shall be made by the JPC. Upon the identification of a Joint Invention, the JPC shall (1) promptly discuss such Joint Invention, (2) promptly discuss the desirability of filing a United States patent application covering such Joint Invention, as well as foreign counterparts, and (3) designate the Party (the “Implementing Party”) to be responsible for the preparation, filing, prosecution and maintenance of such Joint Patent Rights. The Implementing Party shall be responsible, using in-house or outside counsel reasonably selected by the JPC to implement the decisions of the JPC regarding the preparation, filing, prosecution and maintenance of such Joint Patent Rights.   The Implementing Party shall provide the JPC an opportunity to review and comment upon the text of the applications relating to such Joint Patent Rights before filing. The Implementing Party shall provide the JPC with a copy of each patent application within such Joint Patent Rights as filed, together with notice of its filing dates and serial number. The Implementing Party shall keep the JPC advised of the status of all communications, actual and prospective filings or submissions regarding such Joint Patent Rights, shall provide the JPC an opportunity to review and comment on such communications, filings and submissions proposed to be sent to any patent office. The Implementing Party shall also notify the JPC of the grant of any such Joint Patent Rights. The Implementing Party shall not cease the prosecution and/or

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maintenance, or modify the claims, of any such Joint Patent Rights in any country or elect not to file a patent application within such Joint Patent Rights, unless approved by the JPC (which approval shall not be unreasonably withheld).

(d)Patent Term Extensions. PDL shall be responsible to implement the decisions of the JPC regarding patent term extensions, including supplementary protection certificates and any other extensions that are now or become available in the future, wherever applicable to PDL Target Patent Rights or Queen Patents that contain claims that specifically relate to a Collaboration Target or a Collaboration Product, in each case to the extent claiming a Collaboration Product. Biogen Idec shall be responsible to implement the decisions of the JPC regarding patent term extensions, including supplementary protection certificates and any other extensions that are now or become available in the future, wherever applicable to such Biogen Idec Target Patent Rights to the extent claiming a Collaboration Product. The Implementing Party shall be responsible to implement the decisions of the JPC regarding patent term extensions, including, without limitation, supplementary protection certificates and any other extensions that are now or become available in the future, wherever applicable to Joint Patent Rights to the extent claiming such Royalty Product. Each Party shall reasonably cooperate, as requested by the other Party, to implement such decisions of the JPC. In each instance of patent term extension contemplated by this section, the Parties agree to take all actions necessary to comply with the then-current laws and regulations relating to patent term extensions.

12.5Patent Interferences/Oppositions

(a)Interferences/Oppositions Between the Parties. If an interference is declared by the U.S. Patent and Trademark Office, or its foreign equivalent, or an opposition exists between one or more PDL Target Patent Rights, Biogen Idec Target Patent Rights or Joint Patent Rights and such declared interference or opposition involves any claims specifically directed to a Collaboration Product, then the Parties shall in good faith establish a mutually agreeable process to resolve such interference or oppositions in a reasonable manner in conformance with all applicable legal standards, but which prejudices neither Party nor diminishes the value of such PDL Target Patent Rights, Biogen Idec Target Patent Rights, or Joint Patent Rights at issue.

(b)Oppositions/Interferences With Third Parties.

(i)PDL Target Patent Rights. Other than as set forth in Section 12.5(a), all decisions relating to interferences or oppositions lodged against PDL Target Patent Rights, including whether to initiate such interferences, appropriate settlement strategy, along with other strategic decisions relating to the PDL Target Patent Rights, shall be made by PDL, subject to the advice and counsel of the JPC. Subject to the provisions of this subsection (i), PDL shall control the conduct of any such interference or opposition. Biogen Idec shall reasonably cooperate, as requested by PDL, with respect to such opposition or interference. PDL shall keep the JPC informed of the progress of any opposition or interference action or proceeding relating to the PDL Target Patent Rights. PDL shall keep the JPC advised of all communications, actual and prospective filings or submissions regarding such PDL

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Target Patent Rights, and shall provide the JPC an opportunity to review and comment on any such communications, filing and submissions. Notwithstanding the foregoing, [****].

(ii)Queen Patents.All decisions relating to interferences or oppositions lodged against the Queen Patents, including whether to initiate such interferences, appropriate settlement strategy, along with other strategic decisions relating to the Queen Patents, shall be made solely by PDL. Notwithstanding [****]. Subject to the provisions of this subsection (ii), PDL shall control the conduct of any such interference or opposition. Biogen Idec shall reasonably cooperate, as requested by PDL, with respect to such opposition or interference. PDL shall keep the JPC informed of the progress of any opposition or interference action or proceeding relating to such Queen Patents that contain claims that specifically relate to a Collaboration Target or a Collaboration Product. PDL shall keep the JPC advised of all communications, actual and prospective filings or submissions regarding such claims in such Queen Patents, and shall provide the JPC an opportunity to review and comment on any such communications, filing and submissions. Notwithstanding the foregoing, [****].

(iii)Other PDL Patent Rights. Decisions relating to interferences or oppositions lodged against Queen Patents or PDL Patent Rights, including whether to initiate such interferences, appropriate settlement strategy, and other strategic decisions relating to the Queen Patents or PDL Patent Rights, to the extent not addressed in Section 12.5(b)(i) or Section 12.5(b)(ii), shall be made by PDL.

(iv)Biogen Idec Target Patent Rights. Other than as set forth in Section 12.5(a), all decisions relating to interferences or oppositions lodged against Biogen Idec Target Patent Rights, including whether to initiate such interferences, appropriate settlement strategy, along with other strategic decisions relating to the Biogen Idec Target Patent Rights, shall be made by Biogen Idec, subject to the advice and counsel of the JPC. Subject to the provisions of this subsection (i), Biogen Idec shall control the conduct of any such interference or opposition. PDL shall reasonably cooperate, as requested by Biogen Idec, with respect to such opposition or interference. Biogen Idec shall keep the JPC informed of the progress of any opposition or interference action or proceeding relating to the Biogen Idec Target Patent Rights. Biogen Idec shall keep the JPC advised of all communications, actual and prospective filings or submissions regarding such Biogen Idec Target Patent Rights, and shall provide the JPC an opportunity to review and comment on any such communications, filings and submissions. Notwithstanding the foregoing, [****].

(v)Other Biogen Idec Patent Rights. Other than as set forth in Section 12.5(a) and Section 12.5(b)(iv), all decisions relating to interferences or

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oppositions lodged against Biogen Idec Patent Rights that are not Biogen Idec Target Patent Rights, including, without limitation, whether to initiate such interferences, appropriate settlement strategy, along with other strategic decisions relating to such Biogen Idec Patent Rights, shall be made by Biogen Idec.

(vi)Joint Patent Rights and Third Party Patent Rights. Other than as set forth in Section 12.5(a), all decisions relating to interferences or oppositions lodged against Joint Patent Rights, including, without limitation, whether to initiate such interferences, whether to file oppositions against Third Party Patent Rights relevant to a Collaboration Product, appropriate settlement strategy, along with other strategic decisions relating thereto, with respect to the Joint Patent Rights and Third Party Patent Rights shall be made by the JPC. Upon the identification of a potential opposition or interference directly involving the Joint Patent Rights or to the extent such opposition or interference is specifically directed to a Collaboration Product or Third Party Patent Rights (each, an “Adversarial Prosecution Action”), the JPC shall (i) promptly discuss such Adversarial Prosecution Action, including the strategy for conducting such Adversarial Prosecution Action, and (ii) designate the a Party (the “Controlling Party”) to be responsible for controlling such Adversarial Prosecution Action, and determine a reasonable allocation between the Parties of the cost of such Adversarial Prosecution Action. The Controlling Party shall be responsible, using outside counsel reasonably selected by the Controlling Party, to implement the decisions of the JPC regarding such Adversarial Prosecution Action. The Party that is not the Controlling Party shall reasonably cooperate, as requested by the Controlling Party, in such Adversarial Prosecution Action. The Controlling Party shall keep the JPC informed of the progress of any such Adversarial Prosecution Action. The Controlling Party shall keep the JPC advised of all communications, actual and prospective filings or submissions regarding such Adversarial Prosecution Action, and shall provide the JPC an opportunity to review and comment on any such communications, filings and submissions. The Controlling Party shall not settle or consent to an adverse judgment in any such Adversarial Prosecution Action with respect to the Joint Patent Rights or Third Party Patent Rights, unless approved by the JPC (which approval shall not be unreasonably withheld).

12.6Initial Filings if Made Outside of the United States.  The Parties agree to use reasonable efforts to ensure that any Patent Right within the PDL Target Patent Rights, Biogen Idec Target Patent Rights or Joint Patent Rights that is filed outside of the United States prior to a United States filing will be in a form sufficient to establish the date of original filing as a priority date for the purposes of a subsequent United States filing.

12.7Enforcement of Patent Rights.

(a)Notification. If either Party learns of any substantial and continuing infringement of PDL Target Patent Rights, Biogen Idec Target Patent Rights or Joint Patent Rights by a Third Party making, using, offering for sale, selling or importing a product in or outside of the applicable Field, such Party shall promptly notify the other Party and shall provide such other Party with available evidence of such infringement.

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(b)Enforcement of Patent Rights.

(i)PDL Target Patent Rights. Subject to the further provisions of this subsection (b), decisions regarding the enforcement of PDL Target Patent Rights in an action against an infringement by a Third Party of claims licensed to Biogen Idec under Section 11.1, including the defense of a declaratory judgment action with respect to such potential infringement (each, an “Enforcement Action”) shall be made by PDL. PDL shall have the first right to implement at its sole expense any Enforcement Actions relating to the PDL Target Patent Rights. Biogen Idec shall reasonably cooperate, as requested by PDL, with respect to such Enforcement Action. PDL shall keep the JPC informed of the progress of any action or proceeding to enforce the PDL Target Patent Rights. PDL shall keep the JPC advised of all communications, actual and prospective filings or submissions regarding such PDL Target Patent Rights, and shall provide the JPC an opportunity to review and comment on any such communications, filing and submissions. PDL shall not settle or consent to an adverse judgment in any action or proceeding to enforce such PDL Target Patent Rights that admits the invalidity or unenforceability of such PDL Target Patent Rights unless approved by the Joint Steering Committee (which approval shall not be unreasonably withheld). If PDL fails to institute such a suit or take such action within [****] after a request by Biogen Idec to do so, then Biogen Idec shall have the right at its sole discretion to bring and control such Enforcement Action in the name of either or both Parties, subject to Section 12.10. Such prosecution or defense shall be at Biogen Idec’s sole expense unless PDL opts, at its discretion, to reimburse Biogen Idec for a portion ([****]) of all costs or expenses incurred by Biogen Idec with respect to such prosecution or defense.

(ii)Queen Patents.Decisions regarding Enforcement Actions with respect to Queen Patents shall be made solely by PDL. [****] shall be carried out in accordance with subsection (i) above and Section 12.10. For clarity, an Enforcement Action that involves [****] and carried out in accordance subsection (i), Section 12.9, and Section 12.12.

(iii)Additional PDL Patent Right Enforcement. Decisions regarding Enforcement Actions as well as actions for infringement outside the applicable Field and declaratory judgment suits regarding potential infringement outside the applicable Field, with respect to PDL Patent Rights and Queen Patents, to the extent and so long as such Enforcement Actions are not addressed in 12.7(b)(i) or (b)(ii), shall be made by PDL. PDL shall have the right, using outside counsel selected by PDL, to bring and control such Enforcement Actions at its sole expense. Biogen Idec shall reasonably cooperate, as requested by PDL, with respect to such Enforcement Action. PDL shall keep the Joint Patent Committee informed of the progress of any such Enforcement Action with respect to the PDL Patent Rights that are not PDL Target

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Patent Rights or Queen Patents. Notwithstanding the terms of Section 12.7(b)(vii), [****].

(iv)Biogen Idec Target Patent Rights. Subject to the further provisions of this subsection (b), decisions regarding the enforcement of Biogen Idec Target Patent Rights in an action against an infringement by a Third Party, including the defense of a declaratory judgment action with respect to such potential infringement shall be made by Biogen Idec. Biogen Idec shall have the first right to implement at its sole expense any Enforcement Actions relating to the Biogen Idec Target Patent Rights. PDL shall reasonably cooperate, as requested by Biogen Idec, with respect to such Enforcement Action. Biogen Idec shall keep the JPC informed of the progress of any action or proceeding to enforce the Biogen Idec Target Patent Rights. Biogen Idec shall keep the JPC advised of all communications, actual and prospective filings or submissions regarding such Biogen Idec Target Patent Rights, and shall provide the JPC an opportunity to review and comment on any such communications, filing and submissions. Biogen Idec shall not settle or consent to an adverse judgment in any action or proceeding to enforce such Biogen Idec Target Patent Rights that admits the invalidity or unenforceability of such Biogen Idec Target Patent Rights unless approved by the Joint Steering Committee (which approval shall not be unreasonably withheld). If Biogen Idec fails to institute such a suit or take such action within [****] after a request by PDL to do so, then PDL shall have the right at its sole discretion to bring and control such Enforcement Action in the name of either or both Parties, except to the extent that such prosecution or defense would conflict with rights granted by Biogen Idec to a Third Party. Such prosecution or defense shall be at PDL’s sole expense unless Biogen Idec opts, at its discretion, to reimburse PDL for a portion ([****]) of all costs or expenses incurred by Biogen Idec with respect to such prosecution or defense.

(v)Additional Biogen Idec Patent Right Enforcement. Decisions regarding Enforcement Actions with respect to Biogen Idec Patent Rights that are not Biogen Idec Target Patent Rights shall be made by Biogen Idec. Biogen Idec shall have the right, using outside counsel selected by Biogen Idec, to bring and control such Enforcement Actions at its sole expense. PDL shall reasonably cooperate, as requested by Biogen Idec, with respect to such Enforcement Action. Biogen Idec shall keep the Joint Patent Committee informed of the progress of any such Enforcement Action with respect to the Biogen Idec Patent Rights that are not Biogen Idec Target Patent Rights. Notwithstanding the terms of Section 12.7(b)(vii), Biogen Idec shall retain all Recoveries received from a Third Party in connection with such Enforcement Action.

(vi)Joint Patent Rights. Decisions regarding Enforcement Actions with respect to the Joint Patent Rights shall be made by the JPC, upon

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consultation with the Joint Steering Committee. Upon the identification of an infringement of Joint Patent Rights with respect to a Collaboration Product, the JPC shall (i) promptly discuss such infringement, (ii) promptly discuss the strategy for enforcing such Joint Patent Rights, and (iii) designate the Controlling Party to be responsible for controlling an Enforcement Action with respect to such Joint Patent Rights, and determine a reasonable allocation between the Parties of the costs of such Enforcement Action. The Controlling Party shall be responsible, using outside counsel mutually acceptable to both Parties, to implement the decisions of the JPC regarding such Enforcement Action. The non-Controlling Party shall reasonably cooperate, as requested by the Controlling Party, in such Enforcement Action. The Controlling Party shall keep the Joint Steering Committee and the JPC informed of the progress of any action or proceeding to enforce the Joint Patent Rights. The Controlling Party shall keep the JPC advised of all communications, actual and prospective filings or submissions regarding such Joint Patent Rights, and shall provide the JPC an opportunity to review and comment on any such communications, filing and submissions. The Controlling Party shall not settle or consent to an adverse judgment in any such Enforcement Action with respect to the Joint Patent Rights, unless approved by the Joint Steering Committee (which approval shall not be unreasonably withheld).

(vii)Allocation of Recoveries. All cash amounts (plus the fair market value of all non-cash consideration) received by a Party or its Affiliates from a Third Party in connection with the final judgment, award or (to the extent a sublicense to such Third Party would require the consent of the other Party under this Agreement) settlement of such Enforcement Action (“Recoveries”) shall first be applied to reimbursement of the unreimbursed legal fees and expenses of the Parties in connection with such Enforcement Action, and then the remainder shall be divided equally between the Parties, except that [****], [****], such remainder shall be shared [****] to the [****], and [****] to the [****]; provided that the [****] shall receive such share only to the extent the Recoveries were obtained with respect to Patents of such Party (e.g., [****]).

(viii)Representation by Counsel. Each Party shall always have the right to be represented by counsel of its own selection and its own expense in any suit or other action instituted by the other Party pursuant to this Section 12.7 for infringement in a Field. The amounts borne by such Party pursuant to this Section 12.7(b)(viii) shall not count towards the determination of the allocation between the Parties of any remaining recovery pursuant to Section 12.7(b)(vii).

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12.8Defense of Infringement Actions.

(a)If PDL and/or Biogen Idec are defendant(s) named in a patent infringement suit filed by a Third Party concerning the development, manufacture, production, use, importation, offer for sale, or sale of Collaboration Products in the Field (a “Defensive Action”) decisions regarding such Defensive Actions shall be made by the JPC, upon consultation with the Joint Steering Committee. Upon the identification of a Defensive Action with respect to a Collaboration Product, the JPC shall (i) promptly discuss such Defensive Action, (ii) promptly discuss the strategy for defending such suit, and (iii) designate the Controlling Party to be responsible for controlling said Defensive Action, and determine a reasonable allocation between the Parties of the costs of such Defensive Action. The Controlling Party shall be responsible, using outside counsel mutually acceptable to both Parties, to implement the decisions of the JPC regarding such Defensive Action. The non-Controlling Party shall reasonably cooperate, as requested by the Controlling Party, in such Defensive Action. The Controlling Party shall keep the Joint Steering Committee and the JPC informed of the progress of any action or proceeding in the Defensive Action. The Controlling Party shall keep the JPC advised of all communications, actual and prospective filings or submissions regarding such Defensive Action, and shall provide the JPC an opportunity to review and comment on any such communications, filing and submissions. The Controlling Party shall not settle or consent to an adverse judgment in any such Defensive Action, unless approved by the Joint Steering Committee (which approval shall not be unreasonably withheld).

(b)During the term of this Agreement, each Party shall bring to the attention of the other Party all information regarding potential infringement of Third Party intellectual property rights via the development, manufacture, production, use, importation, offer for sale, or sale of Collaboration Products in a Field throughout the world. The Parties shall discuss such information and decide how to handle such matter.

12.9Third Party Intellectual Property.

(a)In the event that PDL or Biogen Idec (the “Acquiring Party”) proposes to apply to a Collaboration Product Technology that the Acquiring Party obtained from a Third Party that is not included automatically within the definition of Biogen Idec Technology or PDL Technology prior to the Effective Date (and hence included in the licenses granted by the Acquiring Party pursuant to Article 11) or otherwise acquired by the Acquiring Party, the Acquiring Party shall disclose the same to the Joint Steering Committee, including any royalty or other payment obligations determined in accordance with United States GAAP that would apply to the Collaboration Product as a result of the Development or Commercialization of such

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Collaboration Products hereunder. The Joint Steering Committee shall determine, [****] whether or not the Joint Steering Committee agrees that the intellectual property so acquired should be applied to the Collaboration Products, and if the Joint Steering Committee so determines, the agreement under which the Acquiring Party acquires such intellectual property shall be a Third Party License for purposes of this Agreement. To the extent the agreement is not so included within the Third Party Licenses hereunder, the subject matter of such agreement shall not be within the definition of PDL Technology or Biogen Idec Technology hereunder (and therefore the licenses granted by the Acquiring Party pursuant to Article 11 shall not include such subject matter).

(b)Manufacturing Technology.

(i)PDL-Lead Manufacturer. Notwithstanding the foregoing, with respect to Collaboration Products or Royalty Products for which PDL is the Manufacturing Party under Article 8 above, PDL shall have the right to decide which Third Party Technology will be used in such Manufacturing, and any agreement pursuant to which PDL acquired or acquires such technology shall be deemed a Third Party License.

(ii)Biogen Idec-Lead Manufacturer. Notwithstanding the foregoing, with respect to Collaboration Products or Royalty Products for which Biogen Idec is the Manufacturing Party under Article 8 above, Biogen Idec shall have the right to decide which Third Party Technology will be used in such Manufacturing, and any agreement pursuant to which Biogen Idec acquired or acquires such technology shall be deemed a Third Party License.

(c)Third Party Licenses. Notwithstanding the provisions of this Article 12, the rights and obligations of the Parties under this Article 12, with respect to Patents licensed pursuant to a Third Party License, shall be subject to the rights of the applicable Third Party licensor/licensee pursuant to such Third Party License and the applicable Parties’ obligations to such Third Party pursuant to such Third Party License. Without limiting the foregoing, the Parties agree and acknowledge that the provisions set forth in this Article 12 shall be subject to the following Third Party License provisions (as such Third Party Licenses and specific provisions may be amended from time to time upon notice to and consent of the other Party, if required, pursuant to Section 11.5(c)(ii)) and such provisions shall supersede anything to the contrary contained in this Agreement:  (i) [****]; (ii) [****]; (iii) Article 5 of the UCSD License Agreement;  (iv) [****]; (v) [****]; (vi) [****]; (vii) [****]; (viii) [****]; and (ix) [****]. The Parties further agree and acknowledge that PDL does not have any rights to prosecute or enforce the Patent

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Rights licensed to it pursuant to the following Third Party Licenses and therefore no portion of Article 12 shall be interpreted as granting Biogen Idec or the JPC or JSC rights to file, prosecute (including interferences and oppositions), maintain, enforce or defend such Patents or receive information or provide input with respect to such Patent Rights:  [****]; [****]; [****]; [****]; and [****].

12.10Rights pursuant to the [****] Agreements.

(a)The Parties acknowledge that, pursuant to the [****] Agreements, [****] has certain rights to file, prosecute (including interferences and oppositions), maintain, enforce and defend certain PDL Patent Rights that are licensed by or to PDL pursuant to the [****] Agreements. Notwithstanding anything to the contrary, Biogen Idec’s, JPC’s and JSC’s rights pursuant to this Article 12 with respect to such PDL Patent Rights are subject to such [****] rights to file, prosecute, maintain, enforce and defend the certain PDL Patent Rights that are licensed by or to PDL pursuant to [****] Agreement. For clarity, PDL shall not be required pursuant to this Article 12 to provide Biogen Idec or the JPC or JSC with any patent filing, prosecution (including interferences and oppositions), maintenance, enforcement or defense associated-rights that conflict with [****] rights under the [****] Agreements or that would constitute a breach of PDL’s obligations to [****] under the [****] Agreements, provided however, no additional rights shall accrue to Biogen Idec unless and until Biogen Idec obtains a license pursuant to Section 3.8. The Parties acknowledge that certain of Biogen Idec’s, JPC’s and JSC’s rights under this Article 12 that relate to PDL Patent Rights that are licensed by or to PDL pursuant to the [****] Agreements. The Parties further acknowledge that such rights of Biogen Idec, JPC or JSC derive solely from those rights retained by PDL under the [****] Agreements.

(b)PDL hereby agrees and acknowledges that, notwithstanding any other provisions of this Agreement, Biogen Idec will not be obligated to pay any royalties due to [****] pursuant to the [****] Agreements for sales of Collaboration or Royalty Products, except as expressly stated in this Agreement.

12.11Patent Marking. Each Party agrees to comply with the patent marking statutes in each country in which Collaboration Products or Royalty Products are sold by such Party, its Affiliates and/or sublicensees. Notwithstanding the foregoing, prior to the launch of each Product, the JPC will formulate a marking strategy for such Product in cooperation with qualified outside counsel and in cooperation with the guidelines of the appropriate governmental agencies regulating the Manufacture or sale of Products, including determining the appropriate patent marking, if any, to be used with such Product.

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12.12Limited Rights to Humanization Technology Claims in Queen Patents. Nothing in this Article 12 shall be interpreted as granting Biogen Idec, the JPC or the JSC any rights with respect to the filing, prosecution (including interferences and oppositions), maintenance, enforcement or defense of primarily those claims in the Queen Patents that are directed toward the humanization of antibodies or humanized antibodies in general (as opposed to particular humanized antibodies or humanized antibodies directed at a particular target). For example and without limiting the foregoing, PDL shall not have any obligation to: (a) keep Biogen Idec or the JPC advised of the status of communications, actual and prospective filings or submissions primarily regarding such claims; (b) consult with Biogen Idec or the JPC on matters that primarily relate to such claims; (c) give Biogen Idec or the JPC access to or an opportunity to review and comment on any portion of patent office or patent litigation communications, filings or proposed submissions that pertain primarily to such claims; or (d) obtain JSC approval of a settlement or consent to an adverse judgment with respect to any admission of invalidity or unenforceability primarily of such claims.

12.13Trademark Selection and Ownership.

(a)Ownership of Trademarks. The Responsible Commercialization Party for the North American Territory, as the “Responsible Trademark Party,” shall own, throughout the world, all trademarks and trade dress, and all registrations therefor, selected under Section 12.13(b) and used or intended to be used on or in connection with a Product under this Agreement (the “Product Trademarks”). Accordingly, with respect to the Existing Products, [****] shall be the Responsible Trademark Party for [****], and [****] shall be the Responsible Trademark Party for [****] and [****]. All goodwill attributable to a Product Trademark generated by the Commercialization of a Product under this Agreement bearing a Product Trademark shall inure to the benefit of the Responsible Trademark Party.

(b)Selection and Procurement of Trademarks. The Responsible Trademark Party for a Product to be Commercialized under this Agreement shall select, subject to approval by the Joint Commercialization Committee, a minimum of [****] trademarks in each of the North American Territory and EU Territory and appropriate corresponding trade dress for such Product (whether as a Collaboration Product or Royalty Product). Any determination regarding the selection of such trademarks and trade dress shall take into account the objectives of the Parties, both within and outside the Collaboration, when making any determinations and exercising any rights it may have with respect to selecting the trademark and trade dress for a Product. All uses of trademarks and trade dress to identify and/or in connection with the Commercialization of a Product under this Agreement shall comply with all applicable laws (including,

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without limitation, those laws and regulations particularly applying to the proper use and designation of trademarks in the applicable countries).

(c)Prosecution and Enforcement; Expenses. The Responsible Trademark Party shall be responsible for procurement and maintenance of trademark registrations for the Product Trademarks throughout the Territory, except that the Responsible Trademark Party may cease trademark registration procurement activities for any Product Trademark in any country in the Royalty Territory provided it first offers the other Party the opportunity to assume such activities at its own expense. All expenses incurred by the Responsible Trademark Party with respect to the preparation, filing, prosecution, maintenance and enforcement of the Product Trademarks for the Profit Sharing Territory shall be included in Other Out-of-Pocket Costs and solely for the Royalty Territory shall be borne at the Independent Development  Party’s sole expense.

(d)Use of the Product Trademarks. To effectuate the purposes of this Agreement, the Responsible Trademark Party shall grant to the other Party, a non-exclusive, non-royalty bearing license (with the right to grant sublicenses) pursuant to a separate agreement, to use each Product Trademark solely in connection with the Commercialization of Products under this Agreement. The Party that is not the Responsible Trademark Party, its Affiliates and its sublicensees will comply with the Responsible Trademark Party’s then-current trademark and trade dress guidelines for trademarks and trade dress and shall have the right to monitor the quality of the Products on which a Product Trademark appears or which incorporates a Product Trademark in the form of trade dress in accordance with reasonable procedures to be agreed by the Parties. The Party that is not the Responsible Trademark Party, its Affiliates and sublicensees shall use the Product Trademarks only in connection with the Commercialization of Products under this Agreement in the Territory in accordance with the licenses to be granted herein. The Responsible Trademark Party, or the Party commercializing an Independent Product or Royalty Product as the case may be, shall provide all materials (including without limitation advertising or promotional materials) that incorporate the Product Trademarks or a Party’s house marks to the Responsible Trademark Party for prior review and approval, not to be unreasonably withheld.

(e)House Marks. In the event that the Parties mutually agree to permit a Party to use the house marks of the other Party in connection with the Commercialization and/or Co-Promotion of Products under this Agreement, the Parties will establish mutually acceptable terms for the usage of such house marks.

(f)Acknowledgement of Ownership Rights. Each Party acknowledges the sole ownership by the other Party and validity of all trademarks, trade dress, logos and slogans owned by the other Party and used or intended to be used on or in connection with the Commercialization of a Product under this Agreement. Each Party agrees that it will not at any time during or after the Term assert or claim any interest in or do anything which may adversely affect the validity or enforceability of any trademark, trade dress, logo or slogan owned by the other Party and used or intended to be used on or in connection with Commercialization of a Product under this Agreement. Neither Party will register, seek to register or cause to be registered any

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trademarks, trade dress, logos or slogans owned by the other Party and used or intended to be used on or in connection with the Commercialization of a Product under this Agreement or any variation thereof, under any law providing for registration of trademarks, service marks, trade names, fictitious names or similar laws, as an Internet domain name, or in the name of a corporation, partnership, limited liability company or other entity, without the other Party’s prior written consent.

(g)Use of Trademark Designations. The ™ designation may be used in conjunction with each Product Trademark within the Territory. Once registrations issue, the ® designation may be used in connection with the Product Trademarks. An appropriate statutory notice of trademark ownership shall be affixed to or imprinted on any material wherever a Party’s house marks or Product Trademarks are used. The Responsible Trademark Party’s ownership of the Product Trademarks shall be identified on all materials on which they appear. The exact language for identification of ownership shall be in accordance with branding and implementation guidelines to be agreed on by the Parties.

(h)Infringement of Product Trademarks.

(i)Procedure. In the event that either Party becomes aware of (i) actual infringement of a Product Trademark in the Territory; (ii) a mark or name confusingly similar to a Product Trademark in the Territory; or (iii) any unfair trade practices, trade dress imitation, passing off, or like offenses, in the Territory that relate to the Product Trademarks, such Party shall promptly so notify the other Party in writing. The Responsible Trademark Party shall have the right, but not the obligation, at its sole cost and expense, to initiate, prosecute, and control an infringement action or file any other appropriate action or claim related to such infringement of the Product Trademark against any Third Party. If the Responsible Trademark Party fails to bring any such infringement action within a period of [****] after delivery of the notice set forth above, then the other Party shall have the right, but not the obligation, at its sole cost and expense, to initiate, prosecute, and control an infringement action or file any other appropriate action or claim related to such infringement of the Product Trademark against any Third Party. In either event, the Party not bringing any such action (i) shall have the right (at its own expense) to participate in such action and to be represented by counsel of its own choice, and (ii) agrees, at the request and expense of the Party bringing such action, to be joined as a Party to the suit and to provide reasonable assistance in any such action. The Party controlling such action shall take all reasonable and appropriate steps to protect, defend, and maintain the Product Trademarks for use by the Parties and shall have the right to control settlement of such action; provided, however, that no settlement shall be entered into without the written consent of the other Party, not to be unreasonably withheld.

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(ii)Costs. The costs associated with such defense for the Profit Sharing Territory shall be included in [****] as set forth in Exhibit C and the costs associated solely with the Royalty Territory shall be borne by the Independent Development Party. Any damages or monetary award recovered shall be allocated as follows:  All cash amounts (plus the fair market value of all non-cash consideration) received by a Party or its Affiliates from a Third Party in connection with the final judgment, award or settlement of such action (“Recoveries”) shall first be applied to reimbursement of the unreimbursed legal fees and expenses of the Parties in connection with such action, and then the remainder shall be [****].

12.14Third Party Trademark Claims Based on Use of the Trademarks.

If a claim is brought by a Third Party that a Party’s use of the Product Trademarks infringes such Third Party’s trademarks, the Party against which (or against whose Affiliate, as the case may be) the action is brought will give prompt written notice to the other Party of such claim. The Responsible Trademark Party shall defend any such claim and any resulting suit brought in the Territory with respect to the use of the Product Trademark, provided the costs associated with such defense for the Profit Share Territory shall be included in [****] as set forth in Exhibit C and the costs associated solely with the Royalty Territory shall be borne by the [****]. Any damages or monetary award recovered shall be allocated as follows:  All cash amounts (plus the fair market value of all non-cash consideration) received by a Party or its Affiliates from a Third Party in connection with the final judgment, award or settlement of such defense (“Recoveries”) shall first be applied to reimbursement of the unreimbursed legal fees and expenses of the Parties in connection with such defense, and then the remainder shall be [****], except that [****]. The Responsible Trademark Party shall not settle any claim or suit in a manner that would adversely affect the other Party without obtaining the other Party’s prior written consent, which shall not be unreasonably withheld.

ARTICLE 13

REPRESENTATIONS AND WARRANTIES

13.1Mutual Representations and Warranties. Each Party hereby represents and warrants to the other Party as of August 2, 2005:

(a)Such Party is a corporation or entity duly organized and validly existing under the laws of the state or other jurisdiction of its incorporation or formation;

(b)The execution, delivery and performance of this Agreement by such Party has been duly authorized by all requisite corporate action;

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(c)Such Party has the power and authority to execute and deliver this Agreement and to perform its obligations hereunder, and such performance does not conflict with or constitute a breach of any agreement of such Party with a Third Party;

(d)Subject to Section 11.5(b)(iii) such Party has the right to grant the rights and licenses described in Article 11; and

(e)Such Party has and shall maintain the resources and capability to perform its obligations hereunder either alone or together with one or more of its Affiliates whose performance it can cause to be made available to perform obligations hereunder.

13.2Representations by PDL. PDL hereby represents and warrants to Biogen Idec as of August 2, 2005:

(a)Prior to August 2, 2005, it has provided a complete copy of the [****] Agreements and of all Third Party Licenses in effect as of the Effective Date;

(b)[****];

(c)it has not previously assigned, transferred, conveyed or otherwise encumbered its right, title and interest in PDL Technology in the Field;

(d)[****];

(e)[****];

(f)[****];

(g)[****];

(h)[****]; and

(i)[****].

As used and except as otherwise set forth herein, “PDL’s knowledge” means the actual knowledge, after reasonable inquiry, as of the Effective Date, of any executive officer of PDL with operational responsibility for the subject matter of the applicable representation or warranty.

Without limiting the foregoing, the Parties agree and acknowledge that the representations made by PDL in this Section 13.2 shall not be deemed to be representations made by or on behalf of [****].

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13.3Disclaimer. EXCEPT FOR THE EXPRESS WARRANTIES SET FORTH IN SECTION 13.1 AND 13.2, EACH PARTY MAKES NO OTHER REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, AND EACH PARTY EXPRESSLY DISCLAIMS ANY AND ALL OTHER REPRESENTATIONS AND WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING THE WARRANTIES OF DESIGN, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, ARISING FROM A COURSE OR DEALING, USAGE OR TRADE PRACTICES, OR ANY WARRANTY AS TO THE VALIDITY OR ANY PATENTS OR THE NON-INFRINGEMENT OF ANY INTELLECTUAL PROPERTY RIGHTS OF ANY THIRD PARTIES, IN ALL CASES WITH RESPECT THERETO.

13.4Limitation of Liability. NEITHER PARTY SHALL BE ENTITLED TO RECOVER FROM THE OTHER PARTY ANY SPECIAL, INDIRECT, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES IN CONNECTION WITH THIS AGREEMENT, EACH PARTY’S PERFORMANCE OR LACK OF PERFORMANCE HEREUNDER, OR ANY LICENSE GRANTED HEREUNDER, HOWEVER CAUSED, ON ANY THEORY OF LIABILITY AND WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THE FOREGOING LIMITATION SHALL NOT LIMIT EITHER PARTY’S OBLIGATION TO THE OTHER PARTY UNDER ARTICLES 14 AND 15.

13.5Essential Basis. The Parties acknowledge and agree that the disclaimers, exclusions and limitations of liability set forth in this Article 13 form an essential basis of this Agreement, and that, absent any of such disclaimers, exclusions or limitations of liability, the terms of this Agreement, including the economic terms, would be substantially different.

ARTICLE 14

CONFIDENTIALITY

14.1Generally. During and for five (5) years after the Term of this Agreement, each Party (i) shall maintain in confidence all Confidential Information of the other Party; (ii) shall not use such Confidential Information for any purpose except as permitted by this Agreement; and (iii) shall not disclose such Confidential Information to anyone other than those of its Affiliates, sublicensees, prospective sublicensees, employees, consultants, agents or subcontractors who are bound by written obligations of nondisclosure and non-use no less stringent than those set forth in this Article 14 and to whom such disclosure is necessary in connection with such Party’s activities as contemplated in this Agreement. Each Party shall ensure that such Party’s Affiliates, sublicensees, prospective sublicensees, employees, consultants, agents and subcontractors comply with these obligations. Each Party shall notify the other promptly on discovery of any unauthorized use or disclosure of the other’s trade secrets or proprietary information.

14.2Exceptions. The obligations of confidentiality, non-disclosure, and non-use set forth in Section 14.1 shall not apply to the extent the receiving Party (the

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“Recipient”) can demonstrate that the disclosed information (i) was in the public domain at the time of disclosure to the Recipient by the other Party, or thereafter entered the public domain, in each case other than as a result of actions of the Recipient, its Affiliates, employees, licensees, agents or subcontractors, in breach of this Agreement; (ii) was rightfully known by the Recipient or its Affiliates (as shown by its written records) prior to the date of disclosure to the Recipient by the other Party; or (iii) was received by the Recipient or its Affiliates on an unrestricted basis from a Third Party rightfully in possession of such information and not under a duty of confidentiality to the other Party. Notwithstanding any other provision of this Agreement, Recipient’s disclosure of Confidential Information shall not be prohibited if such disclosure:  (a) is in response to a valid order of a court or other governmental body, provided that Recipient provides the other Party with prior written notice of such disclosure in order to permit the other Party to seek a protective order or other confidential treatment of such Confidential Information; or (b) is otherwise required by applicable law or regulation, or rules of a nationally recognized securities exchange.

14.3Publications.

(a)Prior to public disclosure or submission for publication of a proposed academic, scientific or other publication or presentation that contains or references the results of any scientific or clinical activity relating to any Development Program or Collaboration Product, or any Patents or Know-How related thereto, the Party disclosing or submitting such proposed publication (“Submitting Party”) shall send the other party (“Responding Party”) by expedited delivery a copy of the proposed publication to be submitted and shall allow the Responding Party a reasonable time period (but no less than forty-five (45) days from the date of confirmed receipt) in which to determine whether the proposed publication contains subject matter for which patent protection should be sought (prior to publication of such proposed publication) for the purpose of protecting an invention and/or whether the proposed publication contains the Confidential Information of the Responding Party. Following the expiration of the forty-five (45) day review period, the Submitting Party shall be free to submit such proposed publication for publication and publish or otherwise disclose to the public such scientific or clinical results, subject to the procedures set forth in Section 14.3(b).

(b)If the Responding Party believes that the subject matter of the proposed publication contains Confidential Information or a patentable invention of the Responding Party, then prior to the expiration of the applicable time period for review, the Responding Party shall notify the Submitting Party in writing of its determination that such proposed publication contains such information or subject matter for which patent protection should be sought. On receipt of such written notice from the Responding Party, the Submitting Party shall delay public disclosure of such information or submission of the proposed publication for an additional period of ninety (90) days to permit preparation and filing of a patent application on the disclosed subject matter. The Submitting Party shall thereafter be free to publish or disclose such information, except that the Submitting Party may not disclose any Confidential Information of the Responding Party in violation of Sections 14.1 and 14.2 hereof.

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14.4Publicity. The Parties agree that the public announcement of the execution of this Agreement shall be substantially in the form of a mutually agreed press release. Any other publication, news release or other public announcement relating to this Agreement or to the performance hereunder, shall first be reviewed and approved by both Parties unless such publication, news release or other public announcement contains information previously approved by the other Party for release hereunder; provided, however, that any disclosure which is required by law, or by the rules of a nationally recognized securities exchange, as advised by the disclosing Party’s counsel may be made without the prior consent of the other Party, although the other Party shall be given prompt notice of any such legally required disclosure and to the extent practicable shall provide the other Party an opportunity to comment on the proposed disclosure.

ARTICLE 15

INDEMNIFICATION

15.1Indemnification by PDL.

(a)PDL agrees to indemnify, hold harmless and defend Biogen Idec and its Affiliates, directors, officers, employees and agents (the “Biogen Idec Indemnitees”) from and against any and all Third Party suits, claims, actions, demands, liabilities, expenses and/or losses (including attorneys’ fees, court costs, witness fees, damages, judgments, fines and amounts paid in settlement) (“Losses”) [****], but [****].

(b)PDL agrees to indemnify, hold harmless and defend the Biogen Idec Indemnitees from and against any and all Losses [****] (i) [****], or (ii) [****], except [****].

15.2Indemnification by Biogen Idec.

(a)Biogen Idec shall indemnify, hold harmless and defend PDL and its Affiliates directors, officers, employees and agents (the “PDL Indemnitees”) from and against any and all Losses, [****], but [****], but not [****]. [****].

(b)Biogen Idec agrees to indemnify, hold harmless and defend the PDL Indemnitees from and against any and all Losses [****], except [****].

15.3Procedure. In the event of a claim by a Third Party against a Party entitled to indemnification under this Agreement (“Indemnified Party”), the Indemnified

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Party shall promptly notify the other Party (“Indemnifying Party”) in writing of the claim and the Indemnifying Party shall undertake and solely manage and control, at its sole expense, the defense of the claim and its settlement. The Indemnified Party shall cooperate with the Indemnifying Party, including, as requested by the Indemnifying Party entering into a joint defense agreement. The Indemnified Party may, at its option and expense, be represented in any such action or proceeding by counsel of its choice. The Indemnifying Party shall not be liable for any litigation costs or expenses incurred by the Indemnified Party without the Indemnifying Party’s written consent. The Indemnifying Party shall not settle any such claim unless such settlement fully and unconditionally releases the Indemnified Party from all liability relating thereto, unless the Indemnified Party otherwise agrees in writing.

15.4Insurance. Each Party, at its own expense, shall maintain product liability insurance in an amount consistent with industry standards for a company of similar standing during the Term. Each Party shall provide [****] prior written notice of any cancellation of its insurance program. Each Party shall provide the other Party with a certificate of insurance evidencing product liability coverage.

ARTICLE 16

TERM AND TERMINATION; EFFECTS OF TERMINATION

16.1Term. The term of this Agreement shall begin on the Effective Date and, unless earlier terminated in accordance with the terms of this Article 16, will expire on the date on which neither Party has nor will have any additional payment obligations to the other Party under this Agreement (the “Term”).

16.2Termination for Breach.

(a)Breach. If a Party materially breaches its obligations under this Agreement with respect to a Collaboration Product or Royalty Product, which breach is not cured within [****] after written notice thereof from the non-breaching Party (or if such breach is not capable of cure within such period, which breach the breaching Party is not making diligent good faith efforts to cure), then upon further express written notice from the non-breaching Party, the breaching Party automatically (and without further action on its part) shall be deemed to have [****] (a “Breaching Party”); provided however that the breaching Party shall be entitled to receive no more than [****] of the royalties due to a Non-Developing Party hereunder. This preceding sentence shall not, however, limit in any manner the non-breaching Party’s other remedies for breach. The Parties acknowledge and agree that failure to exercise any right or option with respect

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to any Collaboration Product or to take any action expressly within the discretion of a Party shall not be deemed to be material breach hereunder.

(b)Breaching Party Obligations. A Breaching Party shall, with respect to the Collaboration Product or Royalty Product as to which it is the Breaching Party (i) notwithstanding the provisions of this Agreement to the contrary, the Breaching Party shall be [****], (ii) in addition to the obligations specified in [****] the Breaching  Party shall [****], and (iii) the Breaching Party shall [****].

16.3Bankruptcy. All rights and licenses granted under this Agreement by one Party to the other Party are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the United States Bankruptcy Code (the “Bankruptcy Code”), licenses of rights to “intellectual property” as defined under Section 101(35A) of the Bankruptcy Code. The Parties agree that a Party shall retain and may fully exercise all of its rights and elections under the Bankruptcy Code in the event of a bankruptcy by the other Party. The Parties further agree that in the event of the commencement of a bankruptcy proceeding by or against one Party under the Bankruptcy Code, the other Party shall be entitled to complete access to any such intellectual property pertaining to the rights granted in the licenses hereunder of the Party by or against whom a bankruptcy proceeding has been commenced and all embodiments of such intellectual property.

16.4Change of Control.

(a)In the event a Party undergoes a Change of Control (the “Acquired Party”), the other Party (the “Non-Acquired Party”) shall have the right, at any time within [****] following the closing of such Change of Control, and at its sole discretion, to elect none, some or all of the following. This Agreement shall otherwise remain in full force and effect.

(i)The provisions of this Agreement permitting the Acquired Party to vote in any Committee decision [****].

(ii)The Non-Acquired Party shall have the option [****].

(iii)The Non-Acquired Party shall have [****].

(iv)Upon [****] prior written notice, the Non-Acquired Party may [****]; and

(v)The Non-Acquired Party shall have the [****] to (A) [****] and (B) [****]. The purposes of such procedures shall be to strictly limit such disclosures to

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only those personnel having a need-to-know Sensitive Information in order for the Acquired Party to perform its remaining obligations under this Agreement and to prohibit the use of Sensitive Information for competitive reasons against the Non-Acquired Party and its Affiliates, including without limitation, the use of Sensitive Information for the development or commercialization of competing products.

(b)An Acquired Party shall have the one-time right, at any time within [****] following the election by the Non Acquired Party to exercise any of the rights specified in Section 16.4(a)  to [****]. Upon written notice of the Acquired Party’s intent to [****], the Acquired Party shall:

(i)Continue to participate in the equal funding of the Development and Commercialization of each Collaboration Product in the Profit Sharing Territory until the next applicable opt-out point specified in Exhibit 4.1(b)(iii) for such Collaboration Product.

(ii)Promptly comply with the provisions of Sections 4.3(c), 4.3(e), 4.3(f),  4.3(g) and 4.3 (h) with respect to each Collaboration Product as if it were a Non-Developing Party thereunder.

(iii)Following the termination of the Acquired Party’s funding obligation as set forth in Section 16.4(b)(i) above, the Acquired Party shall thereafter be eligible to receive from the Non-Acquired Party, for the term specified below, incremental royalties on Net Sales of the relevant Collaboration Product at a royalty rate which is equal to the sum of (A) [****] (B) [****], as applicable. The term of the Non-Acquired Party’s obligation to pay a royalty under this Section 16.4(b) shall expire on a country-by-country and Collaboration Product-by-Collaboration Product basis, at the dates specified in Section 9.5. Each Collaboration Product shall thereafter be deemed to be an Independent Product and all the applicable provisions of the Agreement shall remain in full force and effect.

16.5In any event, expiration or termination of this Agreement shall not relieve the Parties of any liability which accrued hereunder prior to the effective date of such expiration or termination nor preclude either Party from pursuing all rights and remedies it may have hereunder or at law or in equity with respect to any breach of this Agreement, nor prejudice either Party’s right to obtain performance of any obligation.

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ARTICLE 17

DISPUTE RESOLUTION; GOVERNING LAW

17.1Disputes. Unless otherwise set forth in this Agreement, in the event of any dispute arising under this Agreement between the Parties, the Parties shall refer such dispute to the respective Executives, and such Executives shall attempt in good faith to resolve such dispute.

17.2Arbitration. Subject to the provisions of Section 2.8(c), if the Parties are unable resolve a given dispute pursuant to Section 17.1 within [****] of referring such dispute to the Executives, either Party may have the given dispute settled by binding arbitration in the manner described below:

(a)Arbitration Request. If a Party intends to begin an arbitration to resolve a dispute arising under this Agreement, such Party shall provide written notice (the “Arbitration Request”) to the other Party of such intention and the issues for resolution. From the date of the Arbitration Request and until such time as the dispute has become finally settled, the running of the time periods as to which Party must cure a breach of this Agreement becomes suspended as to the subject matter of the dispute.

(b)Additional Issues. Within [****] after the receipt of the Arbitration Request, the other Party may, by written notice, add additional issues for resolution.

(c)No Arbitration of Patent Issues. Unless otherwise agreed by the Parties, disputes relating to patents shall not be subject to arbitration, and shall be submitted to a court of competent jurisdiction.

(d)Arbitration Procedure. Except as expressly provided herein, the sole mechanism for resolution of any claim, dispute or controversy arising out of or in connection with or relating to this Agreement or the breach or alleged breach thereof shall be arbitration by the American Arbitration Association (“AAA”) in Los Angeles, California, or in such other venue as the Parties agree, under the commercial rules then in effect for the AAA except as provided herein. All proceedings shall be held in English and a transcribed record prepared in English. The Parties shall choose, by mutual agreement, one arbitrator within [****] of receipt of notice of the intent to arbitrate. If no arbitrator is appointed within the times herein provided or any extension of time that is mutually agreed on, the AAA shall make such appointment within [****] of such failure. The award rendered by the arbitrator shall not include costs of arbitration, attorneys’ fees or costs for expert and other witnesses. Within [****] of initiation of arbitration, the Parties shall reach agreement upon and thereafter follow procedures assuring that the arbitration will be concluded and the award rendered within no more than [****] from

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selection of the arbitrator. Failing such agreement, the AAA will design and the Parties will follow procedures that meet such a time schedule. The arbitrator (i) shall not have any power or authority to add to, alter, amend or modify the terms of this Agreement but shall specify rules sufficient to allow reasonable discovery by the Parties; (ii) shall establish and enforce appropriate rules to ensure that the proceedings, including the decision, be kept confidential and that all Confidential Information of the Parties be kept confidential and be used for no purpose other than the arbitration; (iii) shall have the power to enforce specifically this Agreement and the terms and conditions hereof in addition to any other remedies at law or in equity; and (iv) shall issue all decisions in writing. Nothing in this Agreement shall be deemed as preventing either Party from seeking injunctive relief (or any other provisional remedy) from any court having jurisdiction over the Parties and the subject matter of the dispute as necessary to protect either Party’s name, proprietary information, trade secrets, know-how or any other proprietary right. If the issues in dispute involve scientific or technical matters, any arbitrator chosen hereunder shall have educational training and/or experience sufficient to demonstrate a reasonable level of knowledge in the field of biotechnology. Judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof.

17.3Choice of Law. The validity, performance, construction, and effect of this Agreement shall be governed by the laws of the [****], U.S.A., without regard to conflicts of law principles that would provide for application of the law of a jurisdiction outside California and excluding the United Nations Convention on Contracts for the International Sales of Goods.

ARTICLE 18

MISCELLANEOUS

18.1Assignment. Each Party, without the consent of the other Party, may assign this Agreement and its rights and obligations hereunder (i) [****], or (ii) [****]. Any permitted assignee shall assume all assigned obligations of its assignor under this Agreement. The assigning Party shall promptly notify the other Party of any such Change of Control and any such assignment and shall use all reasonable efforts to provide such notification at least [****] before the completion of the Change of Control and before the assignment. Except as specifically provided in this Section 18 or in Section 3.7, this Agreement may not be assigned or otherwise transferred, nor may any right or obligation hereunder be assigned or transferred, by either Party without the consent of the other Party. Any attempted assignment not in accordance with this Section shall be void.

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18.2Force Majeure. If either Party shall be delayed, interrupted in or prevented from the performance of any obligation hereunder by reason of force majeure including an act of God, fire, flood, earthquake, war (declared or undeclared), public disaster, act of terrorism, strike or labor differences, governmental enactment, rule or regulation, or any other cause beyond such Party’s control, such Party shall not be liable to the other therefor; and the time for performance of such obligation shall be extended for a period equal to the duration of the force majeure which occasioned the delay, interruption or prevention. The Party invoking such force majeure rights of this Section 18.2 must notify the other Party by courier or overnight dispatch (e.g., Federal Express) within a period of fifteen (15) days of both the first and last day of the force majeure unless the force majeure renders such notification impossible in which case notification will be made as soon as possible. If the delay resulting from the force majeure exceeds six (6) months, both Parties shall consult together to find an appropriate solution.

18.3Entire Agreement; Amendment. This Agreement constitutes the entire agreement between the Parties with respect to the subject matter herein and, effective on the Effective Date, supersedes all previous agreements between the Parties with respect to the subject matter herein, whether written or oral, including the existing confidentiality agreement between PDL and Biogen Idec. This Agreement shall not be changed or modified orally, but only by an instrument in writing signed by both Parties.

18.4Severability. If any provision of this Agreement is declared invalid by a court of last resort or by any court or other governmental body from the decision of which an appeal is not taken within the time provided by law, then and in such event, this Agreement will be deemed to have been terminated only as to the portion thereof that relates to the provision invalidated by that decision and only in the relevant jurisdiction, but this Agreement, in all other respects and all other jurisdictions, will remain in force; provided, however, that if the provision so invalidated is essential to the Agreement as a whole, then the Parties shall negotiate in good faith to amend the terms hereof as nearly as practical to carry out the original intent of the Parties, and, failing such amendment, either Party may submit the matter for resolution pursuant to Article 16.

18.5Notices. Any notice or report required or permitted to be given under this Agreement shall be in writing and shall be mailed by nationally recognized overnight courier, or faxed and confirmed by mailing, as follows and shall be effective one (1) day after such mailing:

If to PDL:	Protein Design Labs, Inc.
	34801 Campus Drive
	Fremont, California U.S.A. 94555
	Attention: Chief Executive Officer
	Facsimile:
and	Protein Design Labs, Inc.
	34801 Campus Drive

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	Fremont, California U.S.A. 94555
	Attention: General Counsel
	Facsimile:
If to Biogen Idec:	Biogen Idec Inc.
	14 Cambridge Center
	Cambridge, Massachusetts U.S.A 02142
	Attention: Chief Executive Officer
	Facsimile:
and	Biogen Idec Inc.
	14 Cambridge Center
	Cambridge, Massachusetts U.S.A 02142
	Attention: General Counsel
	Facsimile:

18.6Further Assurances. The Parties agree to reasonably cooperate with each other in connection with any actions required to be taken as part of their respective obligations under this Agreement, and shall (a) furnish to each other such further information; (b) execute and deliver to each other such other documents; and (c) do such other acts and things (including working collaboratively to correct any clerical, typographical, or other similar errors in this Agreement), all as the other Party may reasonably request for the purpose of carrying out the intent of this Agreement.

18.7Agency. Neither Party is, nor will be deemed to be an employee, agent or representative of the other Party for any purpose. Each Party is an independent contractor, not an employee or partner of the other Party. Neither Party shall have the authority to speak for, represent or obligate the other Party in any way without prior written authority from the other Party.

18.8No Waiver. Any omission or delay by either Party at any time to enforce any right or remedy reserved to it, or to require performance of any of the terms, covenants or provisions hereof, by the other Party, shall not constitute a waiver of such Party’s rights to the future enforcement of its rights under this Agreement. Any waiver by a Party of a particular breach or default by the other Party shall not operate or be construed as a waiver of any subsequent breach or default by the other Party.

18.9No Strict Construction. Each Party has had the opportunity to consult with counsel in connection with the review, drafting and negotiation of this Agreement. Accordingly, the rule of construction that any ambiguity in this Agreement shall be construed against the drafting Party shall not apply.

18.10Headings. The captions used herein are inserted for convenience of reference only and shall not be construed to create obligations, benefits, or limitations.

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18.11Cumulative Remedies. No remedy referred to in this Agreement is intended to be exclusive, but each shall be cumulative and in addition to any other remedy referred to in this Agreement or otherwise available under law.

18.12Counterparts. This Agreement may be executed in counterparts, all of which taken together shall be regarded as one and the same instrument.

[Signature Page to Follow]

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IN WITNESS WHEREOF, the Parties have executed this Collaboration Agreement through their duly authorized representatives to be effective as of the Effective Date.

PROTEIN DESIGN LABS, INC.				BIOGEN IDEC MA INC.
By:	/s/ Mark McDade			By:	/s/ James Mullen
Title:			President and CEO	Title:			President
Date:		September 12, 2005		Date		September 12, 2005

EXHIBIT A

PDL PATENT RIGHTS

I.Queen Patents

[****]

II.[****] Patent Rights

[****]

III.[****] Patent Rights

[****]

IV.[****] Patent Rights

[****]

*Certain information on this page has been omitted and filed separately with the commission. Confidential treatment has been requested with respect to the omitted portions.

EXHIBIT B

THIRD PARTY LICENSES

[****]

*Certain information on this page has been omitted and filed separately with the commission. Confidential treatment has been requested with respect to the omitted portions.

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EXHIBIT C

FINANCIAL PLANNING, ACCOUNTING AND REPORTING PROCEDURES
FOR COLLABORATION AGREEMENT

This Exhibit C to the Collaboration Agreement (the “Agreement”) dated as of the Effective Date, between Protein Design Labs, Inc. (“PDL”) and Biogen Idec MA, Inc. (“Biogen Idec”) covers financial planning, accounting policies and procedures to be followed in determining Development Expenses, Ongoing Development Expenses, Other Out-of-Pocket Costs and Reimbursable Commercial Costs pursuant to the Agreement.

For such purpose, this Exhibit C sets forth the principles for reporting actual results and budgeted plans in the Territory, the frequency of reporting, the use of a single “Functional Currency” (as defined in A.3) and the methods of determining payments to the Parties, auditing of accounts and other matters.

This Exhibit C also provides agreed upon definitions of financial terms applicable to the Parties for purposes of the Agreement. All capitalized terms used herein without definition shall have the meanings ascribed thereto in the Agreement and, where applicable, the further definitions contained herein. References in this Exhibit C to a “Party” or “Parties” shall be construed to mean Biogen Idec or PDL, as the case may be, and in every case shall be deemed to include a Party^’s Affiliates or sublicensees under the Agreement.

The contents of this Exhibit C are hereby incorporated into the Agreement and are governed by the terms and conditions of the Agreement, including the confidentiality provisions set forth therein. Notwithstanding anything in the Agreement to the contrary, no cost, expense, amount or sum allocable or chargeable to the Parties^’ activities under the Agreement shall be allocated or charged more than once. Unless otherwise specifically authorized by the Parties or the Agreement, all costs, expenses, amounts or sums to be charged or allocated by one Party to the other Party under the Agreement shall not be so chargeable or allocable unless they are both directly related to the Agreement and the activities to be performed under the Agreement and are reasonable and customary with respect to the global biopharmaceutical industry considering the respective size and activities of the two Parties as collaborators under the Agreement.

A.Definitions, Reporting and Reconciliation

A.1.Definitions

A.1.1“Combination Product” shall mean a product containing both the Collaboration Product and one or more other active ingredients in addition to the Collaboration Product where the other active ingredients have independent prophylactic or therapeutic effect when used alone to treat the disease or indication for which the Combination Product is labeled, whether the Collaboration Product and the other active

ingredients are together in a physical mixture or packaged and priced together as a single product.

A.1.2“Combination Product Amount” shall mean the following: in the event a Collaboration Product is sold in the form of a Combination Product, and provided that the JSC  has approved the sale and marketing of such a Combination Product in a Commercialization Plan , Net Sales for such Combination Product for purposes of this Agreement will be determined by [****]. If, on a country-by-country basis, the other active component or components in the combination are not sold separately in such country, Net Sales shall be calculated by [****]. If, on a country-by-country basis, the Collaboration Product component of the Combination Product is not sold separately in such country, but the other active component or components are sold separately, Net Sales shall be calculated by [****]. If, on a country-by-country basis, neither the Collaboration Product nor the other active component or components of the Combination Product is sold separately in such country, [****].

A.1.3  “Cost of Clinical Supplies” shall mean a Party’s costs to produce [****], to the extent that such costs would ordinarily be included [****] for a similar product, including without limitation labor and material cost, allocable depreciation and amortization, product quality assurance/control costs, allocable facilities costs (e.g., sewer, water, property taxes), Third Party Royalties, insurance, and other costs borne by the party for transport, customs and duty clearance and storage of Clinical Supplies of Collaboration Product. [****].

A.1.4“Cost of Goods Manufactured for Sale” or “COGM” shall mean a Party’s costs to produce [****] and/or [****] to the extent that such costs would ordinarily be included [****] for a similar product, including without limitation labor and material cost, allocable depreciation and amortization, product quality assurance/control costs, allocable facilities costs (e.g., sewer, water, property taxes), Third Party Royalties, insurance, and other costs borne by the party for transport, customs and duty clearance and storage of Commercial Supplies of Collaboration Product. [****].

A.1.5“Cost of Sales” shall mean a Collaboration Product’s Cost of Goods Manufactured for Sale [****], Third Party Royalties (i.e., any allocable intellectual property acquisition and licensing costs not included in COGM) and transport, customs and duty clearance on sales if borne by the seller.

A.1.6“Development Expenses” shall mean the costs and expenses associated with Development activities actually for each Collaboration Product incurred by Biogen Idec or PDL or their Affiliates from August 2, 2005, provided that the provisions of Section 3.5(a)(ii) are complied with, and otherwise, from the Effective Date through the later of (a) [****], or (b) [****]. The costs and expenses associated with

*Certain information on this page has been omitted and filed separately with the commission. Confidential treatment has been requested with respect to the omitted portions.

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Development activities shall include those costs required to obtain, maintain and/or expand the authorization and/or ability to manufacture, formulate, fill, ship and/or sell Collaboration Product in commercial quantities to Third Parties in the Territory, including the costs of the Parties associated with the transfer of, and implementation of manufacturing technology necessary to qualify a manufacturing facility. Development Expenses shall also include, but are not limited to, costs of research or Development, including costs of studies on the toxicological, pharmacological, metabolical or clinical aspects of a Collaboration Product conducted internally or by individual investigators or consultants and necessary for the purpose of obtaining, maintaining and/or expanding marketing approval of a Collaboration Product, process development, process improvement and scale-up costs, validation costs, including qualification lots, the manufacture of Clinical Supplies of Collaboration Product, and costs for preparing, submitting, reviewing or developing data or information for the purpose of submission to a governmental authority to obtain, maintain and/or expand manufacturing and/or marketing approval of a Collaboration Product and costs of marketing studies related to Collaboration Product. Development Expenses shall include the previously incurred cost of any inventory of Collaboration Products held by PDL at the Effective Date, provided that the date at which the cost of any such inventory shall be deemed to be incurred by PDL as a Development Expense shall be the date such product is shipped for use in Clinical Trials for a Collaboration Product. Development Expenses shall also include expenses for data management, statistical designs and studies, document preparation, and other administration expenses associated with the clinical testing program. In determining Development Expenses chargeable under this Agreement, each Party will use its respective project accounting systems, and will review its respective project accounting systems and methodologies with the other Party. The Parties shall agree upon and consistently apply methodologies for calculating and allocating Development Expenses based on their respective internal accounting systems. The Parties hereby agree that efforts of the employees of a Party or its Affiliates in performing its activities hereunder shall be charged as Development Expenses at the applicable FTE Rate. Notwithstanding anything in this Section to the contrary, only those Development Expenses that are contemplated by the Development Plan and an Annual Workplan/Budget or were otherwise approved by the JSC shall be chargeable by a Party as Development Expenses with any cost overruns treated in the manner set forth in Section A.2.2 of this Exhibit C. All payments made by a Party to a Third Party in connection with the performance of its activities under the Development Plan and an Annual Workplan/Budget shall be charged as Development Expenses at such Party’s actual out-of-pocket cost. The Cost of Clinical Supplies of Collaboration Product shall be charged as a Development Expense. Except to the extent included in Cost of Clinical Supplies of Collaboration Product, expenses incurred by each Party for equipment, materials and supplies utilized in performing its activities under the Development Plan and an Annual Workplan/Budget shall not be separately charged as Development Expenses, except for those expenses incurred by a Party, with the prior written consent of the JSC as set forth in the Development Plan and Annual Workplan/Budget, in the purchase or making of equipment, materials or supplies (other than common laboratory supplies, e.g., pipettes, test tubes, petri dishes, reagents, and the like) that are to be used exclusively in connection with the performance of such

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Party’s activities under a Development Plan and an Annual Workplan/Budget (e.g., laboratory animals, placebo supplies, etc.), which expenses shall be charged as Development Expenses at such Party’s actual out-of-pocket expense incurred in purchasing or making such equipment, materials or supplies. Special purchases of capital equipment not related to Manufacturing that are used solely for purposes of the Collaboration shall be approved in advance by the JSC.

A.1.7“Distribution Costs” shall mean the FTE costs and other costs specifically identifiable or allocable to the distribution of Collaboration Product by a Party and described in an Annual Commercialization Plan/Budget including warehousing, transportation, order entry, billing, shipping, credit and collection and other such activities as approved by the JSC. For purposes of this definition, FTE costs shall be charged at the applicable FTE Rate.

A.1.8“FTE Rate” shall mean as defined in Section A.6 of this Exhibit C.

A.1.9“Gross Sales” shall mean the gross amount invoiced by a Party or its Affiliates or sublicensees for sales of a Collaboration Product to Third Parties in the Territory, including sales to distributors. For clarity, Gross Sales will include a Party’s revenue from distributors, and not revenue of the distributors themselves. A sale or transfer of a Collaboration Product by a Party to one of its Affiliates shall not be considered a sale to a Third Party for the purpose of this provision but the resale of such Collaboration Product by such Affiliate to a Third Party shall be a sale for such purposes. In the event the Collaboration Product is sold in the form of a Combination Product, Gross Sales will be the Combination Product Amount. Each Party shall communicate to the other Party any mandatory discounts to Gross Sales levied by any Third Party.

A.1.10“Marketing Costs” shall mean the FTE costs and other direct costs of marketing, promotion and advertising, including, without limitation, costs for preparing and reproducing detailing aids, Collaboration Product promotional Materials and other promotional materials, costs of professional education, product related public relations, relationships with opinion leaders and professional societies, market research (before and after product approval), healthcare economics studies, Post-Approval Clinical Trials, and other similar activities directly related to the Collaboration Products, in each case as approved by the JSC as part of the Commercialization Plan and an Annual Commercialization Plan/Budget. Such costs may also include actual out-of-pocket costs for outside services and expenses (e.g., consultants, agency fees, meeting costs, etc.). “Marketing Costs” shall also include activities related to obtaining reimbursement from payers, costs of sales and marketing data, and costs not previously included as Sales Costs. For purposes of this definition, FTE costs shall be charged at the applicable FTE Rate, as set forth in Section A.1.16 of this Exhibit C.

A.1.11  “Net Sales” shall mean Gross Sales of a Collaboration Product less applicable Sales Returns and Allowances.

A.1.12  “Ongoing Development Expense” shall mean FTE costs and

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other costs and expenses borne by either Party or its Affiliates with respect to Phase IV Clinical Trials approved by the JSC and other expenses approved by the JSC associated with market positioning of a Collaboration Product to the extent not otherwise included within Development Expenses or Marketing Costs or Sales Costs under any other written agreement between the Parties or their Affiliates relating to Collaboration Product. For purposes of this definition, FTE costs shall be charged at the applicable FTE Rate.

A.1.13  “Operating Expenses” shall mean Cost of Sales,  Marketing Costs,  Sales Costs, Ongoing Development Expenses,  Other Out-of-Pocket Costs and Distribution Costs

A.1.14  “Other Out-of-Pocket Costs” shall mean other operating expenses paid by the Parties or their Affiliates to Third Parties which are not part of Development Expenses, but are considered and approved by the JSC as expenses for purposes of the cost sharing arrangements under the Agreement. Other Out-of-Pocket Costs shall be limited to the following:

•Third Party License Fees (other than those related to the manufacture of Collaboration Product to the extent covered under any other written agreement between the Parties or their Affiliates related to Collaboration Product)

•Patent Costs and trademark costs (as limited by Article 12 of the Agreement)

•product liability insurance to the extent the Parties obtain a joint policy

•costs pursuant to joint ownership of intellectual property as outlined in Article 12 of this Agreement

•costs incurred in the defense of infringement suits pursuant to Section 12.8 of the Agreement

•other expenses approved by the JSC

A.1.15  “Post-Approval Clinical Trial” shall mean any clinical trial in an indication, other than a Phase 3 Clinical Trial or Phase 4 Clinical Trial, to be conducted after a Regulatory Approval for such indication.

A.1.16“Sales Costs” shall mean FTE costs and other direct costs approved by the JCC as part of the Commercialization Plan and an Annual Commercialization Plan/Budget and specifically identifiable to sales of Collaboration Products in the Territory. Sales Costs shall include costs associated with Sales Representatives and training of the Sales Representatives, sales meetings, details, sales call reporting, work on managed care accounts, costs related to customer service and other sales and customer service-related expenses. Sales Costs will not include start-up costs associated with either Party’s sales force, including recruiting, relocation

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and other similar costs. The annual FTE cost shall be determined based on the actual FTE cost from the prior budget year for the respective Sales, Marketing, Customer Service, Managed Markets, Decision Support and Medical Affairs functions of each Party, with one collaboration FTE rate established each year for all sales and marketing functions.

A.1.17  “Sales Returns & Allowances” shall mean the sum of (a) and (b), where: (a) [****]; and (b) [****].

It is the intention of the Parties that the interpretation of these definitions in this Exhibit C will be in accordance with U.S. GAAP consistently applied in accordance with Biogen Idec then current practices. A Party will promptly make the appropriate adjustments to the financial information it supplies under the Agreement to reflect changes to the provisions, including reasonable detail underlying the adjustment, in reporting results of operation.

A.2.1. Reporting. Each Party shall report to the other Party forecasts, budgets and actual results of operations related to the following:

•[****]

•[****]

•[****]

•[****]

•[****]

•[****]

•[****]

•[****]

•[****]

•[****]

•[****]

•[****]

•[****]

*Certain information on this page has been omitted and filed separately with the commission. Confidential treatment has been requested with respect to the omitted portions.

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Reporting by each Party will be performed as follows:

Reporting Event	Frequency	Timing of Submission
[****]	[****]	[****]
[****]	[****]	[****]
[****]	[****]	[****]
[****]	[****]	[****]
[****]	[****]	[****]
[****]	[****]	[****]
[****]	[****]	[****]

The financial representatives from the Parties will review financial information [****] and meet as appropriate but shall in any event meet in person at least quarterly to review and approve the following:

•[****]

•[****]

•[****]

•[****]

•[****]

Costs included in Cost of Clinical Supplies are not subject to JSC approval as long as they are consistent with the definitions and within the JSC approved budget.

A.2.2  Reconciliation Statements. Within [****] following the end of a Calendar Quarter, each Party shall submit to the other Party its report of actual results as outlined above (including a summary of charges and credits allocated to its Development Expense Project Account). Expenses charged by either Party as Ongoing Development Expenses, Other Out-of-Pocket Costs and Development Expenses shall not exceed [****] of the amount included for the total expenditure in the then current Development Plan or Annual Workplan/Budget, as the case may be, unless the JFC recommends, and the JSC approves such excess expense. If actual costs of any expense line item in implementing an Annual Work Plan/Budget or the Development Plan is expected to vary by more than [****], then the Party incurring the variance(s) has

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the obligation to inform the other Party of such variance(s) in a timely manner and to discuss with such Party the causes of the variance(s). Any such discussion as to the cause of the variances shall occur at the JFC. If the actual costs of implementing an Annual Work Plan/Budget or the Development Plan are expected to vary by more than [****] from the amounts budgeted for expenditure during the calendar year, the Responsible Development Party will promptly revise, as applicable, the Annual Workplan/Budget or Development Plan and submit it in writing, with an explanation of the variance and the reasons therefore, for approval to the JSC. If the JSC does not approve the variance, the amount by which the actual costs exceed [****] of the budgeted costs shall be borne by the Party that incurred the costs.

The financial representatives from each Party on the JFC shall be responsible for, within [****] days following the end of a Calendar Quarter, preparing a statement (“Reconciliation Statement”) in a format agreed to by the Parties showing each Party’s results, the calculations of Ongoing Development Expenses, Other Out-of-Pocket Costs, Cost of Clinical Supplies, COGM and Development Expenses sharing under Section 3.6 of the Agreement and any cash settlement required. The Reconciliation Statement and reports of actual results compared to budget will be sent to the JFC, within [****] following the end of a Calendar Quarter for approval. After approval by the JFC, the JFC will forward the Reconciliation Statement to the JSC for its information or approval in the case of a dispute. The Reconciliation Statement shall be provided to the JSC [****] prior to the date upon which the JSC shall meet to approve the Reconciliation Statement, if approval is being sought. Reconciliation Statements shall be made by PDL or Biogen Idec in the manner set forth in Section A.5 of this Exhibit C.

A.3  Foreign Exchange. The “Functional Currency” for accounting for Ongoing Development Expenses, Other Out-of-Pocket Costs and Development Expenses will be U.S. dollars. Except as the Parties otherwise mutually agree, for billing and reporting, the statement of operations will be translated into U.S. dollars using the [****] listed in The Wall Street Journal for the [****]. If, due to restrictions or prohibitions imposed by national or international authority, payments cannot be made as provided in this Section, the Parties shall consult with each other with a view towards finding a prompt and acceptable solution, and the paying Party will transfer funds as the other Party may lawfully direct at no additional out-of-pocket expense to the paying Party.

A.4  Audits and Interim Reviews. Either Party shall have the right to request that a nationally recognized, independent accounting firm to be mutually agreed upon by the Parties and that is not either Party^’s independent accounting firm perform an audit or interim review of the other Party’s books and records as they relate to

*Certain information on this page has been omitted and filed separately with the commission. Confidential treatment has been requested with respect to the omitted portions.

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activities under this Agreement in order to express an opinion regarding such Party’s accounting for revenues, costs and expenses under this Agreement. Such audits or review will be conducted at the expense of the requesting Party. Either Party shall have the right to request that a nationally recognized, independent accounting firm to be mutually agreed upon by the Parties and that is not either Party’s independent accounting firm perform an audit of the other Party’s books of accounts for the sole purpose of verifying compliance with the Agreement and the Transaction Agreements. Upon [****] prior written notice from a Party (the “Auditing Party”), the other Party (the “Audited Party”) shall permit the mutually agreed upon independent accounting firm to examine the relevant books and records of the Audited Party and its Affiliates as may be reasonably necessary to verify the reports and information submitted by the Audited Party and the accuracy of any Reconciliation Statement. An examination by a Party under this Section shall occur not more than [****] and shall be limited to the pertinent books and records for any calendar year ending not more than [****] before the date of the request. The accounting firm shall be provided access to such books and records at the Audited Party’s facility(ies) and/or the facilities of its Affiliates or sublicensees where such books and records are normally kept and such examination shall be conducted during the Audited Party’s normal business hours. The Audited Party may require the accounting firm to sign a standard non-disclosure agreement with terms that are not inconsistent with the terms of the Agreement before providing the accounting firm access to the Audited Party’s facilities or records. Upon completion of the audit, the accounting firm shall provide both Biogen Idec and PDL a written report disclosing whether the reports submitted by the Audited Party are correct or incorrect and the specific details and supporting analysis for any discrepancies. No other information shall be provided to the Auditing Party. If the accounting firm determines that, based on errors in the reports so submitted, any report prepared in accordance with the Agreement is incorrect, the Parties shall promptly revise the report and the associated Reconciliation Statement and any additional amount owed by one Party to the other shall be paid within [****] after receipt of the accountant’s report, along with interest at the lesser of (i) the [****] or (ii) the highest rate permitted by applicable law from the date that such additional amount should have first been paid; provided, however, that no such interest shall be payable if the errors leading to the Reconciliation Statement being incorrect were in the reports provided by the Party to receive such additional amount. Additionally, if the accountant determines that the reports submitted by the Audited Party overstate the Audited Party’s share by more than [****], the Audited Party shall reimburse the Auditing Party for the expenses incurred by the Auditing Party in conducting the audit. Notwithstanding anything to the contrary herein, the Parties shall coordinate with their Affiliates such that not more than [****] audit of a Party and its Affiliates as a whole, shall be performed in any given calendar year with respect to the

*Certain information on this page has been omitted and filed separately with the commission. Confidential treatment has been requested with respect to the omitted portions.

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development, manufacturing, commercialization or other use of the Collaboration Product under any written agreement between the Parties and/or their Affiliates relating to the Collaboration Product. In the event of any sublicense or transfer of rights with respect to Collaboration Products by a Party under this Agreement, the sublicensor or transferor shall provide for audit rights by the other Party to this Agreement in accordance with this Section A.4 of this Exhibit C.

A.5  Payments Between the Parties. Based upon the Reconciliation Statement, as approved by the JFC or the JSC, as applicable, there shall be a cash settlement between the Parties no later than [****] after the end of each Calendar Quarter. In the event any payment is made after the date specified in the preceding sentence and provided that such payment is not otherwise subject to good faith dispute, the paying Party shall increase the amount otherwise due and payable by adding interest at the lesser of (i) [****] or (ii) the highest rate permitted by applicable law from the date that such additional amount should have first been paid. Except where the actual expenses for the Daclizumab development exceeds the annualized budget/plan by more than [****], and such variances were approved by the JSC, then the Parties shall get a payment deferral of [****] for cash settlement of the amount in excess of [****] of the annualized budget/plan. If a Party elects to defer payments during this time, interest will accrue [****] and through settlement.

Any other amount owed by one Party to the other Party under this Agreement, except for amounts pursuant to Reconciliation Statements, that is not paid within the applicable time period set forth herein shall bear simple interest [****], as reported in the Wall Street Journal, Eastern Edition, on the due date (or, if the due date is not a business day, on the last business day prior to such due date).

A.6FTE Methodology

A.6.1Accounting for Development Expenses. All Development Expenses, Ongoing Development Expenses and Other Out-of-Pocket Costs will be based on the appropriate costs definition stated in the Agreement or Section A.1 of this Exhibit C.

Each Party shall report Development Expenses and Ongoing Development Expenses based on its project cost system (which shall in any event track FTEs by functional area and by month) or using such other system as such Party applies with respect to its internal programs and which system has been reviewed with the JFC. In general, these project cost systems shall report actual and/or allocable time spent on specific projects, apply the FTE Rates, determined in the manner specified below, capture actual and/or allocable costs of specific projects and allocate other expenses to

*Certain information on this page has been omitted and filed separately with the commission. Confidential treatment has been requested with respect to the omitted portions.

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projects. For Other Out-of-Pocket Costs the Parties will allocate costs based on spending in the relevant departments or applying such other allocation methodology as such Party uses with respect to all other products taken as a whole, and which shall be approved by the JSC.

A.6.2Research and Development FTE Rate. For the [****], the FTE rate will be set at [****] per year. FTE Rates will increase annually to reflect the change over the preceding [****] for which data is then available in the [****], All Items (as published by the [****]). FTE Rates shall be set in a manner, which fairly reflects the direct costs of each Party for the direct functional groups specified below:

Direct Functional Groups.Research & Development shall include the following: Research, Project Management, Preclinical, Product Development/QA, Medical Research/Medical Operations/Clinical, Biometry (biostatistics and data management), Medical Writing,  Regulatory Affairs/Drug Safety, Manufacturing (not including production of Clinical Supplies and commercial supplies, which will be stated in the Clinical Supply Plan for Clinical Supplies and in the Commercial Supply Agreement for Commercial Supplies).

Total budgeted expenses incorporated in the FTE Rate shall include and be limited to: [****].

A.7Principles of Reporting

The results of operations of the Collaboration will be presented in the following format (on a per Collaboration Product basis), with the categories as defined in Section A.1 below:

A.7.1Income Statement

Gross Sales

Less: Sales Returns and Allowances

= Net Sales

Less: Cost of Sales

= Gross Profits

Less: Marketing Costs

Less: Sales Costs

Less: Ongoing Development Expenses

Less: Other Out-of-Pocket Costs

= Contribution

Less: Distribution Costs

= Collaboration Product Profit (Loss)

*Certain information on this page has been omitted and filed separately with the commission. Confidential treatment has been requested with respect to the omitted portions.

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Separately reported will also be:

Other Development Costs

Development Expenses

Cost of Clinical Supplies

Ongoing Development Expense

It is the intention of the Parties that the interpretation of these definitions will be in accordance with U.S. GAAP consistently applied consistent with a Party’s report in its financial statements filed in accordance with the Securities Exchange Act of 1934, as amended.

A.7.2Subcomponent Reporting

For reporting purposes only, expenses will be identified for the budget, forecast, and quarterly actual amounts within this Section A.7. by the following detail sub-components within the aggregate Income Statement expense components specified under Section A.7.1.

•Cost of Sales – cost of goods manufactured for sale, third party royalties, freight & other

•Marketing – marketing promotion, market research, marketing headcount

•Sales – sales headcount, sales promotion & sales operations

•Development – by indication label-enabling activities & trials, by indication post marketing activities & trials, cost of goods manufactured for clinical supply, medical education.

A.8Budget and Long Range Plan

Responsibility for the Budget and Long Range Plan with regard to Collaboration Products, prior to the First New Product FDA Approval, will be as specified in Articles 2 and 3 of the Agreement

Budgets will be prepared annually for the following full calendar year containing monthly details/numbers.

Budgets will be supplemented with high level business plans and costs for clinical trials, registration applications, and plans for product introduction, sales efforts and promotion.

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EXHIBIT D :  OPT OUT ROYALTIES AND ROW ROYALTIES

I. OPT-OUT ROYALTIES FOR COLLABORATION PRODUCTS

	Existing Products	Existing Products	Future Products
	Payable to Biogen Idec	Payable to PDL	Payable to Biogen Idec/ PDL
Preclinical
[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]
Phase I
[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]
Phase II
[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]
Phase III
[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]
After Approval
[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]

*Royalties in %

II. ROW ROYALTIES OWED FOR ROYALTY PRODUCTS

	ROW Royalty payable to PDL	Royalty on Termination** payable to Biogen Idec
[****]	[****]	[****]
[****]	[****]	[****]
[****]	[****]	[****]

*Royalties in %

**Note:  The royalty in table applies provided that diligent efforts were underway in the territory, and that such termination was Phase III or later in the US and EU territories. In the event that this is not the case, Phase II royalties should apply for Biogen Idec in the ROW territory:

[****]

[****]

[****]

*Certain information on this page has been omitted and filed separately with the commission. Confidential treatment has been requested with respect to the omitted portions.

Exhibit 1.41

Daclizumab PRODUCT

[****]

*Certain information on this page has been omitted and filed separately with the commission. Confidential treatment has been requested with respect to the omitted portions.

EXHIBIT 1.54

Fontolizumab PRODUCT

[****]

*Certain information on this page has been omitted and filed separately with the commission. Confidential treatment has been requested with respect to the omitted portions.

EXHIBIT 1.135

Volociximab PRODUCT

[****]

*Certain information on this page has been omitted and filed separately with the commission. Confidential treatment has been requested with respect to the omitted portions.

Exhibit 2.1

Joint Operating Principles

The following Principles are intended as guidelines for the operation of the Committees and Collaboration, but the specific terms of the Agreement shall be controlling in the case of any conflict between a provision of the Agreement and these guidelines.

 Guiding Principles

•Engage in development activities with the goal of obtaining regulatory approval for each collaborative product as soon as reasonably practicable in major market countries where it makes commercial sense to do so given the economic profile and the safety and efficacy profile of such collaborative product

•Utilize the then-prevailing infrastructure, expertise and experience of each party with respect to specific development activities for collaborative products in specific indications

•Create reasonable flexibility to allow each party to build infrastructure for development and commercialization activities if it reasonably elects, provided that the cost associated with building such infrastructure are not charged to the reimbursable activities under this agreement

•Avoid unnecessary duplication of resources

•Maximize information flow between parties

•Allow each party to have input into the content and scope of Registrations for collaborative products and, through their Joint Steering Committee representatives, the right to approve substantive portions of any registrations

•Allow each party to participate in substantive interactions with Regulatory Authorities related to collaborative products

1.Development:  Joint Development Plan

Each joint development plan shall be in the form agreed upon by the Joint Strategy Committee, but shall address, at a minimum, the following:

•Goals for the development of the collaborative products

•Critical decision points criterion

•Scope of research and clinical work, including regulatory strategy

•Timeline for performing research and clinical work

•Anticipated indications, including the desired product profile and formulation

•Competitive market issues

•High level cost and other financial estimates

•Manufacturing, product supply and cell-line development activities

•General commercialization framework

•Operational responsibilities for each party

•Key technical and commercial assumptions

2.Development:  Annual Work Plan

•A reasonable detailed description of the development activities to be performed during the next full calendar year or to the next key decision point

•The estimated budget for such activities for at least the next full calendar year

•A designation of which party is responsible for each task

•Estimated staffing levels

•Any expected use of Third Party contractors required to carry out the applicable development activities and the party that shall manage such third party contractor

•Estimated timelines for completion of such activities

•Estimated product requirements for each activity

Exhibit 3.3

Initial Development Plans And Initial Development Program Budget For Existing Products

Neither Party shall be obligated to incur costs for any activities, except for those set forth herein, unless and until (a) such study/activity is approved by the JSC, or (b) is included in a Development Plan approved by the JSC pursuant to Section 3.3(b) of the Agreement.

All costs submitted for reimbursement by the Parties must be demonstrably related to the activities specified in this draft Development Plan.

I. Development Plan for Daclizumab in [****]

2.1A. Daclizumab in [****]:  Clinical Program Rationale and Strategy

[****].

*Certain information on this page has been omitted and filed separately with the commission. Confidential treatment has been requested with respect to the omitted portions.

B. Daclizumab in [****]:  Clinical Development Studies

Study	N [Active; Placebo] (Inv. Centers)	Purpose	First Patient Dosed	Last Patient Visit	Status	Projected Cost ****
[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]				[****]

Notes:* – Pivotal studies; ** TBD – to be determined; *** dac – Daclizumab; **** [****].

C. Daclizumab in [****]:  Timetable of Development Milestones

Milestone	Date	Comments
[****]	[****]	[****]
[****]	[****]	[****]
[****]	[****]
[****]	[****]
[****]	[****]	[****]
[****]	[****]

*Certain information on this page has been omitted and filed separately with the commission. Confidential treatment has been requested with respect to the omitted portions.

II. Development Plan for Volociximab in [****]

A. Volociximab in [****]:  Clinical Program Rationale and Strategy

[****]

B. Volociximab in [****]:  Clinical Development Studies

Study	Est. # Pts (# of Centers)	Purpose of study	Est. Start Date	Est. Last Patient visit	Status	Projected Cost*
[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]

* [****].

C. Volociximab in [****]:  Major Project Milestones

Milestone	Date	Comments
[****]	[****]	[****]
[****]	[****]	[****]
[****]	[****]
[****]	[****]
[****]	[****]
[****]	[****]
[****]	[****]
[****]	[****]
[****]	[****]

*Certain information on this page has been omitted and filed separately with the commission. Confidential treatment has been requested with respect to the omitted portions.

III. Development Plan for Volociximab in [****]

A. Volociximab in [****]:  Clinical Development Rationale and Strategy

[****]

B. Volociximab in [****]:  Clinical Development Studies

Study	Est. # Pts (# of Centers)	Purpose of study	Est. Start Date	Est. Last Patient visit (safety)	Status	Projected Cost*
[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]

* [****].

C. Volociximab in [****]:  Major Project Milestones

Milestone	Date	Comments
[****]	[****]	[****]
[****]	[****]	[****]
[****]	[****]	[****]
[****]	[****]
[****]	[****]
[****]	[****]
[****]	[****]

*Certain information on this page has been omitted and filed separately with the commission. Confidential treatment has been requested with respect to the omitted portions.

IV. Development Plan for Fontolizumab in [****]

A. Fontolizumab in [****]:  Clinical Development Rationale and Strategy

[****]

B. Fontolizumab in [****]:  Clinical Development Studies

Study	Est. # Pts (# of Centers)	Purpose of study	Est. Start Date	Est. Last Patient visit	Status	Projected Cost*
[****]	[****]	[****]	[****]	[****]	[****]	[****]

* [****].

C. Fontolizumab in [****]:  Major Project Milestones

Milestone	Date	Comments
[****]	[****]	[****]
[****]	[****]
[****]	[****]
[****]	[****]

*Certain information on this page has been omitted and filed separately with the commission. Confidential treatment has been requested with respect to the omitted portions.

V. Initial Program Budget for Existing Products

2005 FTE and External Cost  ($ in thousands)

Function	Type	[****]	[****]	[****]	[****]	Program Totals
[****]	[****]	[****]	[****]	[****]	[****]	[****]
	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]
	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]
	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]
	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]
	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]
	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]
	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]
	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]
	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]
	[****]	[****]	[****]	[****]	[****]	[****]
[****]	[****]	[****]	[****]	[****]	[****]	[****]
[****]
[****]		[****]	[****]	[****]	[****]	[****]
[****]		[****]	[****]	[****]	[****]	[****]
[****]
[****]		[****]	[****]	[****]	[****]	[****]
[****]		[****]	[****]	[****]	[****]	[****]
[****]		[****]	[****]	[****]	[****]	[****]

* An additional [****] in [****] expense will be incurred if the [****] trial enrolls on plan.

*Certain information on this page has been omitted and filed separately with the commission. Confidential treatment has been requested with respect to the omitted portions.

EXHIBIT 4.1(b)(ii)

OPT OUT POINTS FOR EXISTING COLLABORATION PRODUCTS

2.1Daclizumab

•[****]

•[****]

•[****]

•[****]

•[****]

•[****]

•[****]

•[****]

2.2Fontolizumab

•[****]

•[****]

•[****]

•[****]

•[****]

•[****]

•[****]

•[****]

•[****]

*Certain information on this page has been omitted and filed separately with the commission. Confidential treatment has been requested with respect to the omitted portions.

2.3Volociximab

•[****]

•[****]

•[****]

•[****]

•[****]

•[****]

•[****]

Opt out points for New Collaboration Products or Indications shall be decided by the JSC.

*Certain information on this page has been omitted and filed separately with the commission. Confidential treatment has been requested with respect to the omitted portions.

Exhibit 8.3

A Commercial Supply Agreement between the Parties for Collaboration Products or Royalty Products shall contain, in addition to customary manufacturing terms and conditions, the following obligations:

a.The Responsible Commercialization Party shall purchase [****] of its, its Affiliates and its sublicensees’ commercial requirements of Collaboration Product from the Manufacturing Party.

b.The Parties will agree to reasonable forecasting mechanisms in the Commercial Supply Agreement. The Manufacturing Party will provide the other Party with notice not less than [****] in advance of any anticipated change in annual production that would impact such party’s ability to meet forecasted demand.

c.Collaboration Product shall be Manufactured in accordance with all requirements of applicable laws and regulations and all GMP, as prescribed from time to time by the FDA and other applicable worldwide regulatory authorities, using the product specifications, manufacturing methods and formulae as agreed upon by the Parties.

d.If either Party believes that any Regulatory Approval, GMP, or other applicable law, or any other notice from a regulatory authority, shall require a change to the particular product specifications, the Parties shall consult prior to the implementation of such change in order to mutually determine whether such change is, in fact, required by such Regulatory Approval, GMP, other applicable law or notice. Any such change in product specifications will be effected upon mutual agreement of the Parties.

e.In the event either Party is unable to obtain Regulatory Approval for a Collaboration Product and such lack of approval is related to the CMC Section, then the other Party shall have the right to become, and assume all of the responsibilities of, the Manufacturing Party for such product.

*Certain information on this page has been omitted and filed separately with the commission. Confidential treatment has been requested with respect to the omitted portions.

f.The non-Manufacturing Party shall have the right to conduct (upon reasonable notice during reasonable business hours) reasonable quality assurance audits with respect to all facilities, operations and laboratories (and any records related thereto) of the Manufacturing Party or, if applicable, the Third Party contract manufacturer used by such Party, where applicable Manufacturing activities are conducted, as is reasonably necessary to verify the compliance with GMP and other regulatory requirements. The results of any such audit shall be provided to the other Party.

g.The Manufacturing Party may not utilize a Third Party contract manufacturer without the consent of the non-Manufacturing Party.

h.The Manufacturing Party shall be responsible for release of product from its and its Third Party CMO’s facilities. The non Manufacturing Party shall have access to, and the right to review, all release documentation for any evidence of product nonconformance.

i.If the Manufacturing Party desires to use a Third Party to perform any part of the Manufacture and supply or if the Manufacturing Party plans to undertake capacity expansion, significant facility improvements, or the purchase of capital equipment for the Manufacture of Collaboration Product, the JSC shall first consider whether the other Party has the ability, capability, and desire to perform such Manufacture and supply and, if so, the Parties shall amend the Commercial Manufacturing Agreement to cover the part of the Manufacture and supply to be performed by such other Party.

j.In the event that the non Manufacturing Party consents to use of a Third Party contract manufacturer, the Manufacturing Party shall enter into a supply agreement and quality agreement and shall ensure that the non Manufacturing Party shall either be a party to such agreements (in addition to the Responsible Manufacturing Party), or a third party beneficiary of such agreements. To the extent the non Manufacturing Party is not a party to such agreements, it shall be a permitted assignee or sublicensee under such agreement.

k.The non Manufacturing Party shall have the right to review and comment upon the Third Party supply agreement and quality agreement.

l.If the Manufacturing Party utilizes a Third Party contract manufacturer, such supply agreement shall require the Third Party supplier to transfer sufficient information (including information contained in the CMC section of any applicable Regulatory Filings, the results of any stability studies performed on Product and copies of any direct communications between the Third Party supplier and regulatory authorities in relation to Product) to

Biogen Idec or PDL (as appropriate), in each case as is required to implement the then-most current versions of such Manufacturing process, upon termination of such agreement or otherwise upon request.

m.If the Manufacturing Party is unwilling or unable to meet [****] of the Responsible Commercialization Party’s requirements for Collaboration Product on the timelines set forth in the Commercialization Plan for such Collaboration Product or if the Collaboration Product Manufactured consistently does not meet the requisite Product specifications and other quality requirements set forth herein, then the Manufacturing Party shall, at the election of the other party, conduct a transfer of the necessary Manufacturing Technology to the non Manufacturing Party so as to enable it to Manufacture or have Manufactured such Product by a Third Party contract manufacturer of its choice. The non Manufacturing Party, upon such transfer, shall become the Manufacturing Party for purposes of the Collaboration Product.

n.The Parties shall enter into a Technology Transfer Agreement containing the FTE Plans and costs related to CMC/filing activities for the Collaboration Products. In addition, the Parties shall enter into a Quality Agreement related to the Manufacture of the Collaboration Products. Such Quality Agreement shall specify the designated Qualified Person for release of finished Collaboration Products.

*Certain information on this page has been omitted and filed separately with the commission. Confidential treatment has been requested with respect to the omitted portions.

Exhibit 11.5

Required Attachment of Certain Provisions of the [****]

[****]

*Certain information on this page has been omitted and filed separately with the commission. Confidential treatment has been requested with respect to the omitted portions.

EX-10.15

Exhibit 10.15

CONFIDENTIAL PROVISIONS REDACTED

ASSET PURCHASE AGREEMENT

BY AND BETWEEN

PDL BIOPHARMA, INC.,

a Delaware corporation

and

EKR THERAPEUTICS, INC.,

a Delaware corporation

Dated as of February 4, 2008

CONFIDENTIAL TREATMENT REQUESTED

TABLE OF CONTENTS

			Page
ARTICLE 1 DEFINITIONS
	1.1	“Accounts Payable”	1
	1.2	“Accounts Receivable”	1
	1.3	“Affiliate”	1
	1.4	“Agreement”	1
	1.5	“Assets”	1
	1.6	“Assumed Contracts”	1
	1.7	“Assumed Liabilities”	1
	1.8	“Books and Records”	1
	1.9	“Business”	2
	1.10	“Business Employee”	2
	1.11	“Buyer”	2
	1.12	“Buyer Indemnitee(s)”	2
	1.13	“Cardene”	2
	1.14	“Cardene Drug Product”	2
	1.15	“Cardene IV”	2
	1.16	“Cardene Packaged Product”	2
	1.17	“Cardene [****]* Product”	2
	1.18	“Cardene Product Inventory”	2
	1.19	“Cardene SR”	2
	1.20	“Claim”	2
	1.21	“Clinical Data”	2
	1.22	“Clinical Trial”	2
	1.23	“Clinical Trial Materials”	2
	1.24	“Clinical Trial Study Reports”	3
	1.25	“Closing”	3
	1.26	“Closing Date”	3
	1.27	“Confidential Information”	3

* Certain information on this page has been omitted and filed separately with the SEC. Confidential treatment has been requested with respect to the omitted portions.

CONFIDENTIAL TREATMENT REQUESTED

i

		Page
1.28	“Confidentiality Agreement”	3
1.29	“Copyrights”	3
1.30	“[****]*”	3
1.31	“Customer Orders”	3
1.32	“CV Products”	3
1.33	“Drug Products”	3
1.34	“Effective Date”	3
1.35	“Employee Benefit Plans”	3
1.36	“Escrow Agent”	4
1.37	“Escrow Agreement”	4
1.38	“Escrow Amount”	4
1.39	“Excluded Assets”	4
1.40	“Excluded Liabilities”	4
1.41	“FDA”	4
1.42	“FD&C Act”	4
1.43	“GAAP”	4
1.44	“Governmental Entity”	4
1.45	“HSR”	4
1.46	“HSR Filings”	4
1.47	“IND”	4
1.48	“Initial FDA Approval”	4
1.49	“Initial Purchase Price”	4
1.50	“Intellectual Property	4
1.51	“Knowledge”	4
1.52	“Liabilities”	5
1.53	“Licensed IP Rights”	5
1.54	“Litigation Cooperation Agreement”	5

* Certain information on this page has been omitted and filed separately with the SEC. Confidential treatment has been requested with respect to the omitted portions.

CONFIDENTIAL TREATMENT REQUESTED

ii

		Page
1.55	“Marketed Products”	5
1.56	“Marketing and Promotional Documents”	5
1.57	“Material Adverse Change” and “Material Adverse Effect”	5
1.58	“Milestone and Revenue Payments”	5
1.59	“Milestone Payments”	5
1.60	“Net Sales”	5
1.61	“Net Sales Adjustments”	6
1.62	“NDA”	6
1.63	“Non Product-Specific Manufacturing Information”	6
1.64	“Packaging Inventory”	7
1.65	“Packaged Products”	7
1.66	“Patents”	7
1.67	“[****]*”	7
1.68	“Product Inventory”	7
1.69	“Product-Specific Manufacturing Information”	7
1.70	“Product Specifications”	7
1.71	“Purchase Price”	7
1.72	“Raw Materials and WIP”	7
1.73	“Registrations”	7
1.74	“Research and Development Materials”	7
1.75	“Retavase”	7
1.76	“Retavase Drug Product”	7
1.77	“Retavase Packaged Product”	7
1.78	“Retavase Product Inventory”	7
1.79	“Revenue Payments”	8
1.80	“SEC”	8
1.81	“Seller”	8

* Certain information on this page has been omitted and filed separately with the SEC. Confidential treatment has been requested with respect to the omitted portions.

CONFIDENTIAL TREATMENT REQUESTED

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				Page
	1.82	“Seller Indemnitees”		8
	1.83	“[****]*”		8
	1.84	“Sun Litigation”		8
	1.85	“Survival Date”		8
	1.86	“Tangible Assets”		8
	1.87	“Tax” and “Taxes”		8
	1.88	“Territory”		8
	1.89	“Third Party Consents”		8
	1.90	“Trade Secrets”		8
	1.91	“Trademarks”		8
	1.92	“Trademark Registrations”		9
	1.93	“Transition Services Agreement”		9
	1.94	“Ularitide”		9
	1.95	“Worldwide Safety Reports”		9
ARTICLE 2 TRANSFER OF ASSETS; LICENSE AND SUBLICENSE				9
	2.1	Purchase and Sale of Assets		9
		(a)	Patents	9
		(b)	Licensed IP Rights	9
		(c)	Trademark Registrations	10
		(d)	Copyrights	10
		(e)	Registrations	10
		(f)	Product-Specific Manufacturing Information	10
		(g)	Non Product-Specific Manufacturing Information	10
		(h)	Research and Development Materials	11
		(i)	Marketing and Promotional Documents	11
		(j)	Worldwide Safety Reports	11
		(k)	Clinical Data	11

* Certain information on this page has been omitted and filed separately with the SEC. Confidential treatment has been requested with respect to the omitted portions.

CONFIDENTIAL TREATMENT REQUESTED

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				Page
		(l)	Tangible Assets	11
		(m)	Domain Names	11
		(n)	Product Inventory	11
		(o)	Raw Materials and WIP	12
		(p)	Assumed Contracts	12
		(q)	Clinical Trial Materials	12
		(r)	Clinical Trial Study Reports	12
		(s)	Sun Litigation	12
		(t)	Books and Records	12
		(u)	Customer Orders	12
		(v)	Packaging Inventory	12
		(w)	Other Intellectual Property	13
	2.2	Excluded Assets		13
	2.3	Assumed Liabilities		13
	2.4	Excluded Liabilities		14
	2.5	Risk of Loss		15
	2.6	Taxes		15
	2.7	Third-Party Consents		15
ARTICLE 3 CONSIDERATION				16
	3.1	Purchase Price		16
	3.2	Method of Payment		17
	3.3	Revenue Payments; Reports		18
	3.4	Accounting		18
	3.5	Records; Audits		18
	3.6	Late Payments		19
	3.7	Allocation of Purchase Price		19
ARTICLE 4 CLOSING				20
	4.1	Closing		20
	4.2	Actions at Closing		20
		(a)	Deliveries by Seller at Closing	20

CONFIDENTIAL TREATMENT REQUESTED

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				Page
		(b)	Deliveries by Buyer at Closing	21
ARTICLE 5 EMPLOYMENT MATTERS				22
	5.1	Employees		22
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF SELLER				24
	6.1	Organization and Authority		24
	6.2	No Violation or Conflict		24
	6.3	Consents and Approvals		24
	6.4	Assumed Contracts		25
	6.5	Title to Assets		25
	6.6	Intellectual Property		25
	6.7	Regulatory Status of Marketed Products		28
	6.8	Product Net Sales		28
	6.9	Violations of Law		28
	6.10	Litigation		28
	6.11	Employees		28
	6.12	Taxes		29
	6.13	Customers and Suppliers		29
	6.14	Inventory; Raw Materials and WIP		29
	6.15	Clinical Trials		30
	6.16	Absence of Change		30
	6.17	No Undisclosed Liabilities		31
	6.18	Sufficiency		31
	6.19	Brokers and Finders		31
	6.20	No Implied Warranty		31
ARTICLE 7 REPRESENTATIONS AND WARRANTIES OF BUYER				31
	7.1	Organization and Authority		31
	7.2	No Conflict or Violation		32
	7.3	Consents and Approvals		32
	7.4	Cash Resources		32
	7.5	Litigation		32

CONFIDENTIAL TREATMENT REQUESTED

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			Page
	7.6	Brokers and Finders	32
	7.7	Buyer Due Diligence	33
ARTICLE 8 PRE-CLOSING COVENANTS			33
	8.1	Governmental Filings	33
	8.2	Conduct of Business	33
	8.3	No Solicitation	34
	8.4	Access	35
	8.5	[****]*	35
	8.6	Payment of Certain Expenses	35
	8.7	Transition Services Agreement	35
ARTICLE 9 CONDITIONS TO CLOSING			36
	9.1	Conditions to Obligations of Buyer	36
	9.2	Conditions to Obligations of Seller	37
ARTICLE 10 POST-CLOSING COVENANTS			37
	10.1	Further Assurances	37
	10.2	Transfer of Registrations; Interim Responsibility	39
	10.3	Communication With Agencies	40
	10.4	Adverse Experience Reporting	40
	10.5	Medical Inquiries	41
	10.6	Non-Use of Trademarks	41
	10.7	Documents	41
	10.8	Governmental Inspections	42
	10.9	Intellectual Property Maintenance	42
	10.10	Insurance	42
	10.11	Federal Supply Schedule	43
	10.12	Promotion, Marketing and Labeling	43
	10.13	Payments from Third Parties	43

* Certain information on this page has been omitted and filed separately with the SEC. Confidential treatment has been requested with respect to the omitted portions.

CONFIDENTIAL TREATMENT REQUESTED

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			Page
	10.14	Product Returns, Chargebacks and Rebates	44
	10.15	Bulk Transfer Laws	44
	10.16	Non-Competition	44
ARTICLE 11 CONFIDENTIALITY			45
	11.1	Confidentiality	45
	11.2	Publicity	46
ARTICLE 12 TERM AND TERMINATION			46
	12.1	Termination	46
	12.2	Effect of Termination	47
	12.3	Effectiveness of Termination	47
ARTICLE 13 INDEMNIFICATION			48
	13.1	Survivability of Representations and Warranties	48
	13.2	Indemnification by Buyer	48
	13.3	Indemnification by Seller	48
	13.4	Claims	48
	13.5	Assertion of Claims	48
	13.6	Payment of Claims; Limitation on Indemnification	49
	13.7	Limitation; Exclusivity	49
ARTICLE 14 MISCELLANEOUS			49
	14.1	Survival of Covenants and Agreements	49
	14.2	No Third Party Beneficiaries	49
	14.3	Force Majeure	50
	14.4	Governing Law; Jurisdiction; Dispute Resolution and Arbitration	50
	14.5	Severability	51
	14.6	Entire Agreement	51
	14.7	Amendment	51
	14.8	Notices	51
	14.9	Assignment	52
	14.10	No Agency	52

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14.11	Construction	52
14.12	Payment of Expenses	53
14.13	Counterparts	53

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LIST OF EXHIBITS, ATTACHMENT AND SCHEDULES

EXHIBITS

Exhibit A	General Assignment and Bill of Sale
Exhibit B	Assignment and Assumption Agreement
Exhibit C	Patent Assignment Agreement
Exhibit D	Trademark Assignment Agreement
Exhibit E	Domain Name Assignment Agreement
Exhibit F	Transition Services Agreement
Exhibit G	Third Party Assignment of Assumed Contracts
Exhibit H	Escrow Agreement
Exhibit I	Litigation Cooperation Agreement
Exhibit J	Form of Third Party Notification Letter

ATTACHMENTS

Attachment 1.70(a)	Product Specifications for bulk active pharmaceutical ingredients for each CV Product
Attachment 1.70(b)	Product Specifications for Drug Products
Attachment 2.1(a)	List of Patents
Attachment 2.1(b)	List of Licensed IP Rights
Attachment 2.1(c)	List of Trademark Registrations
Attachment 2.1(e)	List of Registrations
Attachment 2.1(l)	List of Tangible Assets
Attachment 2.1(m)	List of Domain Names
Attachment 2.1(p)	List of Assumed Contracts
Attachment 4.2(a)	List of Third Party Consents
Attachment 5.1(a)	Business Employees

DISCLOSURE SCHEDULES

CONFIDENTIAL TREATMENT REQUESTED

ASSET PURCHASE AGREEMENT

This Asset Purchase Agreement (this “Agreement”) is entered into as of February 4, 2008 (the “Effective Date”) between PDL BioPharma, Inc., a Delaware corporation (“Seller”) and EKR Therapeutics, Inc., a Delaware corporation (“Buyer”).

RECITALS

A.            Seller is engaged in the business (the “Business”) of developing, selling, marketing and supporting its Cardene IV^®, Cardene SR^®, Retavase^® and Ularitide products (the “CV Products”).

B.            Seller desires to sell, transfer and assign to Buyer, and Buyer wishes to acquire, all right, title and interest in and to the CV Products and certain assets related to the operation of the Business, in exchange for consideration consisting of cash and the assumption of certain Liabilities related to the Business, pursuant to the terms and conditions set forth in this Agreement.

AGREEMENT

NOW, THEREFORE, in consideration of the mutual covenants and agreements contained in this Agreement, and for other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the parties to this Agreement agree as follows:

ARTICLE 1

DEFINITIONS

1.1           “Accounts Payable” shall mean all obligations of Seller or any of its Affiliates with respect to accounts payable and notes payable, including without limitation, those created or arising in respect of the Business.

1.2           “Accounts Receivable” shall mean all of Seller’s trade accounts receivable, and all notes receivable or evidences of indebtedness payable to Seller created or arising in respect of the sale of the Marketed Products.

1.3           “Affiliate” with respect to any party shall mean any entity that is directly or indirectly controlling, controlled by or under common control with such party.

1.4           “Agreement” shall have the meaning given in the Preamble.

1.5           “Assets” shall have the meaning given in Article 2.

1.6           “Assumed Contracts” shall have the meaning given in Section 2.1(p).

1.7           “Assumed Liabilities” shall have the meaning given in Section 2.3.

1.8           “Books and Records” shall mean all pricing lists, customer correspondence (excluding e-mail and other electronic correspondence not readily available in hard copy) and

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other books and records, in any form, used solely and specifically with respect to the CV Products by Seller or any of Seller’s Affiliates.

1.9           “Business” shall have the meaning given in the Recitals.

1.10         “Business Employee” shall have the meaning given in Section 5.1(a).

1.11         “Buyer” shall have the meaning given in the Preamble.

1.12         “Buyer Indemnitee(s)” shall have the meaning given in Section 13.3.

1.13         “Cardene” shall mean Cardene IV and Cardene SR.

1.14         “Cardene Drug Product” shall mean labeled or unlabelled vials containing the active pharmaceutical ingredient nicardipine hydrochloride.

1.15         “Cardene IV” shall mean each presentation of any pharmaceutical preparation (including formulation changes and production intermediates) containing the pharmaceutical product known as “Cardene IV” containing the active ingredient nicardipine hydrochloride, whether registered, marketed or in development by Seller, as of the Closing Date.

1.16         “Cardene Packaged Product” shall mean Cardene in the Product Inventory purchased by Buyer hereunder that is packaged and labeled for sale to the end user.

1.17         “Cardene [****]* Product” shall mean any formulation of Cardene IV [****]*.

1.18         “Cardene Product Inventory” shall mean all inventory owned by Seller or its Affiliates of bulk active pharmaceutical ingredient nicardipine hydrochloride, Cardene Packaged Product and Cardene Drug Product, in existence as of the Closing.

1.19         “Cardene SR” shall mean each presentation of any pharmaceutical preparation (including formulation changes and production intermediates) containing the pharmaceutical product known as “Cardene SR” containing the active ingredient nicardipine hydrochloride, whether registered, marketed or in development by Seller, as of the Closing Date.

1.20         “Claim” shall have the meaning given in Section 13.4.

1.21         “Clinical Data” shall have the meaning given in Section 2.1(k).

1.22         “Clinical Trial” shall mean a clinical trial conducted by or on behalf of Seller or its Affiliates, or pursuant to any Assumed Contract, in each case in which the product Ularitide is administered to a human.

1.23         “Clinical Trial Materials” shall mean the product Ularitide and the placebo for this product manufactured by or on behalf of Seller or its Affiliates for use in preclinical studies

* Certain information on this page has been omitted and filed separately with the Sec. Confidential treatment has been requested with respect to the omitted portions.

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or Clinical Trials, whether in bulk, formulated or finished form and whether in existence on the Effective Date or manufactured between the Effective Date and Closing Date.

1.24         “Clinical Trial Study Reports” shall mean all reports or summaries of all data, records and documents resulting from the Clinical Trials for the product Ularitide.

1.25         “Closing” shall have the meaning given in Section 4.1.

1.26         “Closing Date” shall have the meaning given in Section 4.1.

1.27         “Confidential Information” shall have the meaning ascribed to it in the Confidentiality Agreement.

1.28         “Confidentiality Agreement” shall mean that certain Mutual Confidentiality Agreement between Buyer and Seller dated August 28, 2007.

1.29         “Copyrights” shall have the meaning set forth in Section 2.1(d).

1.30         “[****]*” shall mean product returns, charge-backs, rebates or Medicaid, Medicare or other reimbursements, or similar claims, with respect to [****]*sold by Seller or its Affiliates for which [****]*.

1.31         “Customer Orders” shall mean orders for Packaged Product from customers of Seller or any of Seller’s Affiliates.

1.32         “CV Products” shall have the meaning given in the Recitals.

1.33         “Drug Products” shall mean Cardene Drug Product and Retavase Drug Product.

1.34         “Effective Date” shall mean the date first set forth in the opening paragraph of this Agreement.

1.35         “Employee Benefit Plans” shall mean any employee benefit plan, program, policy, practices, agreement or other arrangement providing benefits to any current or former employee, officer or director of Seller or its Affiliates or any beneficiary or dependent thereof that is sponsored or maintained by Seller or its Affiliates or to which Seller or its Affiliates contributes or is obligated to contribute, whether or not written, including without limitation any employee welfare benefit plan within the meaning of Section 3(1) of ERISA, any employee pension benefit plan within the meaning of Section 3(2) of ERISA (whether or not such plan is subject to ERISA) and any written employment, severance, retention, termination, change in control, consulting, retirement, bonus or other incentive compensation, stock purchase, stock option, stock award or other equity-based compensation, leave of absence, lay-off, cafeteria, health, accident, disability, workman’s compensation or other insurance, vacation or other employee benefit agreement, plan or policy (other than any governmental program), and any

* Certain information on this page has been omitted and filed separately with the SEC. Confidential treatment has been requested with respect to the omitted portions.

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related trust, as to which Seller has or may have any obligation or liability, contingent or otherwise.

1.36         “Escrow Agent” shall have the meaning set forth in Section 3.2.

1.37         “Escrow Agreement” shall have the meaning set forth in Section 3.2.

1.38         “Escrow Amount” shall have the meaning set forth in Section 3.1(c).

1.39         “Excluded Assets” shall have the meaning given in Section 2.2.

1.40         “Excluded Liabilities” shall have the meaning given in Section 2.4.

1.41         “FDA” shall mean the United States Food and Drug Administration, or any successor agency or entity thereto that may be established hereafter.

1.42         “FD&C Act” shall mean the U.S. Federal Food, Drug and Cosmetics Act, 21 USC § 321 et seq, as amended.

1.43         “GAAP” shall mean the United States generally accepted accounting principles in effect from time to time, consistently applied.

1.44         “Governmental Entity” shall mean any court, tribunal, arbitrator, authority, agency, commission, regulatory, official or other instrumentality of the government of the United States or of any foreign country, any state or any political subdivision of any such government (whether state, provincial, county, city, municipal or otherwise).

1.45         “HSR” shall mean the United States Hart-Scott-Rodino Antitrust Improvements Act of l976, as amended, and related rules.

1.46         “HSR Filings” shall have the meaning given in Section 8.1.

1.47         “IND” shall mean, with respect to each CV Product, the investigational new drug application identified on Attachment 2.1(e) hereto.

1.48         “Initial FDA Approval” shall mean the first issuance by the FDA of a written approval that [****]*.

1.49         “Initial Purchase Price” shall have the meaning given in Section 3.1(a).

1.50         “Intellectual Property shall mean (i) Patents; (ii) Licensed IP Rights; (iii) Trademarks and Trademark Registrations; (iv) Copyrights; and (v) Trade Secrets.

1.51         “Knowledge” shall mean, whenever any representation or warranty is made by Seller or Buyer “to the Knowledge” of the Seller or Buyer, (i) the actual knowledge of the

* Certain information on this page has been omitted and filed separately with the SEC. Confidential treatment has been requested with respect to the omitted portions.

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officers of the Seller or Buyer, respectively, and (ii) the knowledge that any such person referenced in clause (i) hereof, as a prudent business person, would have obtained in the usual course of the performance of his or her professional responsibilities to such party.

1.52         “Liabilities” shall mean liabilities of any kind or nature, primary or secondary, direct or indirect, absolute or contingent, known or unknown, liquidated or unliquidated, including but not limited to any liabilities for claims of product liability, personal injury or death, liability in tort or contract (including unripened liabilities due to past actions or sales), indebtedness, and any FDA or other Governmental Entity action or notification, and all costs and expenses (including reasonable attorneys’ fees), incurred in connection with the defense of any such claims.

1.53         “Licensed IP Rights” shall have the meaning given in Section 2.1(b).

1.54         “Litigation Cooperation Agreement” shall mean the agreement between Buyer and Seller, substantially in the form attached hereto as Exhibit I, pursuant to which Buyer assumes control of all aspects of the Sun Litigation, Seller agrees to assist Buyer as required, at Buyer’s expense, in such Sun Litigation, and Buyer agrees to indemnify Seller with respect to Seller’s post-Closing assistance in such litigation.

1.55         “Marketed Products” shall mean Cardene IV, Cardene SR and Retavase.

1.56         “Marketing and Promotional Documents” shall have the meaning given in Section 2.1(i).

1.57         “Material Adverse Change” and “Material Adverse Effect” shall mean any event or situation that has a material adverse change or effect, respectively, on the operations, assets, Liabilities, results of operations, cash flows or financial condition, or relations with material customers or material suppliers, of the Business, taken as a whole, other than any such change or effect resulting from or arising in connection with (i) [****]*.

1.58         “Milestone and Revenue Payments” shall have the meaning given in Section 3.1(b).

1.59         “Milestone Payments” shall have the meaning given in Section 3.1(b).

1.60         “Net Sales” shall mean, the gross invoiced sales amount of the Cardene [****]* Product or any Ularitide product, as applicable, [****]*, and in each case less the following items (“Net Sales Adjustments”) as applicable to the Cardene [****]* Product or the Ularitide product, as applicable, to the extent such items are reasonable and customary under industry practices and [****]*and are consistent in application with [****]*:

* Certain information on this page has been omitted and filed separately with the SEC.  Confidential treatment has been requested with respect to the omitted portions.

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(a)           actual credits or allowances granted upon returns, rejections or recalls (due to spoilage, damage, expiration of useful life or otherwise), retroactive price reductions, or billing corrections during the accounting period in which such sales are recorded;

(b)           invoiced freight, postage, shipping and insurance, handling, export fees or tariffs, customs expenses and other transportation costs actually incurred by Buyer;

(c)           credits or allowances actually granted including, without limitation, quantity, cash and other trade discounts (collectively, “Credits”), provided, however, Credits shall not include any credit, allowance or discount given with respect to the sale of the [****]*;

(d)           taxes (including, without limitation, sales, value-added or excise taxes, but excluding income taxes imposed on the income of Buyer or its Affiliates and withholding taxes imposed on amounts payable to Buyer or its Affiliates), tariffs, customs duties, surcharges and other governmental charges incurred in connection with the production, sale, transportation, delivery, use, exportation or importation of CV Products that are incurred at time of sale or are directly related to the sale;

(e)           discounts, refunds, rebates, charge backs, fees, credits or allowances (including, without limitation, amounts incurred in connection with government-mandated rebate and discount programs, third party rebates and charge backs, hospital buying group/group purchasing organization administration fees and managed care organization rebates) actually deducted from payment of invoices by customers or paid to customers during the accounting period in which such sales are recorded, offset by any such amounts that had been deducted from invoices or paid to customers in error and have been paid back to Buyer; and

(f)            distribution fees and sales commissions to third parties, actually paid or incurred at the time of sale and which effectively reduce the selling price,

all in accordance with standard allocation procedures, allowance methodologies and accounting methods consistently applied.  For the avoidance of doubt, the transfer of any Cardene [****]* Product by Buyer or its Affiliates to another Affiliate of Buyer for purposes of sale to an independent third party shall not be considered a sale; in such cases, Net Sales shall be determined based on the gross invoiced sales by such Affiliate to an independent third party, less the Net Sales Adjustments allowed under this Section.

1.61         “Net Sales Adjustments” shall have the meaning given in Section 1.60.

1.62         “NDA” shall mean, with respect to each CV Product, the new drug application identified on Attachment 2.1(e) hereto.

1.63         “Non Product-Specific Manufacturing Information” shall have the meaning given in Section 2.1(g).

* Certain information on this page has been omitted and filed separately with the SEC. Confidential treatment has been requested with respect to the omitted portions.

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1.64         “Packaging Inventory” shall have the meaning given in Section 2.1(v).

1.65         “Packaged Products” shall mean Cardene Packaged Product and Retavase Packaged Product.

1.66         “Patents” shall have the meaning given in Section 2.1(a).

1.67         “[****]* shall mean the [****]*

1.68         “Product Inventory” shall mean Cardene Product Inventory and Retavase Product Inventory.

1.69         “Product-Specific Manufacturing Information” shall have the meaning given in Section 2.1(f).

1.70         “Product Specifications” shall mean the specifications for bulk active pharmaceutical ingredients for the respective Marketed Products, and for the respective Drug Products, as set forth in Attachments 1.70(a) and (b), respectively.

1.71         “Purchase Price” shall have the meaning given in Section 3.1.

1.72         “Raw Materials and WIP” shall mean all of the raw materials and work in progress owned by Seller or its Affiliates for use in the manufacture of the CV Products, in existence as of the Closing.

1.73         “Registrations” shall have the meaning given in Section 2.1(e).

1.74         “Research and Development Materials” shall have the meaning given in Section 2.1(h).

1.75         “Retavase” shall mean each presentation of any pharmaceutical preparation (including formulation changes and production intermediates) containing the active pharmaceutical ingredient reteplase, whether registered, marketed or in development by Seller or its Affiliates, as of the Closing Date.

1.76         “Retavase Drug Product” shall mean labeled or unlabelled vials containing the active pharmaceutical ingredient reteplase.

1.77         “Retavase Packaged Product” shall mean Retavase in the Product Inventory purchased by Buyer hereunder that is packaged and labeled for sale to the end user.

1.78         “Retavase Product Inventory” shall mean all of the inventory owned by Seller or its Affiliates of bulk active pharmaceutical ingredient reteplase, Retavase Packaged Product and Retavase Drug Product, in existence as of the Closing.

* Certain information on this page has been omitted and filed separately with the SEC. Confidential treatment has been requested with respect to the omitted portions.

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1.79         “Revenue Payments” shall have the meaning given in Section 3.1(b).

1.80         “SEC” shall mean the United States Securities and Exchange Commission.

1.81         “Seller” shall have the meaning given in the Preamble.

1.82         “Seller Indemnitees” shall have the meaning given in Section 13.2.

1.83         “[****]* shall mean the [****]*.

1.84         “Sun Litigation” shall mean all rights relating to the patent infringement lawsuit in the United States District Court for the District of New Jersey (New Jersey Court) filed by Seller against Sun Pharmaceutical Industries Ltd. (“Sun”) seeking, among other things, to enjoin Sun’s infringement of Seller’s United States Patent Number 5,164,405, titled “Nicardipine pharmaceutical composition for parenteral administration” and to stay any sale of Sun’s Abbreviated New Drug Application product until at least the expiration of such patent, a related lawsuit filed by Seller in United States District Court for the Eastern District of Michigan, and all other related litigation between Seller and Sun, and any claims and counterclaims associated therewith.

1.85         “Survival Date” shall have the meaning given in Section 13.1.

1.86         “Tangible Assets” shall have the meaning given in Section 2.1(l).

1.87         “Tax” and “Taxes” shall mean all present or future taxes, charges, fees, levies, or other assessments including, without limitation, income, excise, property, value added, real estate, sales, use, payroll, employment, unemployment, transfer, social security, alternative, add-on minimum and franchise taxes imposed by any federal, state, county, or local government, or a subdivision or agency thereof.  Such term shall include any interest, penalties, or additions payable in connection with such taxes, charges, fees, levies, duties, or other assessments.

1.88         “Territory” (i) for Cardene shall mean the United States of America and its possessions and territories; (ii) for Retavase shall mean Canada and the United States of America and its possessions and territories; and (iii) for Ularitide shall mean worldwide.

1.89         “Third Party Consents” shall have the meaning given in Section 6.4.

1.90         “Trade Secrets” shall mean all technology, trade secrets and other confidential information, know-how, proprietary processes, formulae, algorithms, models, and methodologies that are related to the Business.

1.91         “Trademarks” shall mean all trademarks, service marks, trade names, names, slogans, taglines, logos, design marks, trade dress, product designs, and product packaging,

* Certain information on this page has been omitted and filed separately with the SEC. Confidential treatment has been requested with respect to the omitted portions.

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including all applications for and registrations of the foregoing, and including those at common law that are related to the CV Products.

1.92         “Trademark Registrations” shall have the meaning given in Section 2.1(c).

1.93         “Transition Services Agreement” shall mean the transition services agreement to be entered into by Buyer and Seller, at the request of Buyer as contemplated in Section 8.7, whereby Seller shall, for fees specified therein, provide to Buyer certain services relating to the transition of the Business.

1.94         “Ularitide” shall mean each presentation of any pharmaceutical preparation (including formulation changes and production intermediates) containing the active pharmaceutical ingredient urodilatin, whether registered, marketed or in development by Seller or its Affiliates, as of the Closing Date.

1.95         “Worldwide Safety Reports” shall have the meaning given in Section 2.1(j).

ARTICLE 2

TRANSFER OF ASSETS; LICENSE AND SUBLICENSE

2.1           Purchase and Sale of Assets.  Subject to the terms and conditions of this Agreement, Seller shall sell, transfer, assign, convey, deliver, license or sublicense, as specified below, to Buyer, or shall cause to be sold, transferred, assigned, conveyed, delivered, licensed or sublicensed, as specified below, to Buyer, and Buyer shall acquire all of Seller’s right, title and interest in and to the properties and assets of Seller identified in this Section 2.1 (collectively, the “Assets”).

(a)           Patents.  Upon Closing, Seller shall sell, transfer, assign, convey and deliver, or shall cause to be sold, transferred, assigned, conveyed and delivered to Buyer, all of Seller’s rights, title and interest in and to the patent filings related to the CV Products listed in Attachment 2.1(a), and any patents of addition, re-examinations, reissues, extensions, granted supplementary protection certifications, substitutions, confirmations, registrations, revalidations, revisions, additions and the like, of or to said patents and any and all divisionals, continuations and continuations-in-part, and any patents issuing therefrom, as well as any patent applications related thereto (collectively, the “Patents”).  Seller hereby retains a royalty-free right and license, including the right to sublicense, under the Patents, solely to the extent necessary for, and solely for the purposes of, performing Seller’s obligations under this Agreement and the Transition Services Agreement and only until the completion of Seller’s obligations hereunder and thereunder.

(b)           Licensed IP Rights.  Upon Closing, Seller shall transfer, assign, convey and deliver, or shall cause to be sold, transferred, assigned, conveyed and delivered to Buyer, all of Seller’s rights under all patents, know-how and other intellectual property rights which Seller has a right under contract to use and which are used in the Business and those intellectual property rights contained in the license agreements included as part of the Assumed Contracts or as otherwise set forth on Attachment 2.1(b), but subject to any restrictions and obligations in

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such license agreements (the “Licensed IP Rights”).  Seller hereby retains a royalty-free right and license under the Licensed IP Rights for use in the Business, solely to the extent necessary for, and solely for the purposes of, performing Seller’s obligations under this Agreement and the Transition Services Agreement, and only until the completion of Seller’s obligations hereunder and thereunder.

(c)           Trademark Registrations.  Upon Closing, Seller shall sell, transfer, assign, convey and deliver, or shall cause to be sold, transferred, assigned, conveyed and delivered to Buyer, all of Seller’s rights, title and interest in and to all Trademarks used in the Business and as set forth on Attachment 2.1(c), together with (i) all common law rights to the Trademarks, (ii) the goodwill of the Business symbolized by the Trademarks, (iii) all causes of actions, claims and demands or other rights for, or arising from any infringement, dilution, unfair competition, or other violation, including past infringement, dilution, unfair competition, or other violation, of the Trademarks, and (iii) all rights corresponding thereto throughout the world (the “Trademark Registrations”).

(d)           Copyrights.  Upon Closing, Seller shall sell, transfer, assign, convey and deliver, or shall cause to be sold, transferred, assigned, conveyed and delivered to Buyer, all of Seller’s rights, title and interest in and to registered and unregistered copyrights, including all related registrations, applications and common law rights, in any labels, product marketing materials or other copyrighted works related to the CV Products (the “Copyrights”).

(e)           Registrations.  Upon Closing, Seller shall sell, transfer, assign, convey and deliver, or shall cause to be sold, transferred, assigned, conveyed and delivered to Buyer, all of Seller’s rights, title and interest in and to the regulatory files and approvals, registrations and governmental authorizations, each NDA, each IND, compliance notices, licenses and permits, and any applications to the FDA or the comparable foreign law or bodies in effect or pending at the Closing Date, and all materials and information relating to the FDA and other Governmental Entity approvals for the CV Products as set forth on Attachment 2.1(e), and all information contained therein (collectively, the “Registrations”).

(f)            Product-Specific Manufacturing Information.  Upon Closing, Seller shall sell, transfer, assign, convey and deliver, or shall cause to be sold, transferred, assigned, conveyed and delivered to Buyer all of Seller’s rights, title and interest in and to all of Seller’s manufacturing information (the “Product-Specific Manufacturing Information”) used solely and exclusively in the Business.  Seller shall retain a non-exclusive license to use Product-Specific Manufacturing Information, solely for purposes of fulfilling its obligations under this Agreement and the Transition Services Agreement, and only until completion of Seller’s obligations hereunder and thereunder.

(g)           Non Product-Specific Manufacturing Information.  Upon Closing, Seller shall grant, or shall cause to be granted to Buyer, a perpetual, paid up, irrevocable, royalty-free, non-exclusive license, with the right to sublicense, to use, only in the Business, any manufacturing information that is used by Seller both in the Business and also in other business activities of Seller (the “Non-Product Specific Manufacturing Information”).  Seller shall retain a non-exclusive license to use Non-Product-Specific Manufacturing Information in other business activities of Seller.

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(h)           Research and Development Materials.  Upon Closing, Seller shall sell, transfer, assign, convey and deliver, or shall cause to be sold, transferred, assigned, conveyed and delivered to Buyer, (i) originals of all documents and electronically stored information (excluding e-mails or other electronic correspondence not readily available in hard copy) to the extent related to the research and development of the CV Products that are owned or controlled by Seller or its Affiliates and any of their respective agents, and (ii) copies of all other documents and electronically stored information (excluding e-mails or other electronic correspondence not readily available in hard copy) to the extent related to the research and development of the CV Products (the “Research and Development Materials”).  After Closing, Seller shall retain a right to use the Research and Development Materials, solely for purposes of fulfilling its obligations under this Agreement and the Transition Services Agreement, and only until completion of Seller’s obligations hereunder and thereunder.

(i)            Marketing and Promotional Documents.  Upon Closing, Seller shall sell, transfer, assign, convey and deliver, or shall cause to be sold, transferred, assigned, conveyed and delivered to Buyer, all marketing and promotional documents and information (including electronic information, but excluding e-mails or other electronic correspondence not readily available in hard copy) related to the CV Products existing on the Closing Date, owned by Seller or its Affiliates, such as customer lists, marketing and promotional plans, documents and materials, material contained on Seller’s internet sites, field force training manuals and materials, and the like, solely to the extent relating exclusively to the Business (the “Marketing and Promotional Documents”).  Buyer’s use of the Marketing and Promotional Documents shall be subject to Section 10.12.

(j)            Worldwide Safety Reports.  Upon Closing, Seller shall sell, transfer, assign, convey and deliver, or shall cause to be sold, transferred, assigned, conveyed and delivered to Buyer, all worldwide safety reports in the possession or control of Seller or its Affiliates with respect to the CV Products in existence as of the Closing (the “Worldwide Safety Reports”).

(k)           Clinical Data.  Upon Closing, Seller shall sell, transfer, assign, convey and deliver, or shall cause to be sold, transferred, assigned, conveyed and delivered to Buyer, all clinical data related to the CV Products and which is contained in Seller’s databases or otherwise in Seller’s possession or control (the “Clinical Data”).

(l)            Tangible Assets.  Upon Closing, Seller shall sell, transfer, assign, convey and deliver, or shall cause to be sold, transferred, assigned, conveyed and delivered to Buyer, certain tangible assets, as listed in Attachment 2.1(l) (the “Tangible Assets”).

(m)          Domain Names.  Upon Closing, Seller shall sell, transfer, assign, convey and deliver, or shall cause to be sold, transferred, assigned, conveyed and delivered to Buyer, all of Seller’s rights, title and interest in and to the domain names used primarily in the Business and listed in Attachment 2.1(m) (collectively, the “Domain Names”).

(n)           Product Inventory.  Upon Closing, Seller shall sell, transfer, assign, convey and deliver, or shall cause to be sold, transferred, assigned, conveyed and delivered to Buyer, the Product Inventory.

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(o)           Raw Materials and WIP.  Upon Closing, Seller shall sell, transfer, assign, convey and deliver, or shall cause to be sold, transferred, assigned, conveyed and delivered to Buyer, the Raw Materials and WIP.

(p)           Assumed Contracts.  Upon Closing, Seller shall sell, transfer, assign, convey and deliver or shall cause to be sold, transferred, assigned, conveyed and delivered to Buyer, all rights and benefits of Seller in existence as of the Closing Date or arising after the Closing Date under the contracts listed in Attachment 2.1(p) (the “Assumed Contracts”), including any rights to Intellectual Property.  The Assumed Contracts shall be deemed to include all purchase orders and change orders related thereto.

(q)           Clinical Trial Materials.  Upon Closing, Seller shall sell, transfer, assign, convey and deliver, or shall cause to be sold, transferred, assigned, conveyed and delivered to Buyer, all of Seller’s rights, title and interest in and to the Clinical Trial Materials.

(r)            Clinical Trial Study Reports.  Upon Closing, Seller shall sell, transfer, assign, convey and deliver, or shall cause to be sold, transferred, assigned, conveyed and delivered to Buyer, all of Seller’s rights, title and interest in and to the Clinical Trial Study Reports.

(s)           Sun Litigation.  Upon Closing, Seller shall sell, transfer, assign, convey and deliver, or shall cause to be sold, transferred, assigned, conveyed and delivered to Buyer, all of Seller’s rights relating to the Sun Litigation, including, without limitation, all documents and information and other things gathered or produced by any party in relation thereto.

(t)            Books and Records.  Upon Closing, Seller shall sell, transfer, assign, convey and deliver, or shall cause to be sold, transferred, assigned, conveyed and delivered to Buyer all Books and Records.

(u)           Customer Orders.  Upon Closing, Seller shall sell, transfer, assign, convey and deliver or shall cause to be sold, transferred, assigned, conveyed and delivered to Buyer, all of Seller’s right, title and interest in all unfilled orders for the CV Products, including without limitation, all unfilled Customer Orders as of the Closing Date (i.e. Customer Orders to the extent that (i) the Packaged Products at issue have not been shipped to the applicable customer as of the Closing Date and (ii) Buyer (rather than Seller or any of its Affiliates) would be paid by the applicable customer after shipment by Buyer following the Closing Date), a list of which shall be provided to Buyer within [****]* after the Closing Date.

(v)           Packaging Inventory.  Upon Closing, Seller shall sell, transfer, assign, convey and deliver or shall cause to be sold, transferred, assigned, conveyed and delivered to Buyer, all packaging material for the Marketed Products, including all package labels and product inserts used in connection with the Marketed Products owned or controlled by Seller or its Affiliates as of the Closing (the “Packaging Inventory”).

* Certain information on this page has been omitted and filed separately with the SEC.  Confidential treatment has been requested with respect to the omitted portions.

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(w)          Other Intellectual Property.  Upon Closing, Seller shall sell, transfer, assign, convey and deliver or shall cause to be sold, transferred, assigned, conveyed and delivered to Buyer all of Seller’s rights, title and interest in and to the Trade Secrets and other intellectual property not hereto forth assigned that are used solely in the Business.

2.2           Excluded Assets.  Buyer hereby acknowledges that Seller is not transferring hereunder any assets, rights or interests of Seller or its Affiliates not specifically set forth in Section 2.1 (collectively, the “Excluded Assets”), including, without limitation:

(a)           any contracts or agreements with any third party that are not Assumed Contracts or identified in Section 2.1(b);

(b)           any assets or rights used in the research, development, manufacture, control, packaging or release, marketing or sale of products other than the CV Products, excluding such assets or rights of Seller or its Affiliates that were used primarily in, or were otherwise necessary for the conduct of, the Business on the Effective Date that are either (i) Assets (transferred to Buyer pursuant to Section 2.1) or (ii) are covered in Section 10.1(a);

(c)           any assets or rights, including, without limitation, technical information  and intellectual property, that are not used exclusively in the Business and are used in other business activities of Seller, excluding such assets or rights of Seller or its Affiliates that were used primarily in, or were otherwise necessary for the conduct of, the Business on the Effective Date that are either (i) Assets (transferred to Buyer pursuant to Section 2.1) or (ii) are covered in Section 10.1(a);

(d)           equipment, computer software, and computer hardware, except as listed on Attachment 2.1(b) or Attachment 2.1(l);

(e)           all Accounts Receivable arising on or prior to the Closing Date; and

(f)            corporate records (financial statements, formation documents, stock records, board resolutions and minutes, and the like).

2.3           Assumed Liabilities.  Buyer shall assume and agree to honor, pay and discharge when due only the following Liabilities of Seller (the “Assumed Liabilities”), and no others:

(a)           all Liabilities of Seller under the Assumed Contracts, but only to the extent such Liabilities arise from any event, circumstance or condition occurring after the Closing Date;

(b)           all Liabilities of Seller under the Registrations to be performed after the Closing Date, but only to the extent such Liabilities relate to any event, circumstances or conditions occurring after the Closing Date;

(c)           all Liabilities relating to the Sun Litigation, other than (i) Liabilities that arise as a result of actions taken or omitted by Seller and its Affiliates on or prior to the Closing Date (unless taken or omitted with the consent of Buyer), and (ii) all fees, costs and expenses incurred by or on behalf of Seller or any of its Affiliates with respect to the Sun Litigation on or

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prior to the Closing Date (including attorneys’ fees);

(d)           all other Liabilities (other than Excluded Liabilities) arising out of the conduct of the Business or arising out of or related to the Assets, but in each case solely to the extent such Liabilities are incurred or relate to events, circumstances, conditions, actions or activities occurring after the Closing Date, including, without limitation, any product liability, product warranty, product return, charge-back, rebate or Medicaid, Medicare or other reimbursements, or similar claim, related to the CV Products sold after the Closing Date;

(e)           all [****]*

(f)            all Liabilities relating to Taxes attributable to ownership of the Assets and operation of the Business during periods beginning after the Closing Date, but not including, for the avoidance of doubt, Taxes that are payable after the Closing Date relating to taxable periods, or portions thereof, ending on or prior to the Closing Date, determined, in the case of any period that includes but does not end on the Closing Date, on a pro rata per diem basis; and

(g)           all costs and expenses incurred after the Closing Date in connection with or related to the[****]*, including without limitation, any and all work or agreements related thereto, and the [****]*relating to the [****]*, [****]*.

2.4           Excluded Liabilities.  Except for the Assumed Liabilities, Buyer shall not assume by virtue of this Agreement or the transactions contemplated hereby, and shall have no liability for, any Liabilities of Seller or any of its Affiliates (including, without limitation, those related to the Business) of any kind, character or description whatsoever (the “Excluded Liabilities”).  Seller shall discharge in a timely manner or shall make adequate provision for all of the Excluded Liabilities that affect the Business, Assets or Assumed Liabilities, provided that Seller shall have the ability to contest, in good faith, any such claim of liability asserted in respect thereof by any person or entity.  Excluded Liabilities shall include, without limitation:

(a)           all Taxes (other than Taxes that are Assumed Liabilities) including those that result from or have accrued in connection with the operation of the Business on or prior to the Closing Date;

(b)           any Liability or obligation of Seller of any nature owed to any employees, directors, former employees, agents or independent contractors, whether or not employed by Buyer after the Closing, that (A) arises out of or relates to the employment or service provider relationship between Seller or its Affiliates (or any predecessor in interest) and any such individual(s) (including, but not limited to, claims for compensation, discrimination, harassment, or retaliation and any Liability under Seller’s Employee Benefit Plans); or (B) arises out of or relates to events, circumstances or conditions occurring on or prior to the Closing Date (including the transactions contemplated by this Agreement);

(c)           all Accounts Payable arising on or prior to the Closing Date;

* Certain information on this page has been omitted and filed separately with the SEC.  Confidential treatment has been requested with respect to the omitted portions.

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(d)           Liabilities of Seller under the Assumed Contracts that were incurred, arose or became payable on or prior to the Closing Date;

(e)           all Liabilities of Seller and its Affiliates under the Registrations, to be performed, or which relate to any event, circumstance or condition occurring, on or prior to the Closing Date;

(f)            all Liabilities with respect to accrued expenses incurred on or prior to the Closing in connection with the CV Products or the Business;

(g)           all Liabilities arising out of claims of third parties for damage or injury suffered as the result of defective products sold or manufactured on or prior to the Closing Date;

(h)           all Liabilities incurred (i) up through the Closing Date and (ii) after the Closing Date [****]*, in connection with or related to the [****]*, including without limitation the [****]* and of any and all work and agreements relating thereto, and the [****]* relating the [****]*; and

(i)            Liabilities of Seller and its Affiliates relating to or arising under this Agreement.

2.5           Risk of Loss.  All risk of loss with respect to the Assets (whether or not covered by insurance) shall be on Seller or its Affiliates up to the time of Closing, whereupon such risk of loss shall pass to Buyer.

2.6           Taxes.  All applicable sales, transfer, documentary, use, stamp, filing, recording, conveyance, excise, mortgage, documentary recording taxes and other similar taxes and fees that may be levied on the sale, assignment, transfer or delivery of the Assets to be sold and transferred as provided in this Agreement shall be borne by the parties equally.  The parties shall cooperate with each other and use commercially reasonable efforts to minimize such Taxes.

2.7           Third-Party Consents.  To the extent that any Assumed Contract, Intellectual Property or Registration is not assignable without the consent of another party, this Agreement shall not constitute an assignment or an attempted assignment thereof if such assignment or attempted assignment would constitute a breach thereof or a default thereunder.  Seller and Buyer shall each use commercially reasonable efforts to obtain the consent of [****]*, to the extent required, for the assignment of any Assumed Contracts to which it is a party.  Seller shall use its commercially reasonable efforts to obtain any and all consents necessary for the effective assignment to and assumption by Buyer of the Assumed Contracts, the Intellectual Property, the Registrations and the Assumed Liabilities, including the Third Party Consents set forth on Attachment 4.2(a) hereto and the consents set forth on Schedule 6.3 of the Disclosure Schedule.  All such consents shall be in writing and executed counterparts thereof shall be delivered promptly to Buyer.  If any such consent shall not be obtained, Seller shall cooperate with Buyer in any reasonable arrangement designed to provide for Buyer the benefits intended to be assigned

* Certain information on this page has been omitted and filed separately with the Sec. Confidential treatment has been requested with respect to the omitted portions.

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to Buyer under the relevant Assumed Contract, Intellectual Property or Registration, including enforcement at the cost and for the account of Buyer of any and all rights of Seller against the other party thereto arising out of the breach or cancellation thereof by such other party or otherwise.  If and to the extent that such arrangement cannot be made, Buyer shall have no obligation pursuant to Section 2.3 or otherwise with respect to any such Assumed Contract, Intellectual Property or Registration.  The provisions of this Section 2.7 shall not affect the right of Buyer not to consummate the transactions contemplated by this Agreement if the condition to its obligations hereunder contained in Section 9.1 has not been fulfilled.

ARTICLE 3

CONSIDERATION

3.1           Purchase Price.  As full consideration of Seller’s sale, transfer, assignment, conveyance, delivery, license or sublicense of the Assets to Buyer, Buyer will assume the Assumed Liabilities and pay and deliver or cause to be paid and delivered to Seller, in the manner set forth in this Section, an aggregate purchase price (the “Purchase Price”) equal to the sum of the Initial Purchase Price set forth in Section 3.1(a) and the Milestone and Revenue Payments, if applicable, set forth in Section 3.1(b).

(a)           Initial Purchase Price.  On the Closing Date, Buyer shall pay Seller Eighty Five Million United States Dollars ($85,000,000) (the “Initial Purchase Price”), less the Escrow Amount.

(b)           Milestone and Revenue Payments.  In addition to the payment made by Buyer pursuant to Section 3.1(a), after the Closing Date, Buyer shall make the following non-refundable cash payments to Seller, in each case, subject to the satisfaction of the respective milestones:

i.              Cardene [****]* Product Approval Milestone Payment.  Twenty Five Million United States Dollars ($25,000,000) shall become payable upon Buyer’s receipt of the Initial FDA Approval, such payment to be made promptly, and in no event later than [****]*, after receipt of such approval.

ii.Revenue Milestone Payments.

(1)            Thirty Million United States Dollars ($30,000,000) payable to Seller if and when the Net Sales of the Cardene [****]* Product in any twelve consecutive month period, calculated as of the end of each calendar month, first exceed Eighty Million United States Dollars ($80,000,000).

(2)            Thirty Million United States Dollars ($30,000,000) payable to Seller if and when the Net Sales of the Cardene [****]* Product in any twelve consecutive

* Certain information on this page has been omitted and filed separately with the SEC.  Confidential treatment has been requested with respect to the omitted portions.

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month period, calculated as of the end of each calendar month, first exceed One Hundred Fifty Million United States Dollars ($150,000,000).

(3)           Each payment pursuant to subsections (1) and (2) shall, if applicable, be made promptly, but no later than [****]*, following the occurrence of the relevant milestone.

The milestone payments under subsections (i) and (ii) of this Section 3.1(b) are collectively referred to as “Milestone Payments”.

iii.            Other Revenue Payments.  Buyer shall pay to Seller, on a [****]* basis as provided in Section 3.3, (A) an amount equal to ten percent (10%) of the Net Sales of the Cardene [****]* Product from sales occurring after the Closing Date and prior to the earlier to occur of (i) December 31, 2014 and (ii) the [****]*, and (B) on a country-by-country basis, an amount equal to five (5%) of the Net Sales of any Ularitide product from sales occurring after the Closing Date and prior to the later to occur of (i) the expiration of the applicable exclusivity period in such country, and (ii) the expiration of the last Patent covering Ularitide in such country.  The payments under this subsection iii of Section 3.1(b) are referred to as “Revenue Payments” and Revenue Payments and Milestone Payments are collectively referred to as “Milestone and Revenue Payments”.

(c)           Deposit in Escrow.  At Closing, Buyer shall deliver cash from the Initial Purchase Price in the amount of Six Million United States Dollars ($6,000,000) (the “Escrow Amount”) to the Escrow Agent pursuant to the Escrow Agreement, to be held and disbursed upon and subject to all of the terms and conditions set forth therein.

3.2           Method of Payment.  The payments to be made pursuant to Section 3.1 shall be made by wire transfer in immediately available funds as follows:

(a)           delivery of the Initial Purchase Price, less the Escrow Amount, to such account as Seller shall have designated to Buyer in writing not less than two (2) business days prior to the Closing Date, and any such payment shall be deemed to have been paid when recorded in the proper account;

(b)           delivery to Wells Fargo Bank, National Association (the “Escrow Agent”) of the Escrow Amount in accordance with the wire transfer instructions of the Escrow Agent delivered to Buyer in writing not less than two (2) business days prior to the Closing Date.  The Escrow Amount shall be held in escrow by the Escrow Agent pursuant to the terms of an escrow agreement in substantially the form of Exhibit H attached hereto (the “Escrow Agreement”) in order to provide a source for the payment of any [****]*.  The Escrow Agreement shall provide for the release of any remaining escrow funds to Seller [****]* from the Closing Date [****]*; and

* Certain information on this page has been omitted and filed separately with the SEC.  Confidential treatment has been requested with respect to the omitted portions.

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(c)           delivery of the Milestone and Revenue Payments to such account as Seller shall have designated to Buyer in writing not less than two (2) business days prior to the Closing Date (or such other account as designated by Buyer after Closing delivered pursuant to the notice provision herein).

3.3           Revenue Payments; Reports.  Buyer shall pay to Seller, [****]*, any Revenue Payments that become due.  Such payments will be accompanied by a report containing the following information as it pertains to the [****]* just ended:

(a)           the gross sales of the Cardene [****]* Product (in the aggregate and separately stated for each selling party);

(b)           the computation of the Net Sales of Cardene [****]* Product actually received by Buyer based on the U.S. dollar value determined in (a) above, including an accounting of any Net Sales Adjustments from the gross sales to arrive at the Net Sales amount, and the exchange rates used for converting foreign currency to U.S. dollars in accordance with Section 3.4 hereof;

(c)           the computation of earned Revenue Payments; and

(d)           such other information necessary to confirm the Revenue Payments payable pursuant to Section 3.1(b)(iii) as Seller may reasonably request.

If no earned Revenue Payments are due for a [****]*, Buyer will so report.  At the end of the [****]* in which the Revenue Payments are no longer due, Buyer will provide to Seller a final written report that complies in all respects with this Section 3.3.  Buyer will require each Affiliate and sublicensee to make appropriate reports to Buyer in a timely manner to enable Buyer to comply with this Section 3.3.  Buyer shall provide Seller a similar report containing the information in subsections (a) and (b) above upon payment of the Milestone Payments.

3.4           Accounting.  The Net Sales used for computing the Revenue Payments payable to Seller by Buyer will be computed in U.S. dollars.  If Buyer or an Affiliate or a sublicensee sells any Cardene [****]* Product for currency other than U.S. currency, for purposes of calculating the earned Revenue Payments payable to Seller, Buyer will determine the Net Sales for the Cardene [****]* Product in such currency and then convert the Net Sales into its equivalent in U.S. currency using the average New York foreign exchange selling rate for such currency for the month in which such sale is reported, as published by The Wall Street Journal.  If such rate is not so published, the conversion will be at the average selling rate for such currency for the month in which such sale is reported, as published by a leading New York, New York bank chosen by Buyer and reasonably acceptable to Seller (such acceptance not to be unreasonably withheld, delayed or conditioned).

3.5           Records; Audits.  Buyer shall keep, and shall cause its Affiliates and third party sublicensees to keep, full and accurate records and books of account containing all particulars that may be necessary for the purpose of calculating Net Sales.  Such records and books of account, with all necessary supporting data, shall be kept by Buyer (or its Affiliates or

* Certain information on this page has been omitted and filed separately with the SEC.  Confidential treatment has been requested with respect to the omitted portions.

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sublicensees) at its place of business or at another location under Buyer’s control for the [****]* next following the end of the calendar year to which each shall pertain.  Upon written request from Seller, and in no event more than (i) [****]* and (ii) [****]* of the Closing Date thereafter, Buyer shall permit an independent nationally recognized accounting firm selected by Seller and reasonably acceptable to Buyer, which acceptance shall not be unreasonably withheld, delayed or conditioned, to have access after reasonable advance notice ([****]*) and during normal business hours to such records and books of account as may be reasonably necessary to verify the accuracy of the Buyer’s reports of Net Sales as provided herein.  Notwithstanding the preceding sentence, Seller may make additional requests if Seller in good faith believes that there is reasonable cause to make such additional requests based on findings in prior reports.  All such verifications shall be conducted at the expense of Seller.  In the event any such audit concludes that adjustments should be made in Seller’s favor, Seller shall provide to Buyer a complete copy of the accountant’s written report reflecting such adjustments.  Buyer shall have the right to dispute such adjustments in good faith by providing written notice of such dispute to Seller within thirty (30) days of the date on which the applicable written report is received by Buyer.  Any dispute shall be resolved in accordance with the provisions of Section 14.4.  Buyer shall pay the amounts, if any, finally determined to be due (plus accrued interest thereon, from the date originally due, at the annual rate announced by the Bank of America (or any successor) as its prime rate in effect on the date that such payment was first due [****]* promptly, and in no event later than thirty (30) days after the date Buyer receives Seller’s accounting firm’s written report or the dispute is resolved in accordance with Section 14.4, as the case may be.  The fees charged by the accounting firm shall be paid by [****]* unless the audit (or final resolution, if applicable) reflects that adjustments in favor of [****]* for the [****]* or more of the aggregate amount paid or payable by [****]* to [****]* during the period, in which case [****]* shall pay the reasonable fees and expenses charged by such accounting firm, promptly after receipt of the invoice for such audit.  Seller agrees that all information subject to review under this Section 3.5 is Confidential Information of Buyer and that it shall cause its accounting firm to retain all such information subject to the confidentiality restrictions set forth in this Agreement.

3.6           Late Payments.  Any payment owed under this Agreement that is not paid on or before the date that is [****]* following the date on which such payment becomes due pursuant to this Agreement shall accrue interest, to the extent permitted by law, at the annual rate announced by Bank of America (or its successor) as its prime rate in effect on the date that such payment was first due [****]* until the date on which such payment is made.

3.7           Allocation of Purchase Price.  Prior to Closing, Buyer and Seller will make reasonable efforts to agree on an allocation of the Initial Purchase Price (and any Assumed Liabilities properly included for tax purposes) among the Assets in a manner that is consistent with the principles of Section 1060 of the Internal Revenue Code of 1986, as amended (or any successor provision of any future tax law, or any comparable provision of state, local or foreign tax law).  If the parties are able to agree to an allocation of the Initial Purchase Price pursuant to

* Certain information on this page has been omitted and filed separately with the SEC.  Confidential treatment has been requested with respect to the omitted portions.

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the preceding sentence, Buyer and Seller will (i) act in accordance with such allocation in the preparation and filing of all Tax returns (including the preparation and filing of IRS Form 8594), (ii) take no position inconsistent with the allocation for all Tax purposes, and (iii) allocate any post-Closing payments made pursuant to Sections 3.1 or 3.3 consistent with the methodology used in such allocation.  In the event that such allocation is disputed by any taxing authority, the party receiving notice of the dispute shall promptly notify the other party hereto and shall forward to such other party copies of all correspondence with such taxing authority in respect of such disputed allocation.

ARTICLE 4

CLOSING

4.1           Closing.  The Closing of the sale, transfer, assignment, conveyance, delivery, license or sublicense of the Assets to Buyer, and the consummation of the other transactions contemplated hereby shall be held at the offices of Seller (the “Closing”) as promptly as practicable, but no later than the date five (5) business days after all conditions (other than the respective delivery obligations of the parties) hereto have been satisfied or waived, or at such other time or date as may be agreed to by the parties to this Agreement (the “Closing Date”).  The Closing shall have deemed to have occurred on 11:59 pm on the Closing Date.

4.2           Actions at Closing.  At the Closing, sale, transfer, assignment, conveyance, delivery, license or sublicense of the Assets to Buyer will be effected by Seller pursuant to such good and sufficient instruments of conveyance, transfer and assignment as shall be necessary to transfer to Buyer good and valid title to the Assets.

(a)           Deliveries by Seller at Closing.  The purchase of the Assets by Buyer in accordance with the terms of this Agreement are subject to Seller’s delivery to Buyer at the Closing of the following instruments, documents, agreements and certificates:

i.              the General Assignment and Bill of Sale substantially in the form attached hereto as Exhibit A (the “Bill of Sale”), duly executed by Seller;

ii.             a counterpart of the Assignment and Assumption Agreement substantially in the form attached hereto as Exhibit B (the “Assignment and Assumption Agreement”), duly executed by Seller;

iii.            the Patent Assignment Agreement substantially in the form attached hereto as Exhibit C (the “Patent Assignment Agreement”), duly executed by Seller;

iv.            the Trademark Assignment Agreement substantially in the form attached hereto as Exhibit D (the “Trademark Assignment Agreement”), duly executed by Seller;

v.             the Domain Name Assignment Agreement substantially in the form attached hereto as Exhibit E (the “Domain Name Assignment Agreement”), duly executed by Seller;

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vi.a counterpart of the Transition Services Agreement, substantially in the form attached hereto as Exhibit F, duly executed by Seller;

vii.the Third Party Consents listed in Attachment 4.2(a), in substantially the form attached hereto as Exhibit G, signed by an authorized representative of each of the consenting parties to such agreements, and such Third Party Consents (a) shall not be subject to the satisfaction of any condition that has not been satisfied or waived, and (b) shall be in full force and effect;

viii.a counterpart of the Escrow Agreement, , substantially in the form attached hereto as Exhibit H, duly executed by Seller and Escrow Agent;

ix.a counterpart of the Litigation Cooperation Agreement, duly executed by Seller;

x.such other documents and agreements as may be necessary to effect the transactions contemplated by this Agreement;

xi.a certificate executed by a duly authorized officer of Seller certifying that (i) each of the representations and warranties of Seller set forth in Article 6 of this Agreement that is qualified by materiality is true and correct in all respects, (ii) each of such representations and warranties that is not so qualified is true and correct in all material respects, in each case, as of the Closing Date as though made on and as of the Closing Date or, in the case of representations and warranties made as of a specified date earlier than the Closing Date, on and as of such earlier date, except that any such representation or warranty made as of a specified date shall only need to have been true and correct on and as of such date, and (iii) all of the terms, covenants and conditions of this Agreement to be complied with and performed by Seller, at or prior to the Closing have been duly complied with and performed in all material respects;

xii.a certificate of the Secretary of Seller, in form and substance reasonably satisfactory to Buyer, as to the authenticity and effectiveness of the actions of the board of directors of Seller authorizing this Agreement and the transactions contemplated in this Agreement;

xiii.evidence, in form and substance reasonably satisfactory to Buyer, that Seller has fully paid all fees, costs and expenses payable pursuant to Section 8.6;

xiv.for each NDA identified and each IND identified on Attachment 2.1(e), a letter from Seller to the FDA, in form and substance reasonably satisfactory to Buyer, stating that all rights with respect to the respective application have been transferred to Buyer as of the Closing Date; and

xv.a certification as to Seller’s non-foreign status in accordance with U.S. Treasury Regulations Section 1.1445-2(b)(2).

(b)Deliveries by Buyer at Closing.  The sale of the Assets by Seller in accordance with the terms of this Agreement are subject to Buyer’s delivery to Seller (unless

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noted otherwise) at the Closing of the following instruments, agreements and certificates:

i.the Initial Purchase Price, less the Escrow Amount;

ii.evidence of payment of the Escrow Amount to the Escrow Agent;

iii.a counterpart of the Assignment and Assumption Agreement, duly executed by Buyer;

iv.a counterpart of the Transition Services Agreement, duly executed by Buyer;

v.a counterpart of the Escrow Agreement, duly executed by Buyer and Escrow Agent;

vi.a counterpart of the Litigation Cooperation Agreement, duly executed by Buyer;

vii.a certificate executed by a duly authorized officer of Buyer certifying that (i) each of the representations and warranties of Buyer set forth in Article 7 of this Agreement that is qualified by materiality is true and correct in all respects, (ii) each of such representations and warranties that is not so qualified is true and correct in all material respects, in each case, as of the Closing Date as though made on and as of the Closing Date or, in the case of representations and warranties made as of a specified date earlier than the Closing Date, on and as of such earlier date, except that any such representation or warranty made as of a specified date shall only need to have been true and correct on and as of such date, and (iii) all of the terms, covenants and conditions of this Agreement to be complied with and performed by Buyer, at or prior to the Closing have been duly complied with and performed in all material respects;

viii.a certificate of the Secretary of Buyer, in form and substance reasonably satisfactory to Seller, as to the authenticity and effectiveness of the actions of the board of directors (and shareholders, if applicable) of Buyer authorizing this Agreement and the transactions contemplated in this Agreement.

ARTICLE 5

EMPLOYMENT MATTERS

5.1Employees.

(a)Notwithstanding the provisions of the Confidentiality Agreement, Buyer shall have the right prior to Closing to contact the employees of Seller currently employed in the Business, who are identified on Attachment 5.1(a) (each, a “Business Employee”), and to discuss possible terms of employment with such Business Employees and Buyer may make offers of employment, contingent on the Closing, to any of such Business Employees in its discretion.  Buyer shall deliver to Seller a list of the Business Employees to whom Buyer has or intends to make offers of employment (each, an “Identified Employee”) at least fifteen (15) days prior to

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the date of the Closing.  The Seller shall use reasonable best efforts to cooperate with Buyer to facilitate the hiring of the Identified Employees.  Seller and its Affiliates shall not make competing offers of employment to the Identified Employees and shall, for a period of [****]* from the Closing Date, refrain from, directly or indirectly, employing, engaging or seeking to employ or engage any Identified Employee that has been hired by Buyer, unless such employee (i) has resigned voluntarily at least [****]* prior to such employment or engagement (without any solicitation from Seller or any of its Affiliates) or has been terminated by Buyer after the Closing Date or (ii) responds to any general media solicitation of employment or engagement by the Seller or its Affiliate.  Notwithstanding the foregoing, nothing in this Agreement shall constitute a commitment of Buyer to continue the employment of any Identified Employee for any period following the Closing Date, nor limit the right of Seller or its Affiliates to change any terms or conditions of employment of any employed Identified Employee following the Closing Date.

(b)Prior to the Closing Date, or as promptly as possible thereafter, and not withstanding any otherwise applicable Employee Benefit Plan, Seller shall take such actions, to be in effect as of the Closing Date or as promptly as possible thereafter, as are necessary to cause all Identified Employees who accept offers of employment from Buyer (the “Hired Employees”) to be paid, on a pro-rata basis, any earned sales incentive compensation and other comparable pay for the period of employment ending on the date of termination of employment (including, without limitation, the applicable bonuses for 2007 that would otherwise have been payable pursuant to any Seller Employee Benefit Plan, to the extent that such bonuses have not been paid prior to Closing), as well as any accrued vacation pay, sick leave, or other payroll entitlements.  Seller shall waive any notice requirements or other conditions applicable to any Hired Employee in connection with such employee’s termination of his or her employment with Seller.

(c)Seller shall take all action necessary to give any notification required by the Worker Adjustment and Retraining Notification Act (“WARN”), comply with any requirements of the Consolidated Omnibus Budget Reconciliation Act of 1985 and pay any and all severance, vacation, paid time off, unpaid wages, unpaid bonuses, unpaid commissions or other sums that may be due to Business Employees in connection with their termination of employment with Seller, if any, or otherwise pursuant to the terms of any of Seller’s employee benefit plan.  Buyer shall provide to Seller in a timely manner any information reasonably necessary to determine whether an Identified Employee has been offered employment in a comparable position and such other information as is reasonably necessary for Seller to comply with its obligations, if any, under WARN or any similar state law, rule or regulation with respect to Seller’s termination of the employment of any Business Employees.

* Certain information on this page has been omitted and filed separately with the SEC.  Confidential treatment has been requested with respect to the omitted portions.

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ARTICLE 6

REPRESENTATIONS AND WARRANTIES OF SELLER

Subject to the exceptions and disclosures listed in the Disclosure Schedule (including the attachments and exhibits thereto) Seller represents and warrants to Buyer as follows:

6.1Organization and Authority.  Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware with full corporate power and authority to execute and consummate this Agreement, and such other instruments, agreements and transactions as may be contemplated hereunder and thereunder.  Seller has all requisite corporate power and authority and all authorizations, licenses, permits and certifications necessary to carry on the Business as now being conducted and to own, lease and operate the Assets.  Seller is qualified as a foreign corporation to do business in every jurisdiction in which the nature of its business or its ownership of property requires it to be qualified and in which the failure to be so qualified would have a Material Adverse Effect.  All corporate acts and other proceedings required to be taken by or on the part of Seller to authorize Seller to execute, deliver and perform this Agreement and such other instruments, agreements and transactions as may be contemplated hereunder, have been duly and properly taken, and no further action on the part of Seller or its stockholders is necessary.  This Agreement has been duly executed and delivered by Seller and constitutes legal, valid and binding obligations of Seller enforceable in accordance with its terms, except as such enforceability may be subject to or limited by (i) applicable bankruptcy, reorganization, insolvency, moratorium and similar laws affecting the enforcement of creditors’ rights generally and (ii) the rules governing the availability of specific performance, injunctive relief or other equitable remedies and general principles of equity, regardless of whether considered in a proceeding in law or equity.

6.2No Violation or Conflict.  The execution and delivery by Seller of this Agreement and such other instruments, agreements and transactions as may be contemplated hereunder, and the consummation by Seller of the transactions contemplated hereby and thereunder will not (i) violate any law, statute, rule or regulation or judgment, order, writ, injunction or decree of any Governmental Entity applicable to Seller, or (ii) materially conflict with, result in any material breach of, or constitute a material default (or an event which with notice or lapse of time or both would become a material default) under the Certificate of Incorporation or bylaws of Seller or any agreement to which Seller is a party, (iii) materially interfere with Seller’s performance of its obligations hereunder, or (iv) result in the creation or imposition of any lien or encumbrance on Seller or the Assets, and to the Knowledge of Seller, there are currently no proceedings pending before, or threatened by, any Governmental Entity that could reasonably be expected to result in the adoption, amendment or issuance of any law, statute, rule or regulation or judgment, order, writ, injunction or decree materially adverse to the Assets or the Business.

6.3Consents and Approvals.  Except as set forth in Schedule 6.3 of the Disclosure Schedule, no notice to, declaration, filing or registration with, or authorization, consent or approval of, or permit from, any Governmental Entity, or any other person or entity, is required to be made or obtained by Seller in connection with the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, except with respect to the HSR Filings and any declarations, filings, registrations, authorizations, consents,

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approvals or permits which if not obtained or made have not had and would not reasonably be expected to have individually or in the aggregate a Material Adverse Effect or materially interfere with Seller’s performance of its obligations hereunder.

6.4Assumed Contracts.  Seller has made available to Buyer complete and correct copies of the Assumed Contracts and any amendments, modifications and supplements thereto.  All the Assumed Contracts are in full force and effect and are valid, binding and enforceable in accordance with their terms by and against Seller, except as such enforceability may be subject to or limited by (i) applicable bankruptcy, reorganization, insolvency, moratorium and similar laws affecting the enforcement of creditors’ rights generally; and (ii) the rules governing the availability of specific performance, injunctive relief or other equitable remedies and general principles of equity, regardless of whether considered in a proceeding in law or equity; provided that there may be Assumed Contracts that have expired by their terms, but contain surviving rights or Liabilities that will be assumed by Buyer.  Except as set forth in Schedule 6.4(a) of the Disclosure Schedule, neither Seller nor, to the Knowledge of Seller, any other party to such Assumed Contract is, or has received notice that it is, in violation or breach of or default under any such Assumed Contract (or with notice or lapse of time or both, would be in violation or breach of or default under any such Assumed Contract) in any material respect.  Schedule 6.4(b) of the Disclosure Schedule sets forth a list of all Assumed Contracts which require the consent or waiver of any party to such Assumed Contracts, to the Assignment of such Assumed Contract as a result of the transactions contemplated hereby (the “Third Party Consents”).

6.5Title to Assets.  Upon the consummation of the transactions contemplated under this Agreement, Buyer will obtain good, valid and marketable title to all the Assets, free and clear of any and all liens, encumbrances, charges, claims, pledges, or security interests of any kind (including those of secured parties).  Except as set forth in Schedule 6.5 of the Disclosure Schedule, Seller beneficially owns all of the right, title or other interests to be transferred to Buyer hereunder with respect to all the Assets, and none of the Assets is leased, rented, licensed, or otherwise not owned by Seller.  The transactions contemplated hereby constitute the sale and assignment of substantially all of Seller’s business relating to the CV Products.

6.6Intellectual Property.

(a)Attachment 2.1.  Attachment 2.1 sets forth a complete and accurate list of all of the following throughout the world granted to, applied for, owned or licensed by Seller in relation to the CV Products: (i) Patents; (ii) Licensed IP Rights; (iii) Trademarks and Trademark Registrations; and (iv) Domain Names.  Such list includes, where applicable, the record owner, jurisdiction and registration and/or application number, and date issued (or filed) for each of the foregoing.  The inventorship of the Patents and patent applications within Intellectual Property other than the Licensed IP Rights (the “Owned IP Rights”) is true and correct as of the Effective Date.

(b)Title.  Except as otherwise stated on Attachment 2.1, Seller is the sole and exclusive owner of all Owned IP Rights and has the right to use the Licensed IP Rights as set forth in the applicable Assumed Contracts.  Seller has the right to assign to Buyer the Intellectual Property required to be assigned to Buyer under this Agreement, subject to obtaining the third party consents listed in Attachment 4.2(a).  The Intellectual Property was either (i) developed by employees of Seller within the scope of their employment; (ii) developed by independent

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contractors who have vested all rights in and to such Intellectual Property to Seller pursuant to written agreements (such as by assignment or work-made-for-hire provisions); or (iii) obtained by Seller from a third party via a written agreement that transferred all rights in the Owned IP Rights to Seller or granted Seller a license to the Licensed IP Rights, as applicable.  No current or former director, officer, or employee of Seller or its Affiliates (or, to the Knowledge of Seller, any of its predecessors in interest) will, after giving effect to the transactions contemplated herein, own or retain any rights to use, and will not have any claim with respect to any Intellectual Property.  No royalties, honoraria or other fees are currently due and payable to any third parties for the use of or the right to use any (i) Owned IP Rights; or (ii) except as set forth in the Assumed Contracts, Licensed IP Rights.

(c)All Rights Transferred.  After the consummation of the transactions contemplated herein, Buyer will own all rights, title, and interest in and to or have a valid written license to use all Intellectual Property and the patents included within the Licensed IP Rights, subject to obtaining the Third Party Consents, on the same terms and conditions as Seller enjoyed immediately prior to such transactions.  Except for the Third Party Consents, there is no law, contract or arrangement that would prevent Seller from assigning all licenses and rights required to be assigned under this Agreement.

(d)Sufficiency of Title.  Seller is the sole and exclusive owner of or has valid right to use pursuant to a written signed agreement, free and clear of all liens with respect to Owned IP Rights and, to the Knowledge of Seller, free and clear of all liens with respect to Licensed IP Rights.  To the Knowledge of Seller, the Intellectual Property constitutes all of the material intellectual property assets used in or necessary for the conduct of the Business as conducted by Seller as of the Effective Date.  The Owned IP Rights, and, to the Knowledge of Seller, the Licensed IP Rights, currently used in the Business, are in each case subsisting, in full force and effect, and have not been cancelled, expired, been abandoned, or otherwise terminated, and payment of all renewal and maintenance fees in respect of the Owned IP Rights, and, to the Knowledge of Seller, the Licensed IP Rights, and all filings related thereto, have been duly made.  Seller has been diligent in prosecuting all applications pending as of the Effective Date related to Owned IP Rights.

(e)Non-infringement.  To the Knowledge of Seller, the manufacture, sale and distribution of each CV Product as conducted as of the Effective Date does not infringe upon, misappropriate, violate or constitute the unauthorized use of (either directly or indirectly, such as through contributory infringement or inducement to infringe) any intellectual property rights of any third party in the relevant portion of the Territory for such CV Product.

(f)Pending Claims.  Except as set forth in Schedule 6.6(f) of the Disclosure Schedule, there are no pending or, to the Knowledge of Seller, threatened claims, suits, arbitrations or other adversarial proceedings before any court, agency, arbitral tribunal, or registration authority in any jurisdiction in the applicable Territory challenging Seller’s ownership or use of any Intellectual Property, or the validity, enforceability, or registrability of any Owned IP Rights or, to the Knowledge of Seller, any Licensed IP Rights.

(g)Third Party Infringement.  Except as set forth in Schedule 6.6(g) of the Disclosure Schedule, to the Knowledge of Seller, no third party in any Territory in which Intellectual Property rights have been granted, is misappropriating, infringing, diluting or

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violating any Owned IP Rights, or to the Knowledge of Seller, any Licensed IP Rights, and no claims, suits, arbitrations or other adversarial claims have been brought or, to the Knowledge of Seller, threatened against any third party by Seller.

(h)Settlements.  Except as set forth in Schedule 6.6(h) of the Disclosure Schedule, there are no settlement agreements, coexistence agreements, consents, licenses, assignments, security agreements, judgments, consent decrees or judicial or administrative decisions relating to Owned IP Rights, or to the Knowledge of Seller, the Licensed IP Rights.

(i)Confidentiality.  Seller has taken commercially reasonable measures to protect the confidentiality of its Trade Secrets and Confidential Information, including requiring its employees with access to such Trade Secrets and Confidential Information and other parties having access thereto to execute written non-disclosure agreements.  To the Knowledge of Seller, none of the Trade Secrets or Confidential Information have been disclosed or authorized to be disclosed to any third party other than pursuant to a non-disclosure agreement.  To the Knowledge of Seller, no third party to any non-disclosure agreement with Seller is in breach, violation or default thereof.

(j)Employee Cooperation.  Each present or past employee, officer, consultant or any other person who participated on behalf of Seller in the development of any of the CV Products or any of the Intellectual Property has executed a valid and enforceable agreement with Seller that (i) conveys any and all right, title and interest in and to all Intellectual Property developed by such Person in connection with such Person’s employment or contract to Seller, (ii) requires such Person, during and after the term of employment or contract, to cooperate with Seller in the prosecution of any patent applications filed in connection with such Intellectual Property, (iii) establishes a representation and covenant by such Person that no process, technique, innovation or other work product provided to Seller is or will be derived from or otherwise constitute the proprietary information of a prior employer or contractor, in contravention of any prior confidentiality agreement, and (iv) obligates such Person to keep any Confidential Information of Seller confidential both during and after the term of the employment or contract.  To the Knowledge of Seller, no employee or consultant of Seller is in violation of any laws or regulations relating to Intellectual Property applicable to such employee or consultant, or any term of any employment agreement, confidentiality agreement, patent or invention disclosure agreement or other contract relating to the relationship of such employee or consultant with Seller or any prior employer or client, as the case may be.

(k)Notices.  As of the Effective Date, Seller has not received any notice (including, without limitation, any [****]*) pursuant to [****]* by and between Seller and [****]*, as such agreement may be amended from time to time, and to the Knowledge of Seller as of the Effective Date, there are no facts or circumstances that could reasonably be expected to result in any such notice.

* Certain information on this page has been omitted and filed separately with the SEC.  Confidential treatment has been requested with respect to the omitted portions.

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(l)Registrations; Regulatory Matters.  All Registrations held by Seller with respect to the CV Products are listed on Attachment 2.1(e).  The Registrations are owned exclusively by Seller.  To Seller’s Knowledge, all of the Registrations are valid and in full force and effect as of the Effective Date.  The Registrations (i) are in the name of Seller; and (ii) except as set forth in Schedule 6.6(l) of the Disclosure Schedule, constitute all licenses, permits, approvals, qualifications, authorizations or requirements of any Governmental Entity in the applicable Territory necessary to manufacture and sell the Marketed Products in the applicable Territory.  Seller has furnished Buyer with access to a complete copy of the NDA, including all amendments and supplements thereto.  Each of the Registrations has been approved by the FDA or other relevant Governmental Entity, as the case may be, and each of the Registrations is in good standing with the FDA or other relevant Governmental Entity, as the case may be.  There is no action or proceeding by any Governmental Entity pending or, to the Knowledge of Seller as of the Closing Date, threatened seeking the revocation or suspension of any Registration relating to the manufacture or sale of the Marketed Products in the applicable Territory.

6.7Regulatory Status of Marketed Products.  Except as set forth on Schedule 6.7 of the Disclosure Schedule, there have been no recalls, withdrawals, or market replacements of the Marketed Products in the applicable Territory in the past [****]*.

6.8Product Net Sales.  Seller’s net sales of each of the Marketed Products as set forth on Schedule 6.8 of the Disclosure Schedule, for the periods specified therein, are accurate and were determined in accordance with GAAP.

6.9Violations of Law.  The utilization of the Assets and the conduct of the Business by Seller and its Affiliates and their respective agents and employees do not violate any applicable law, governmental specification, authorization or requirement or any decree, judgment, order or similar restriction binding on the Seller or any of its Affiliates in any material respect.  Seller has not received notice of any Governmental Entity investigation, claim or proceeding concerning compliance matters relating to the CV Products or the Business, or the business practices of Seller or any of its Affiliates or any of their respective agents or employees, including without limitation business practices related to the pricing, promotion and manufacturing of the Marketed Products.

6.10Litigation.  Neither the Assets nor the Business is the subject of any outstanding judgment, order, writ, injunction or decree of any court, arbitrator or administrative or Governmental Entity limiting, restricting or affecting the Assets or the Business in any material aspect.  Except as set forth on Schedule 6.10 of the Disclosure Schedule, there are no claims, suits, proceedings pending or, to the Knowledge of Seller, threatened in writing against Seller or any of its Affiliates or any of their respective agents or employees with respect to the Assets, Business or transactions contemplated in this Agreement.

6.11Employees.  Except as set forth in Schedule 6.11 of the Disclosure Schedule, the Business Employees listed in Attachment 5.1(a) are all the employees of Seller whose efforts and responsibilities are material to the Business.  As of the Effective Date, to the Knowledge of Seller, no Business Employee and no group of Business Employees has any plans to terminate his or her employment with Seller.  To the Knowledge of Seller, Seller and its Affiliates have complied with all laws relating to the employment of labor, including provisions thereof relating to wages, hours, equal opportunity, collective bargaining and the payment of social security and

* Certain information on this page has been omitted and filed separately with the SEC.  Confidential treatment has been requested with respect to the omitted portions.

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other taxes.  Seller and its Affiliates have no material labor relations problem pending relating to the Business Employees and their labor relations relating to the Business Employees are satisfactory.  There are no workers’ compensation claims pending against Seller or its Affiliates relating to a Business Employee nor is Seller or its Affiliates aware of any facts that would give rise to such a claim.  To the Knowledge of Seller, no Business Employee is subject to any secrecy or non-competition agreement or any other agreement or restriction of any kind that would impede in any way the ability of such employee to carry out fully all activities of such employee in furtherance of the Business.  With respect to each Employee Benefit Plan (i) Seller and its Affiliates have complied and are now in compliance with all laws and regulations applicable to such Employee Benefit Plans and (ii) each Employee Benefit Plan has been administered in all material respects in accordance with its terms.  Attachment 5.1(a) lists, as of the date set forth on such attachment, each Business Employee and the position, title, remuneration (including any scheduled salary or remuneration increases), date of employment and accrued vacation pay of each such Business Employee.

6.12Taxes.  As of the Effective Date, there are no, and, at the Closing, there will not be, any liens for Taxes accrued upon the Assets.  Any and all Taxes related to the Assets or the Business, to the extent payable prior to the Closing, have been or will be paid by Seller prior to the Closing.  No jurisdiction (whether within or without the United States) in which the Seller or any Affiliate of Seller has not filed a specific Tax Return with respect to the Assets or the Business has asserted that the Seller or such Affiliate is required to file such Tax Return in such jurisdiction.  Seller and each Affiliate of Seller has complied (and until the Closing Date will comply) with all applicable laws, rules, and regulations relating to the payment and withholding of Taxes relating to the Assets or the Business (including withholding and reporting requirements under Code §§3401 through 3406, 6041 and 6049 and similar provisions under any other laws) and has, within the time and in the manner prescribed by law, withheld from employee wages and paid over to the proper governmental authorities all required amounts.

6.13Customers and Suppliers.  Schedule 6.13 of the Disclosure Schedule lists the [****]* largest customers and suppliers of Seller relating to each of the Marketed Products for the fiscal years ended December 31, 2006 and December 31, 2007 and sets forth opposite the name of each such customer or supplier the approximate percentage of gross sales attributable from such customers or cash payments attributable to such suppliers, and unit sales for each such customer, for each such period.  Since December 31, 2006, no customer or supplier listed on Schedule 6.13 of the Disclosure Schedule has advised in writing that it will stop or materially decrease the rate of business done with Seller except for changes in the ordinary course of Seller’s business.

6.14Inventory; Raw Materials and WIP.  The Product Inventory, Raw Materials and WIP relating to the Marketed Products consist of items of a quality and quantity usable and, with respect to finished goods only, salable at Seller’s normal profit levels, in each case, in the ordinary course of the business.  Seller’s inventory of finished goods generated by the Business is not slow-moving as determined in accordance with past practices, obsolete or damaged and is

* Certain information on this page has been omitted and filed separately with the SEC.  Confidential treatment has been requested with respect to the omitted portions.

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merchantable and fit for its particular use.  Seller has on hand or has ordered and expects timely delivery of such quantities of Raw Materials and has on hand such quantities of WIP and Product Inventory as are reasonably required to timely fill current orders on hand with respect to the Marketed Products which require delivery within [****]* and to maintain the manufacture and shipment of products at its normal level of operations. Schedule 6.14(a) of the Disclosure Schedule contains a materially complete and accurate summary of the Product Inventory, Raw Materials and WIP relating to each of the Marketed Products as of December 31, 2007.  Since January 1, 2007, sales of the Marketed Products by Seller to its distributors, licensees and wholesalers were made consistent with past practices and were not the result of any special or extraordinary sales efforts or promotions by Seller or such distributors, licensees and wholesalers.  The level of inventory of the Marketed Products held by Seller’s distributors, licensees and wholesalers is consistent with practice in effect during calendar year 2007 and, on the Closing Date, will not exceed a level that would be reasonably expected to be sold in the ordinary course of business, consistent with past practice, during calendar year 2007, within [****]*thereof.  Seller has no reason to believe that such inventory will be subject to returns, discounts or charge-backs that, in the aggregate, are materially worse than those experienced during calendar year 2007.  Schedule 6.14(b) of the Disclosure Schedule lists all of the Packaging Inventory owned by Seller as of the Effective Date.

6.15Clinical Trials.

(a)Schedule 6.15(a) of the Disclosure Schedule is an accurate and complete list of all Clinical Trials initiated by Seller prior to the Effective Date.  To Seller’s Knowledge, the Clinical Trials were conducted in material compliance with Good Clinical Practice, the reporting of adverse events, the filing of reports and security promulgated by the FDA and similar regulations promulgated by other Governmental Entities as applicable to such trials.  For the purposes of this Section 6.15, “Good Clinical Practice” means current good clinical practice pursuant to the FD&C Act and the relevant U.S. regulations in Title 21 of the U.S. Code of Federal Regulations (including Parts 11, 50, 54, 56, 312, 314 and 601).

(b)Other than as disclosed on Schedule 6.15(b) of the Disclosure Schedule, during the Clinical Trials, there have been no deaths or serious adverse events.

(c)Seller has not received any written notices or other written correspondence from the FDA or any other Governmental Entity requiring the termination or suspension of any Clinical Trials.

6.16Absence of Change.  Except as disclosed in Schedule 6.16 of the Disclosure Schedule, except for the execution and delivery of this Agreement and the transactions to take place pursuant hereto on or prior to the Closing Date, since September 30, 2007 there has not been any Material Adverse Change, or any event or development which, individually or together with other such events, could reasonably be expected to result in a Material Adverse Change.  Without limiting the foregoing, except as disclosed in Schedule 6.16 of the Disclosure Schedule, there has not occurred, between September 30, 2007 and the date hereof, any physical damage, destruction or other casualty loss (whether or not covered by insurance) affecting any of the

* Certain information on this page has been omitted and filed separately with the SEC.  Confidential treatment has been requested with respect to the omitted portions.

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assets of Seller or its Affiliates used or held for use in the conduct of the Business in an aggregate amount [****]*.

6.17No Undisclosed Liabilities.  There are no Liabilities against, relating to or affecting the Business or any of the Assets, other than Liabilities (i) incurred in the ordinary course of business consistent with past practice, (ii) under the Assumed Contracts, or (iii) which, individually or in the aggregate, are not material to the condition of the Business.

6.18Sufficiency.  The Assets and Buyer’s rights under this Agreement constitute all of the material assets that are necessary for Buyer to operate the Business as of and after the Closing Date in substantially the same manner as the Business was operated by Seller (and Seller’s Affiliates) on the Effective Date.

6.19Brokers and Finders.  Except as set forth in Schedule 6.19 of the Disclosure Schedule, Seller has not employed any broker or finder or incurred any Liability for any brokerage fee, commission or finder’s fee in connection with the transactions contemplated by this Agreement.

6.20No Implied Warranty.  THE REPRESENTATIONS AND WARRANTIES GIVEN HEREIN BY SELLER ARE IN LIEU OF ANY IMPLIED WARRANTIES WHICH MAY OTHERWISE BE APPLICABLE BECAUSE OF THE PROVISIONS OF THE UNIFORM COMMERCIAL CODE OR ANY OTHER STATUTE, INCLUDING, WITHOUT LIMITATION, THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.  Seller makes no representation or warranty with respect to (i) any forecasts, projections, estimates or budgets delivered or made available to Buyer of future revenues, future results of operations (or any component thereof), future cash flows or future financial condition (or any component thereof) of the Business or (ii) any other information or documents made available to Buyer or its counsel, accountants or advisors with respect to the Business, except as expressly set forth in this Agreement or the exhibits hereto; provided, that Seller does represent and warrant that it has neither intentionally provided or made available to Buyer any untrue information, nor intentionally omitted any material fact or information regarding the Assets, the Product or the Business or any of the other matters dealt with in this Article 6 relating to Seller or the transactions contemplated by this Agreement.

ARTICLE 7

REPRESENTATIONS AND WARRANTIES OF BUYER

7.1Organization and Authority.  Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware.  Buyer has full corporate power and authority to execute and deliver this Agreement and such other instruments, agreements and transactions as may be contemplated hereunder, and to perform its obligations hereunder and thereunder.  All corporate acts and other proceedings required to be taken by or on

* Certain information on this page has been omitted and filed separately with the SEC.  Confidential treatment has been requested with respect to the omitted portions.

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the part of Buyer to authorize Buyer to execute, deliver and perform this Agreement and such other instruments, agreements and transactions as may be contemplated hereunder, have been duly and properly taken, and no further action on the part of Buyer or its stockholders is necessary.  This Agreement has been duly executed and delivered by Buyer and constitutes the legal, valid and binding obligation of Buyer enforceable in accordance with its terms, except as such enforceability may be subject to or limited by (i) applicable bankruptcy, reorganization, insolvency, moratorium and similar laws affecting the enforcement of creditors’ rights generally and (ii) the rules governing the availability of specific performance, injunctive relief or other equitable remedies and general principles of equity, regardless of whether considered in a proceeding in law or equity, regardless of whether considered in a proceeding in law or equity.

7.2No Conflict or Violation.  The execution and delivery by Buyer of this Agreement and such other instruments, agreements and transactions as may be contemplated hereunder and the consummation by Buyer of the transactions contemplated hereby and thereunder will not (i) violate any law, statute, rule or regulation or judgment, order, writ, injunction or decree of any Governmental Entity applicable to Buyer, or (ii) materially conflict with, result in any material breach of, or constitute a material default (or an event which with notice or lapse of time or both would become a material default) under the Certificate of Incorporation or bylaws of Buyer or any agreement to which Buyer is a party, or (iii) materially interfere with Buyer’s performance of its obligations hereunder.

7.3Consents and Approvals.  Except as set forth in Schedule 7.3, no notice to, declaration, filing or registration with, or authorization, consent or approval of, or permit from, any Governmental Entity, or any other person or entity, is required to be made or obtained by Buyer in connection with the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, except with respect to the HSR Filings and except for declarations, filings, registrations, authorizations, consents, approvals or permits which if not obtained or made have not had and would not reasonably be expected to have individually or in the aggregate a material adverse effect on Buyer or materially interfere with Buyer’s performance of its obligations hereunder.

7.4Cash Resources.  Buyer has, prior to the execution of this Agreement, delivered to Seller, true and complete copies of written commitments of third parties to provide Buyer with the financing (in the form of both equity and debt) required for Buyer’s acquisition of the Business hereunder.  Subject to the funding of the funds set forth in the written commitments, in each case, in accordance with and subject to their terms and conditions, Buyer will have at Closing cash in an amount sufficient to pay the Purchase Price at the Closing and any and all fees and expenses relating to the transactions contemplated under this Agreement and specifically acknowledges Seller has entered into this Agreement in reliance upon this representation.

7.5Litigation.  There are no actions, suits, proceedings or claims pending or, to the Knowledge of Buyer, threatened in writing concerning Buyer or any of its Affiliates with respect to the transactions contemplated in this Agreement.

7.6Brokers and Finders.  Except as set forth in Schedule 7.6, Buyer has not employed any broker or finder or incurred any Liability for any brokerage fee, commission or finder’s fee in connection with the transactions contemplated by this Agreement.

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7.7Buyer Due Diligence.  Buyer is experienced, and/or has engaged expert advisors experienced in the evaluation and purchase of property and assets such as the Assets contemplated hereunder.  Buyer has undertaken such investigation and has been provided with and has evaluated such documents and information as it has deemed necessary to permit it to make an informed and intelligent decision with respect to the execution, delivery and performance of this Agreement.

ARTICLE 8

PRE-CLOSING COVENANTS

8.1Governmental Filings.  Buyer and Seller shall cooperate in promptly undertaking all filings required to be filed with any Governmental Entity in connection with the transfer of Assets and other rights under this Agreement and to cooperate with one another as reasonably necessary to accomplish the foregoing, including, but not limited to, the filings required of both parties pursuant to the HSR (such filings sometimes being referred to in this Agreement as the “HSR Filings”), and the filing of any additional information as required with respect to such HSR Filings as soon as practicable after receipt of request therefor from the United States Federal Trade Commission.  All filing fees related to the HSR Filings shall be [****]*.

8.2Conduct of Business.  During the period on and from the Effective Date through and including the Closing Date, Seller will conduct the Business only in the ordinary course consistent with past practices, unless Buyer shall otherwise agree in writing.  Without limiting the generality of the foregoing,

(a)Seller will:

i.use commercially reasonable efforts to (i) keep available (subject to dismissals and retirements in the ordinary course of business consistent with past practice) the services of the Business Employees, (ii) maintain the good will of wholesalers, customers, suppliers, lenders and other persons and entities to whom Seller sells goods or provides services or with whom Seller otherwise has significant business relationships in connection with the Business, and (iii) continue all current sales, marketing and promotional activities relating to the Business;

ii.except to the extent required by applicable law, (i) cause the Books and Records to be maintained in the usual, regular and ordinary manner, and (ii) not permit any material change in any pricing, investment, accounting, financial reporting, inventory, credit, allowance or Tax practice or policy of Seller or its Affiliates that would adversely affect the Business, the Assets or the Assumed Liabilities;

iii.comply, in all material respects, with all laws and orders applicable to the Business and promptly following receipt thereof give Buyer copies of any

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notice received from any Governmental Entity or any other person or entity alleging any violation of any such law or order;

iv.work diligently and in good faith to complete, as promptly as reasonably practicable, the application to be submitted to the FDA to obtain the Initial FDA Approval, such application to be in form and substance reasonably satisfactory to Buyer; provided, if Seller completes such application prior to the Closing Date and the application is in form and substance reasonably satisfactory to Buyer, then Seller will promptly file such application with the FDA;

v.work diligently and in good faith to [****]* and any and all work and agreements relating thereto and [****]* related thereto; and

vi.promptly provide to Buyer written notice of (i) any formal action taken, or non-privileged communication made, by Seller or any other party to the Sun Litigation in connection therewith, and (ii) Seller’s filing of any citizen’s petition or issuance of any other response in connection with the [****]* and, in the case of this subclause (ii), shall not make any such filing or issue any such response without the prior written consent of Buyer.

(b)Seller will refrain from:

i.entering into, amending, modifying, terminating (partially or completely), granting any waiver under or giving any consent with respect to any Assumed Contract or any Registration;

ii.violating, breaching or defaulting under, in any material respect, or taking or failing to take any action that (with or without notice or lapse of time or both) would constitute a material violation or breach of, or default under, any term or provision of any Assumed Contract or any Registration;

iii.waiving any right of Seller under any Liability of or owing to Seller in connection with the Business, other than in the ordinary course of business consistent with past practice;

iv.engaging in any transaction with respect to the Business with any officer, director or Affiliate of Seller, either outside the ordinary course of business consistent with past practice or other than on an arm’s-length basis; and

v.entering into any agreement to do or engage in any of the foregoing.

8.3No Solicitation.  Seller will not (and it will use its best efforts to assure that its officers, directors, employees, agents and affiliates do not on its behalf) (a) take any action to solicit, initiate, seek, or affirmatively support any inquiry, proposal or offer from, any

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corporation, partnership, person or other entity or group (other than Buyer) relating to any acquisition of the Business or any of the Assets, other than the marketing, sale and distribution of Product Inventory and use of Raw Materials in the ordinary course consistent with past practices (any such proposed transaction being a “Third Party Acquisition”); or (b) participate in any discussions or negotiations with, or provide any non-public information to, any corporation, partnership, person or other entity or group (other than Buyer) relating to any proposed Third Party Acquisition.  Seller shall immediately terminate any such negotiations in progress as of the Effective Date.  In no event will Seller accept or enter into an agreement concerning any such Third Party Acquisition prior to the termination of the Agreement pursuant to Article 12.  Notwithstanding this provision, nothing herein shall be deemed to in any way restrict or limit the right of Seller to engage in discussions, negotiations, furnishing of information or any other activities relating to or in support of transactions involving the acquisition or sale of Seller and/or any other product lines or businesses of Seller other than the Business or the Assets, so long as this Agreement shall remain in full force and effect and shall remain binding on the parties hereto.

8.4Access.  During the period from the Effective Date and continuing until the Closing, upon reasonable advance notice received from Buyer and at Buyer’s expense, Seller shall (i) afford Buyer, its financing sources and their representatives reasonable access to, during regular business hours, or furnish Buyer, its financing sources and its representatives with copies of, documents used solely and specifically with respect to the Assets or the CV Products as Buyer may reasonably request, and (ii) otherwise cooperate and assist with Buyer’s and its financing source’s investigation of the Assets and the CV Products as Buyer may reasonably request.

8.5[****]*

8.6Payment of Certain Expenses.  Seller shall, on or prior to the Closing Date, pay in full any and all fees, cost and expenses incurred or accrued with respect to the Sun Litigation (including attorneys’ fees) through the Closing and shall provide Buyer with evidence reasonably satisfactory to Buyer that all such amounts have been paid.

8.7Transition Services Agreement.  Seller and Buyer shall enter into the Transition Services Agreement on the Closing Date, in substantially the same form and on substantially the same terms as set forth in Exhibit F, pursuant to which Seller will provide to Buyer the transition services requested by it, which services may include, without limitation, regulatory, supply chain management, intellectual property and other services.

* Certain information on this page has been omitted and filed separately with the SEC.  Confidential treatment has been requested with respect to the omitted portions.

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ARTICLE 9

CONDITIONS TO CLOSING

9.1Conditions to Obligations of Buyer.  All obligations of Buyer hereunder are, at the option of Buyer, subject to the conditions precedent that (all or any of which may be waived by Buyer, in whole or in part), at the Closing:

(a)All consents, approvals and actions of, filings with and notices to any Governmental Entity necessary to permit Buyer and Seller to perform their obligations under this Agreement and to consummate the transactions contemplated hereby (a) shall have been duly obtained, made or given, (b) shall be in form and substance reasonably satisfactory to Buyer, (c) shall not be subject to the satisfaction of any condition that has not been satisfied or waived and (d) shall be in full force and effect, and all terminations or expirations of waiting periods imposed by any Governmental Entity necessary for the consummation of the transactions contemplated by this Agreement, including under the HSR, shall have occurred.

(b)There shall not be in effect on the Closing Date any order or law restraining, enjoining or otherwise prohibiting or making illegal the consummation of any of the transactions contemplated by this Agreement or which could reasonably be expected to otherwise result in a Material Adverse Effect and there shall not be pending or threatened on the Closing Date any action or proceeding in, before or by any Governmental Entity which could reasonably be expected to result in the issuance of any such order or the enactment, promulgation or deemed applicability to Buyer or the transactions contemplated by this Agreement of any such law.

(c)Seller shall have furnished to Buyer all deliverables set forth in Section 4.2(a), and shall have performed and complied with, in all material respects, each agreement, covenant and obligation required by this Agreement to be so performed or complied with by Seller at or before Closing.

(d)Each of the representations and warranties of Seller set forth in this Agreement that is qualified by materiality shall be true and correct in all respects, and each of such representations and warranties that is not so qualified shall be true and correct in all material respects, in each case, as of the Closing Date as though made on and as of the Closing Date or, in the case of representations and warranties made as of a specified date earlier than the Closing Date, on and as of such earlier date.

(e)The level of inventory of the Marketed Products held by Seller’s distributors, licensees and wholesalers on the Closing Date shall not exceed a level that would be reasonably expected to be sold in the ordinary course of business, consistent with past practice during the calendar year 2007, [****]*.

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(f)If Buyer shall have complied in all respects with its obligations under Section 8.5(a), and Buyer shall have taken all material action that is within its reasonable control and required by it pursuant to the terms of the written commitments of third parties referred to in Section 7.4 and the definitive agreements entered into in connection therewith, then it shall be a condition to Buyer’s obligations under this Agreement that it shall have obtained financing on terms substantially similar to those set forth in the commitment letters referred to in Section 7.4 and in an amount sufficient to pay the Initial Purchase Price at Closing.

9.2Conditions to Obligations of Seller.  All obligations of Seller hereunder are, at the option of Seller, subject to the conditions precedent that (all or any of which may be waived by Seller, in whole or in part), at the Closing:

(a)All consents, approvals and actions of, filings with and notices to any Governmental Entity necessary to permit Buyer and Seller to perform their obligations under this Agreement and to consummate the transactions contemplated hereby (a) shall have been duly obtained, made or given, (b) shall be in form and substance reasonably satisfactory to Seller, (c) shall not be subject to the satisfaction of any condition that has not been satisfied or waived and (d) shall be in full force and effect, and all terminations or expirations of waiting periods imposed by any Governmental Entity necessary for the consummation of the transactions contemplated by this Agreement, including under the HSR, shall have occurred.

(b)There shall not be in effect on the Closing Date any order or law restraining, enjoining or otherwise prohibiting or making illegal the consummation of any of the transactions contemplated by this Agreement and there shall not be pending or threatened on the Closing Date any action or proceeding in, before or by any Governmental Entity which could reasonably be expected to result in the issuance of any such order or the enactment, promulgation or deemed applicability to Seller or the transactions contemplated by this Agreement of any such law.

(c)Buyer shall have furnished to Seller all deliverables set forth in subsections (i)-(iv), (vi), (viii) and (ix) of Section 4.2(b), and shall have performed and complied with, in all material respects, each agreement, covenant and obligation required by this Agreement to be so performed or complied with by Buyer at or before Closing.

(d)Each of the representations and warranties of Buyer set forth in this Agreement that is qualified by materiality shall be true and correct in all respects, and each of such representations and warranties that is not so qualified shall be true and correct in all material respects, in each case, as of the Closing Date as though made on and as of the Closing Date or, in the case of representations and warranties made as of a specified date earlier than the Closing Date, on and as of such earlier date.

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ARTICLE 10

POST-CLOSING COVENANTS

10.1Further Assurances.

(a)At any time or from time to time after Closing, at Buyer’s reasonable request and without further consideration, Seller shall execute and deliver to Buyer such other instruments of sale, transfer, conveyance, assignment and confirmation, provide such materials and information and take such other actions as Buyer may reasonably deem necessary or desirable in order more effectively to transfer, convey and assign to Buyer, and to confirm Buyer’s title to, all of the Assets, and, to the full extent permitted by law, to put Buyer in actual possession and operating control of the Business and the Assets and to assist Buyer in exercising all rights with respect thereto, and otherwise to cause Seller to fulfill its obligations under this Agreement.  Without limiting the foregoing, (i) if, on or prior to the [****]* of the Closing Date, either Buyer or Seller becomes aware that an asset or property of Seller or its Affiliates that was used solely or primarily in, or that was necessary for the conduct of, the Business on the Effective Date, was not sold, transferred, assigned, conveyed and delivered to Buyer on the Closing Date, then (A) if such asset or property was used solely in the Business on the Effective Date, Seller shall promptly sell, transfer, assign, convey and deliver such asset or property to Buyer, or (B) if such asset or property was used primarily in, or was otherwise necessary for the conduct of, the Business on the Effective Date, Seller shall either promptly sell, transfer, assign, convey and deliver such asset or property to Buyer, or make such asset or property available to Seller under a perpetual, paid-up, irrevocable, royalty-free, non-exclusive license, with the right to sublicense, in each case without any additional consideration being due to Seller, and (ii) in the event that any Affiliate of Seller has any right, title or interest in any Asset (or any other asset used in the Business that would otherwise be an Asset if owned by Seller), then Seller shall cause such Affiliate to transfer and assign all such right, title and interest to Buyer.

(b)Effective on the Closing Date, Seller hereby constitutes and appoints Buyer the true and lawful attorney of Seller, with full power of substitution, in the name of Seller or Buyer, but on behalf of and for the benefit of Buyer: (i) to demand and receive from time to time any and all Assets and to make endorsements and give receipts and releases for and in respect of the same and any part thereof; (ii) to institute, prosecute, compromise and settle any and all actions or proceedings that Buyer may deem proper in order to collect, assert or enforce any claim, right or title of any kind in or to the Assets; (iii) to defend or compromise any or all actions or proceedings in respect of any of the Assets; and (iv) to do all such acts and things in relation to the matters set forth in the preceding clauses (i) through (iii) as Buyer shall deem desirable.  Seller hereby acknowledges that the appointment hereby made and the powers hereby granted are coupled with an interest and are not and shall not be revocable by it in any manner or for any reason.  Seller shall deliver to Buyer at Closing an acknowledged power of attorney to the foregoing effect executed by Seller.  Buyer shall indemnify and hold harmless Seller from any and all Losses caused by or arising out of any breach of law by Buyer in its exercise of such power of attorney.

(c)Seller agrees to cooperate with Buyer in enforcing any rights Seller may have, contractual or otherwise, which Seller may retain after the Closing Date and which may relate to the Assets and/or the Business; provided, however, such enforcement must include a claim for damages attributable to post-Closing periods.  Seller agrees to appoint Buyer as its

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agent, with full authority to enforce such rights, and agrees to join in any litigation to the extent deemed necessary by Buyer to protect Buyer’s interest in the Assets and/or the Business.  Buyer shall have the right to sue for and recover past, present and future damages resulting from Seller’s retained rights; provided, however, such suit must include a claim for damages attributable to post-Closing periods.  To the extent such damages can be attributed to damages occurring before the Closing Date, Buyer shall, to the extent recovered by Buyer, pay to Seller the portion of any total recovery minus costs of litigation attributable to such damages.  Seller shall make available to Buyer any of its employees, officers, and directors as requested by Buyer during the course of litigation.  Seller shall promptly cooperate with Buyer at Buyer’s request in gathering information and in responding to any discovery or other obligation of Buyer in preparation for or during the conduct of litigation.  Subject to the allocation of costs of litigation stated above, Buyer shall, with respect to the services provided by Seller on Buyer’s request under this Section 10.1(c), pay Seller’s expenses and indemnify Seller consistent with the provisions of Section 4 and Section 5 of the Litigation Cooperation Agreement.  Seller shall promptly deliver copies of all proprietary, inventions, confidentiality and similar agreements  between Seller and any Business Employee, as well as such other agreements that Buyer may reasonably request from time to time for purposes of exercising its rights under this Section 10.1(c), including, without limitation, agreements with past or present employees, agents or representatives.

10.2Transfer of Registrations; Interim Responsibility.

(a)Promptly after the Closing Date, Seller shall (i) send letters to the FDA and other Governmental Entities indicating that the Registrations are transferred to Buyer and that Buyer is the new owner of the Registrations as of the Closing Date and (ii) provide to Buyer a copy of said letters.

(b)Promptly after the Closing Date, the parties will cooperate in transferring the Registrations to Buyer.  The target date for the transfer shall be agreed upon by the parties, but shall not be later than [****]* from the Closing Date.  Prior to the Closing, the parties will agree upon procedures to ensure a smooth transition from Seller to Buyer of all of the activities required to be undertaken by the Registration(s) holder, including adverse experience reporting, quarterly and annual reports to FDA, handling and tracking of complaints, sample tracking, and communication with health care professionals and customers which shall be specified in the Transition Services Agreement or an amendment thereto.  Within [****]* after the Closing Date, Seller will forward to Buyer a complete copy of the Registrations for the CV Products, as well as copies of all correspondence with, and periodic and other reports (including adverse event reports and the underlying data) to, regulatory authorities in the applicable Territory.  Seller will cooperate with Buyer to ensure a smooth transition of the activities contemplated hereby, and in obtaining the cooperation of Seller and its distributors and licensees of the CV Products with the transfer of adverse experience reporting obligations from Seller to Buyer.

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(c)Until the Registrations have been transferred to Buyer, Seller shall be responsible for maintaining them, at Seller’s sole cost and expense.  After such transfer, Buyer will assume all responsibility for the Registrations, at Buyer’s sole cost and expense.  Each party shall cooperate with the other in making and maintaining all regulatory filings that may be necessary in connection with the execution, delivery and performance of this Agreement.

10.3Communication With Agencies.  Until the Registrations are transferred to Buyer, Seller shall have responsibility for all communications with the FDA relating to the CV Products, and Seller will promptly provide Buyer with copies of all communications from the FDA with respect to the CV Products and/or the manufacture thereof, and Seller shall consult with Buyer and reflect the Buyer’s reasonable requests regarding all communications to the FDA with respect to the CV Products and/or the manufacture thereof, prior to making such communication with the FDA.  After such transfer has been completed, Buyer shall have responsibility for all such communication it sends to or receives from any Governmental Entity in the applicable Territory concerning the CV Products.

10.4Adverse Experience Reporting.

(a)Until the Registrations are transferred to Buyer, Seller shall be responsible for the adverse experience and safety reporting for the CV Products in compliance with the requirements of the FD&C Act and the regulations promulgated thereunder.  After the Registrations are transferred to Buyer, Buyer shall assume such responsibility.  Buyer and Seller agree to meet promptly after the Closing Date to determine mutually agreeable reporting procedures to communicate the information as required under this Section 10.4.

(b)On or before the Closing Date, Seller shall provide Buyer with a summary of the information relating to the investigation and reporting of adverse experiences regarding the CV Products and all appropriate information that is relevant to the safe use of the CV Products as of the Closing Date.

(c)After the Closing Date and until the Registrations are transferred to Buyer, Buyer agrees to promptly submit to Seller all adverse drug experience information and customer complaints brought to the attention of Buyer with respect to the CV Products, as well as any material events and matters concerning or affecting the safety or efficacy of the CV Products.  Such information or customer complaints shall be forwarded to Seller to the attention of:

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Name:	[****]*
Title:	Medical Director, Drug Safety
Address:	1400 Seaport Blvd
	Redwood City, CA 94063
Facsimile:	650-454-1403
Drug safety mailbox:	drugsafety@pdl.com

(d)After the Registrations have been transferred to Buyer, Seller shall assist Buyer with the provision of data relating to adverse experiences for the CV Products after such transfer to Buyer.  Additionally, after the transfer of the Registrations to Buyer, Seller shall provide Buyer with all adverse drug experience information and customer complaints brought to the attention of Seller with respect to the CV Products, as well as any material events and matters concerning or affecting the safety or efficacy of the CV Products, via facsimile to the attention of:

Name:	[****]*
Title:	Director of Regulatory Affairs
Address:	7 East Frederick Place
	Cedar Knolls, NJ 07927
E-mail:	[****]*

10.5         Medical Inquiries.  Promptly after the Registrations have been transferred to Buyer, Buyer shall assume all responsibility for all correspondence and communication with physicians and other health care professionals and customers in the applicable Territory relating to the CV Products.  After the Closing Date, Buyer and Seller shall work together towards an orderly transition of the responsibility for all correspondence and communication with health care professionals and customers in the applicable Territory relating to the CV Products.  Seller shall continue to be responsible for such correspondence and communication under the direction of Buyer until the Registrations have been transferred to Buyer.  Buyer shall keep such records and make such reports as shall be reasonably necessary to document such communications in compliance with all applicable regulatory requirements.  After transfer of responsibility to Buyer pursuant to this Article 10, Seller shall, except in the case of medical emergency, refer all questions relating to the CV Products raised by health care professionals and customers to Buyer for its response.

10.6         Non-Use of Trademarks.  Buyer covenants that, except as expressly permitted in this Agreement, Buyer shall not use in any manner any trademark of Seller (other than the Trademarks listed in Attachment 2.1(c) and transferred to Buyer pursuant to this Agreement).

10.7         Documents.  Seller will permit Buyer, its financing sources and their duly authorized representatives access during normal business hours (upon written notice to Seller) to contracts and other data relating to the Business, the Assets conveyed and assumed at the Closing to the extent copies of such items were not delivered to Buyer.  Buyer will permit Seller and its

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duly authorized representatives access during normal business hours (upon written notice to Buyer) to all contracts and other data relating to the Assets conveyed and assumed at the Closing to the extent originals of such items were delivered to Buyer.  Such access by Buyer, Seller or such other person, as the case may be, shall be allowed until the later to occur of the expiration of the statute of limitations for the imposition of Tax with respect to the years to which such data pertain, or seven years from the year to which such data pertain, provided that such access shall not unduly interfere with the business and affairs of the party or applicable Affiliate permitting such access.  Buyer will cooperate with Seller, and Seller will cooperate with Buyer, with respect to any Tax examinations, audits, contests or other Tax proceedings, relating to the Business.  The party requesting assistance hereunder shall reimburse the other party for reasonable expenses incurred in providing such assistance.

10.8         Governmental Inspections.  For a period of [****]* following the Closing Date each party shall advise the other party of any governmental visits to, or written or oral inquiries about, any facilities (to the extent such visit relates to, or the results thereof could affect the manufacture or supply of, the CV Products) or procedures for the manufacture, storage or handling of the CV Products, or the marketing, selling, promotion or distribution of any of the CV Products, promptly after any such visit or inquiry (or in advance, for any scheduled visits).  During this period, each party shall promptly furnish to the other party any report or correspondence issued by or provided to a Governmental Entity in connection with such visit or inquiry, purged only of Confidential Information of such party wholly unrelated to the other party’s activities under this Agreement and any information that is unrelated to the CV Products.  Each party shall permit the relevant Governmental Entity to inspect its facilities in connection with the activities contemplated by this Agreement.

10.9         Intellectual Property Maintenance.  Following the Closing, Buyer will have the sole right (but not the obligation) to file, prosecute and maintain, at its sole cost and expense any patent applications, Patents, Trademark Registrations and Domain Names that cover or relate to the CV Products.  Following the Closing, Buyer shall be responsible for recording the assignment of the assigned Patents, Domain Names and Trademark Registrations with the U.S. Patent and Trademark Office and other authorities or entities as it deems appropriate, at its own cost and expense (including any attorney fees and filing fees).  Seller shall fully cooperate with Buyer, as and to the extent reasonably requested by Buyer after the Closing Date, at Buyer’s sole cost and expense, to secure any further registration of, or to enforce or defend, any Patents, Trademarks, Registrations, Domain Names or other intellectual property rights related to the CV Products for the benefit of Buyer and to execute assignments and any other documents to effect the transfer of such Patents, Trademarks, Registrations, Domain Names or other intellectual property rights related to the CV Products to Buyer.

10.10       Insurance.  As of the Closing Date, the coverage under all insurance policies related to the Assets and the Business shall continue in force only for the benefit of Seller, and not for the benefit of Buyer, the Assets or the Business.  As of the Closing Date, Buyer agrees to

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arrange for its own insurance policies with respect to the Assets and Buyer’s conduct of the Business.

10.11       Federal Supply Schedule.  Buyer shall within five (5) business days after the Closing Date, add the Marketed Products to its Federal Supply Schedule.

10.12       Promotion, Marketing and Labeling.  Promptly after the Registrations have been transferred to Buyer and subject to applicable regulatory approvals, all Buyer advertising and promotional materials for the Marketed Products shall identify Buyer as the marketer of the Marketed Products in the applicable Territory, in such form as Buyer shall determine.  Promptly after the Registrations have been transferred to Buyer, Buyer shall make such changes in the package insert, Marketed Products labeling and packaging as may be required to reflect Buyer as the marketer of the Marketed Products in the applicable Territory, including making all required FDA and any other regulatory filings in connection therewith.  Promptly after the Registrations have been transferred to Buyer, Seller shall file with the FDA a notice that Buyer is the marketer and distributor of the Marketed Products in the applicable Territory.  To the extent that the FDA requests additional information or meetings regarding Buyer’s responsibilities as marketer and distributor of the Marketed Products in the applicable Territory, Buyer shall respond to the FDA at its own expense and through its own personnel.  Seller is not required to change the Marketed Products’ labeling or package insert, or packaging for the Drug Products or the Packaged Products.  With respect to the Product Inventory purchased by Buyer hereunder, Buyer shall be permitted (i) until [****]* in the case of the [****]* other than [****]*, (ii) until [****]* in the case of [****]*, and (iii) until [****]* in the case of the [****]* to sell Marketed Products from the Product Inventory as labeled and packaged prior to the Closing Date, without regard to whether such Marketed Products references Seller or includes any intellectual property rights Seller has in Trademarks that may be included on the labels and packaging but not conveyed to Buyer pursuant to this Agreement, provided that all such Product Inventory shall be held, maintained, distributed and sold in accordance with the Registrations and all applicable laws.  Without the prior written approval from Seller, which approval shall not be unreasonably withheld or delayed, Buyer shall not use or distribute any marketing, promotional or advertising copy related to the [****]* has been transferred to Buyer; provided, however, that nothing herein shall require any approval from Seller for Buyer to issue invoices for, and collect revenues from, sales of the [****]* from and after the Closing Date.

10.13       Payments from Third Parties.  As soon as reasonably practicable after the Closing Date but not more than [****]* thereafter, Seller will provide Buyer with a list of all of the customers and wholesalers purchasing the Marketed Products from Seller, and Seller and Buyer shall notify those customers and wholesalers that Buyer has acquired all of Seller’s right, title and interest in and to the marketing and sale of the Marketed Products in the applicable Territory and all payments with respect to the sale of the Marketed Products after the Closing Date should be paid directly to Buyer at its designated account.  Seller and Buyer shall notify customers and wholesalers using the third party notification letter substantially in the form attached hereto as Exhibit J.  In the event that, on or after the Closing Date, either party shall receive any payments

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or other funds due to the other party, then the party receiving such funds shall promptly forward such funds to the proper party.  The parties acknowledge and agree there is no right of offset regarding such payments and a party may not withhold funds received from third parties for the account of the other party in the event there is a dispute regarding any other issue under this Agreement.  Buyer and Seller shall each keep, and shall cause its respective Affiliates and third party sublicensees to keep, full and accurate records and books of account containing all particulars that may be necessary for the purpose of determining any amounts that may be payable to the other party hereunder, and shall afford each other with access to books and records and with audit and other rights consistent with the rights set forth in Section 3.5 of this Agreement.

10.14       Product Returns, Chargebacks and Rebates.  Except as otherwise provided in the Transition Services Agreement, Buyer shall assume responsibility for handling all returns of the CV Products sold by or for Seller prior to the Closing Date in accordance with Seller’s normal return policies and procedures.  Any returns received directly by Seller after the Closing Date shall be forwarded to Buyer’s designated facility for handling of the returned CV Products and processing of customer credits.  Notwithstanding the foregoing, [****]* shall be responsible for [****]* and [****]* shall be financially responsible for all such chargebacks and rebates related to the CV Products sold after the Closing Date.

10.15       Bulk Transfer Laws.  Buyer hereby waives compliance by Seller with the provisions of any so-called “bulk transfer law” of any jurisdiction in connection with the sale of the Assets to Buyer.  Seller shall indemnify and hold Buyer harmless from, against and in respect of (and shall reimburse Buyer for) any and all liabilities that may be asserted by third parties against Buyer as a result of noncompliance with any such bulk transfer law.

10.16Non-Competition.

(a)            Except as otherwise permitted or required under this Agreement or the Transition Services Agreement, Seller shall, from Closing until [****]* from the Closing Date, refrain from, either alone or in conjunction with any other person or entity, directly or indirectly through Affiliates controlled by Seller, develop, or plan to develop, any other drug candidate or product that, directly or indirectly, reasonably could be expected to be competitive with the Business; provided, however, that

i.              any third party that sells drug candidates or products that, directly or indirectly, compete with the Business, may merge with or otherwise acquire Seller, or all or substantially all of Seller’s assets, and continue to sell such competing drug candidates and products; and

ii.             such combined entity or third party may thereafter merge with or otherwise acquire any other third party (or all or substantially all of such third party’s assets) that sells drug candidates or products that, directly or indirectly, compete with a different aspect of the Business, and continue to sell such drug candidates and products.

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(b)           The parties recognize that the laws and public policies of various states and jurisdictions may differ as to the validity and enforceability of covenants similar to those set forth in this Section.  It is the intention of the parties that the provisions of this Section be enforced to the fullest extent permissible under the laws and policies of each jurisdiction in which enforcement may be sought, and that the unenforceability (or the modification to conform to such laws or policies) of any provisions of this Section shall not render unenforceable, or impair, the remainder of the provisions of this Section.  Accordingly, if any provision of this Section shall be determined to be invalid or unenforceable, such invalidity or unenforceability shall be deemed to apply only with respect to the operation of such provision in the particular jurisdiction in which such determination is made and not with respect to any other provision or jurisdiction.

(c)           The parties acknowledge and agree that any remedy at law for any breach of the provisions of this Section would be inadequate, and Seller hereby consents to the granting by any court of an injunction or other equitable relief, without the necessity of actual monetary loss being proved, in order that the breach or threatened breach of such provisions may be effectively restrained.

ARTICLE 11

CONFIDENTIALITY

11.1         Confidentiality.  Following the Effective Date, the Confidentiality Agreement will remain in full force and effect in accordance with its terms, except as otherwise modified by this Agreement, and all Confidential Information previously or hereafter disclosed from time to time in the course of the performance of this Agreement, shall be held in confidence by the other party pursuant to the Confidentiality Agreement, except as permitted under this Agreement or as necessary to carry out the activities contemplated hereby.  Notwithstanding anything to the contrary herein, obligations of the parties under this Agreement are several and not joint with the intention that each party be responsible for their own actions and the actions of their respective representatives and not for actions of any of the other parties hereto.  Neither party shall, without the prior written consent of the other party, use the Confidential Information of the other party for any purpose other than performing its obligations or exercising its rights under this Agreement.  Each party shall disclose the Confidential Information of the other party only to its directors, employees, consultants, vendors, financing sources and clinicians under written agreements of confidentiality at least as restrictive as those set forth in this Agreement, who have a need to know such information in connection with such party performing its obligations or exercising its rights under this Agreement; provided, however, Buyer shall be severally responsible for any breach of this Agreement or the confidentiality agreement between Buyer and such third party or its representatives, and Buyer agrees, at its sole expense, to take all reasonable measures to restrain such third parties and its representatives from prohibited or unauthorized disclosure or use of the Confidential Information.  Notwithstanding the foregoing, no provision of this Agreement shall be construed so as to preclude such disclosure of Confidential Information as may be inherent in or reasonably necessary to the securing from any Governmental Entity of any necessary approval or license related to the CV Products, to the obtaining of patents.  Following the Closing, (i) the confidentiality restrictions contained herein

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and in the Confidentiality Agreement will not apply to Buyer’s use of documents and information concerning the Business (except to the extent that such documents and information contain information related to Seller’s other business or the Excluded Assets), the Assets or the Assumed Liabilities, and (ii) any information related to the Business (excluding information related to Seller’s other business or the Excluded Assets), the Assets or the Assumed Liabilities shall be considered Confidential Information of Buyer for the purposes of this Agreement and the Confidentiality Agreement.  Upon the termination of this Agreement, and upon the written request of the other party, each party shall promptly return to the other party all copies and embodiments of the Confidential Information of such other party, subject to the retention by each party’s legal department of one complete copy for archival purposes.

11.2         Publicity.  No party to this Agreement shall originate any publicity, news release or other public announcement, written or oral, whether relating to this Agreement or the existence of any arrangement between the parties, without the prior written consent of the other party whether named in such publicity, news release or other public announcement or not, except where such publicity, news release or other public announcement is required by law; provided, that in such event, the party issuing same shall still be required to consult with the other party whether named in such publicity, news release or public announcement or not, a reasonable time prior to its release to allow the other party to comment thereon and, after its release, shall provide the other party with a copy thereof.  If either party, based on the advice of its counsel, determines that this Agreement, or any of the other documents executed in connection herewith, must be filed with the SEC, then such party, prior to making any such filing, shall provide the other party and its counsel with a redacted version of this Agreement (or any other related documents) which it intends to file, and will give due consideration to any comments provided by the other party or its counsel and use reasonable efforts to ensure the confidential treatment by the SEC of those sections specified by the other party or its counsel.  Notwithstanding the foregoing, Buyer’s financing sources or other professional advisors may publish “tombstones” or other customary announcements relating to the purchase financing and the transactions contemplated hereby.

ARTICLE 12

TERM AND TERMINATION

12.1Termination.

This Agreement may be terminated prior to the Closing:

(a)           By Buyer, upon written notice (A) at any time prior to Closing, if Seller shall have failed to comply in any material respect with any of its obligations in this Agreement, and such failure shall be continuing, or if any one or more of the representations or warranties of Seller contained in this Agreement (i) that is qualified by materiality shall prove to be inaccurate in any respect or (ii) that is not so qualified shall prove to be inaccurate in any material respect; provided, however, that Buyer shall give Seller thirty (30) days to cure any such failure to so comply or to remedy any such inaccuracy under this Agreement; or (B) at Closing, if any of the conditions precedent to the performance of Buyer’s obligations at the Closing under Article 9 shall not have been fulfilled (unless the failure results primarily from Buyer’s breach of any representation, warranty, covenant or agreement contained this Agreement); provided, however,

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that in the event that Buyer shall desire to terminate this Agreement as a result of the failure of the accuracy of a representation or warranty at the Closing, Buyer shall be required to give Seller prior notice that it intends to terminate this Agreement as a result of such inaccuracy, and Seller shall have a reasonable period of time, not to exceed thirty (30) days, to cure such inaccuracies.

(b)           By Seller, upon written notice (A) at any time prior to Closing, if Buyer shall have failed to comply in any material respect with any of its obligations in this Agreement and such failure shall be continuing, or if any one or more of the representations or warranties of Buyer contained in this Agreement (i) that is qualified by materiality shall prove to be inaccurate in any respect or (ii) that is not so qualified shall prove to be inaccurate in any material respect; provided, however, that Seller shall give Buyer thirty (30) days to cure any such failure to so comply or any such inaccuracy under this Agreement; or (B) at the Closing, if any of the conditions precedent to the performance of its obligations at the Closing under Article 9 shall not have been fulfilled (unless the failure results primarily from Seller’s breach of any representation, warranty, covenant or agreement contained this Agreement); provided, however, that in the event that Seller shall desire to terminate this Agreement as a result of the failure of the accuracy in any material respect of a representation or warranty at the Closing, Seller shall be required to give Buyer prior notice that it intends to terminate this Agreement as a result of such inaccuracy and Buyer shall have a reasonable period of time, not to exceed thirty (30) days, to cure such inaccuracies.

(c)           By either party if the Closing shall not have occurred on or before March 31, 2008, provided, that such date shall be extended to June 30, 2008 in the event the waiting period under the HSR is extended, restarted or renewed beyond the initial 30-day period, unless such failure to close is primarily the result of the breach of any representations, warranties, covenants or agreements contained in this Agreement by the party seeking to terminate.  Notwithstanding the foregoing, in the event the Closing shall not have occurred on or before May 1, 2008 and the [****]*, Buyer may terminate this Agreement on or after May 1, 2008, provided, that Buyer, prior to May 1, 2008, shall have used its best efforts to obtain [****]*.

12.2         Effect of Termination.  In the event of termination of this Agreement prior to the Closing, in accordance with its terms:  (i) each party will redeliver all documents, work papers and other material of any other party relating to the transactions contemplated hereby, whether so obtained before or after the Effective Date, to the party furnishing the same; (ii) the provisions of Article 11 shall continue in full force and effect; and (iii) no party hereto shall have any Liability or further obligation to any other party to this Agreement, except for willful breach.

12.3         Effectiveness of Termination.  Termination under this Article 12 shall not become effective so long as the alleged grounds for termination are in dispute and the matter(s) at issue have been submitted for resolution pursuant to this Agreement.

* Certain information on this page has been omitted and filed separately with the SEC.  Confidential treatment has been requested with respect to the omitted portions.

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ARTICLE 13

INDEMNIFICATION

13.1         Survivability of Representations and Warranties.  The representations and warranties made in Articles 6 and 7 or any instrument delivered pursuant to this Agreement shall not survive after the Closing Date; provided, however, that the representations and warranties of Seller in Sections 6.5 and 6.6 shall survive until [****]* (the “Survival Date”).

13.2         Indemnification by Buyer.  Buyer indemnifies and holds harmless Seller, and any of its directors, officers, employees, Affiliates, controlling persons, agents and representatives (the “Seller Indemnitees”) from and against any Liabilities (a) to the extent such Liabilities relate to the Assumed Liabilities, (b) arising from Buyer’s breach of or non-performance of any covenant or agreement under this Agreement or any instrument delivered pursuant to this Agreement, or (c) arising from the conduct of the Business after the Closing.

13.3         Indemnification by Seller.  Seller indemnifies and holds harmless Buyer, and any of its directors, officers, employees, Affiliates, controlling persons, agents and representatives (the “Buyer Indemnitees”) from and against any Liabilities (a) to the extent such Liabilities relate to the Excluded Liabilities, (b) arising from Seller’s breach of or non-performance of any covenant or agreement under this Agreement or any instrument delivered pursuant to this Agreement, (c) arising from the conduct of the Business on or prior to the Closing, or (d) arising from any breach of the representations or warranties of Seller contained in Section 6.6 (Intellectual Property).  [****]* shall have no obligations with respect to any [****]*.

13.4         Claims.  Any Buyer Indemnitee or Seller Indemnitee claiming it may be entitled to indemnification under this Article 13 (the “Indemnified Party”) shall give prompt notice to the other party (the “Indemnifying Party”) of each matter, action, cause of action, claim, demand, fact or other circumstances upon which a claim for indemnification (a “Claim”) under this Article 13 may be based.  Such notice shall contain, with respect to each Claim, such facts and information as are then reasonably available, the specific basis for indemnification hereunder, together with the amount or, if not then reasonably ascertainable, the estimated amount, determined in good faith.  Failure to give prompt notice of a Claim hereunder shall not affect the Indemnifying Party’s obligations under this Section, except to the extent the Indemnifying Party is prejudiced by such failure.

13.5         Assertion of Claims.  No claim shall be brought under Sections 13.2, 13.3 or 13.4 hereof unless the Buyer Indemnitees, or any of them, or the Seller Indemnitees, or any of them, as the case may be, at any time prior to the applicable Survival Date, provide Buyer or Seller, as the case may be, with written notice of the existence of any such claim, reasonably specifying the nature and basis of such claim and the amount thereof, to the extent known; provided, that, the failure so to provide such notice to Buyer or Seller, as the case may be, will not relieve Buyer or Seller, as the case may be, from any Liability which they may have to the Buyer Indemnitees or

* Certain information on this page has been omitted and filed separately with the SEC.  Confidential treatment has been requested with respect to the omitted portions.

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the Seller Indemnitees, as the case may be, under this Agreement or otherwise, except to the extent that Buyer or Seller, as the case may be, reasonably demonstrates that such failure results in the loss or compromise of any rights or defenses of Buyer or Seller, as the case may be, and that Buyer or Seller, as the case may be, were not otherwise aware of such action or claim.  Upon the giving of such written notice as aforesaid, the Buyer Indemnitees, or any of them, or the Seller Indemnitees, or any of them, as the case may be, shall have the right to commence legal proceedings prior or subsequent to the Survival Date for the enforcement of their rights under Sections 13.2, 13.3 or 13.4 hereof, as the case may be.

13.6         Payment of Claims; Limitation on Indemnification.  Notwithstanding anything to the contrary in Sections 13.3 or 13.4, any Liability under Section 13.3(d) shall limited as follows: [****]*.

13.7         Limitation; Exclusivity.  No Claim shall be made or have any validity unless the Indemnified Party shall have given written notice of such Claim to the Indemnifying Party.  If full recovery under any such Claim is not had within [****]* of such written notice, arbitration, pursuant to Section 14.4, must be commenced within thirty (30) days following the end of such [****]* or such Claim shall be invalidated.  This Article 13 provides the exclusive means by which a party may assert Claims against the other party and Section 14.4 provides the exclusive means by which a party may bring actions against the other party with respect to any breach by the other party of its indemnification obligations under this Article 13.

ARTICLE 14

MISCELLANEOUS

14.1         Survival of Covenants and Agreements.  The covenants and agreements contained in Sections 2.1, 2.2, 2.3 and 2.4 shall survive Closing [****]*.  All other covenants and agreements herein shall survive Closing until [****]* the last date on which such covenant or agreement is to be performed or, if no such date is specified [****]*.  Any covenant or agreement that would otherwise terminate in accordance with the above will continue to survive if a notice of a Claim shall have been timely given under Article 13 on or prior to such termination date, until the related claim for indemnification has been satisfied or otherwise resolved as provided in Article 13.

14.2         No Third Party Beneficiaries.  Nothing in this Agreement, express or implied, is intended to or shall (i) confer on any person other than the parties hereto (and Buyer Indemnitees and Seller Indemnitees referred to herein) and their respective successors or assigns any rights (including third party beneficiary rights), remedies, obligations or liabilities under or by reason of this Agreement, or (ii) constitute the parties hereto as partners or as participants in a joint venture.  This Agreement shall not provide third parties with any remedy, claim, liability, reimbursement, cause of action or other right in excess of those existing without reference to the terms of this Agreement.  No third party shall have any right, independent of any right which

* Certain information on this page has been omitted and filed separately with the SEC.  Confidential treatment has been requested with respect to the omitted portions.

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may exist irrespective of this Agreement, under or granted by this Agreement, to bring any suit at law or equity for any matter governed by or subject to the provisions of this Agreement.

14.3         Force Majeure.  If the performance by either party of any obligation under this Agreement is prevented, restricted, interfered with or delayed by reason of any cause beyond the reasonable control of the party liable to perform, unless conclusive evidence to the contrary is provided, the party so affected shall, upon giving written notice to the other party, be excused from such performance to the extent of such prevention, restriction, interference or delay, provided that the affected party shall use its reasonable efforts to avoid or remove such causes of non-performance and shall continue performance with the utmost dispatch whenever such causes are removed.  When such circumstances arise, the parties shall discuss what, if any, modification of the terms of this Agreement may be required in order to arrive at an equitable solution.

14.4         Governing Law; Jurisdiction; Dispute Resolution and Arbitration.  This Agreement shall be deemed to have been made in the State of California and its form, execution, validity, construction and effect shall be determined in accordance with the laws of the State of California, without giving effect to the principles of conflicts of law thereof.  Disputes arising out of, relating to or in connection with this Agreement, or in relations between the parties with respect to the subject matter hereof, for any reason or under any circumstances, will be finally settled by a single arbitrator in a binding arbitration in accordance with the Judicial Arbitration and Mediation Services (“JAMS”) Comprehensive Arbitration Rules and Procedures (the “JAMS Rules”).  Upon receipt of written notice of the existence of a dispute by one party hereto to the other, the parties shall, within thirty (30) days conduct a meeting of one or more senior executives of each party, with full settlement authority, in an attempt to resolve the dispute.  Each party shall make available appropriate personnel to meet and confer with the other party reasonably within the thirty-day period.  Upon the expiration of the thirty-day period, or upon the termination of discussions between the senior executives, either party may elect arbitration of any dispute by written notice to the other (the “Arbitration Notice”).  The arbitration shall be held in San Francisco, California before one (1) arbitrator from JAMS having substantial experience as a jurist and mediator with significant disputes in the biotechnology and/or pharmaceuticals industry selected by the mutual agreement of the Buyer and the Seller; provided, however, that if such parties cannot agree on an arbitrator within thirty (30) days of the Arbitration Notice, either party may request JAMS select the arbitrator, and JAMS shall select an arbitrator pursuant to the procedure set out by the JAMS rules, provided, however, that the arbitrator selected be a former judge with at least fifteen (15) years experience addressing as a jurist and/or mediator significant disputes in the biotechnology and or pharmaceutical industry.  The arbitration shall be administered by JAMS pursuant to its AAA Rules.  Judgment on the arbitration award may be entered in any court having jurisdiction.  The arbitrator may, in the arbitration award, allocate for payment by the non-prevailing party all or part of the costs of the arbitration, including fees of the arbitrator and the reasonable attorneys’ fees and costs incurred by the prevailing party.  This Section shall not preclude the parties from seeking provisional remedies in aid of arbitration from a court of appropriate jurisdiction.  In respect of any actions for injunctive or other equitable relief hereunder, any action or proceeding may be brought against any party in the state and federal courts located in the city of San Francisco, California and each of the parties consents to the jurisdiction of such courts in any such action or proceeding and waives any objection to venue laid therein.

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14.5         Severability.  If any provision of this Agreement is held by a court of competent jurisdiction to be invalid or unenforceable, it shall be modified, if possible, to the minimum extent necessary to make it valid and enforceable or, if such modification is not possible, such provision shall be stricken and the remaining provisions shall remain in full force and effect; provided, however, that if a provision is stricken so as to significantly alter the economic arrangements of this Agreement, the party adversely affected may terminate this Agreement upon [****]* prior written notice to the other party.  If any of the terms or provisions of this Agreement is in conflict with any applicable statute or rule of law in any jurisdiction, then such term or provision shall be deemed inoperative in such jurisdiction to the extent of such conflict and the parties will renegotiate the affected terms and conditions of this Agreement to resolve any inequities.

14.6         Entire Agreement.  This Agreement and the ancillary transaction documents to be executed and delivered pursuant to this Agreement are intended to define the full extent of the legally enforceable undertakings and representations of the parties hereto, and no promise or representation, written or oral, which is not set forth explicitly in this Agreement or such ancillary transaction documents is intended by either party to be legally binding; provided, however, in the event this Agreement terminates, the Confidentiality Agreement shall continue in full force and effect pursuant to its terms.  Each of the parties acknowledge that in deciding to enter into this Agreement and to consummate the transaction contemplated hereby none of them has relied upon any statements or representations, written or oral, other than those explicitly set forth in this Agreement.

14.7         Amendment.  This Agreement may not be amended, supplemented or otherwise modified except by an instrument in writing signed by both parties that specifically refers to this Agreement.

14.8         Notices.  All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed effectively given:  (i) upon personal delivery to the party to be notified, (ii) when sent by confirmed facsimile, (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid or (iv) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt.  All communications shall be sent to the respective parties at the addresses set forth below (or at such other addresses as shall be specified by notice given in accordance with this Section):

If to Seller:	PDL BioPharma, Inc.
	Attention: General Counsel
	1400 Seaport Boulevard
	Redwood City, CA 94063
	Facsimile: 650-454-1468
	E-mail: Francis.Sarena@pdl.com

* Certain information on this page has been omitted and filed separately with the SEC.  Confidential treatment has been requested with respect to the omitted portions.

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with a copy to:	DLA Piper US LLP
(not to constitute notice)	Attention: Howard Clowes
	153 Townsend Street, Suite 800
	San Francisco, CA 94107-1957
	Facsimile: 415- 659-7410
	E-mail: howard.clowes@dlapiper.com
If to Buyer:	EKR Therapeutics, Inc.
	Attention: Richard DeSimone
	7 East Frederick Place
	Cedar Knolls, NJ 07927
	Facsimile: +1 (866) 620-6848
	E-mail: r.desimone@ekrtx.com
with a copy to:	Milbank, Tweed, Hadley & McCloy LLP
(not to constitute notice)	Attention: Robert S. Reder, Esq.
	One Chase Manhattan Plaza
	New York, New York 10005
	Facsimile No.: +1 (212) 822-5680
	E-mail: RReder@milbank.com

14.9         Assignment.  This Agreement and the rights and obligations hereunder shall be binding upon and inure to the benefit of the parties hereto, their respective successors and assigns, but this Agreement shall not be assignable by either party hereto without the express written consent of the other party hereto which will not be unreasonably withheld, provided, however, that Buyer may merge or consolidate with, or assign any or all of its rights, interests and obligations hereunder to, a direct or indirect wholly-owned subsidiary of Buyer, provided that no such merger, consolidation or assignment shall relieve Buyer of its obligations hereunder, [****]*.

14.10       No Agency.  It is understood and agreed that each party shall have the status of an independent contractor under this Agreement and that nothing in this Agreement shall be construed as authorization for either party to act as agent for the other.  Neither party shall incur any Liability for any act or failure to act by employees of the other party.

14.11       Construction.

(a)           This Agreement has been prepared jointly and shall not be strictly construed against either party.

(b)           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 the masculine and feminine genders.

* Certain information on this page has been omitted and filed separately with the SEC.  Confidential treatment has been requested with respect to the omitted portions.

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(c)            Except as otherwise indicated, all references in this Agreement to “Articles,” “Sections,” “Exhibits” and “Schedules” are intended to refer to Articles and Sections and Exhibits and Schedules to this Agreement.

(d)           The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

14.12       Payment of Expenses.  Except as otherwise set forth in this Agreement or in the Transition Services Agreement, all costs and expenses associated with this Agreement and the transactions contemplated thereby, including the fees of counsel and accountants, shall be borne by the party incurring such expenses.

14.13       Counterparts.  This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but which together shall constitute one and the same instrument.  Any executed counterpart delivered by facsimile or other means of electronic transmission shall be deemed an original for all purposes.

[Remainder of page intentionally left blank; signature page follows]

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IN WITNESS WHEREOF, the parties, through their authorized officers, have duly executed this as of the date first written above.

PDL BioPharma, Inc.,
a Delaware corporation
By:	/s/ L. Patrick Gage
Name:			L. Patrick Gage
Title:			Chief Executive Officer
By:	/s/ Andrew Guggenhime
Name:			Andrew Guggenhime
Title:			Senior Vice President and
			Chief Financial Officer
EKR Therapeutics, Inc.,
a Delaware corporation
By:		/s/ Howard Weisman
Name:		Howard Weisman
Title:		Chairman and Chief Executive
		Officer
By:		/s/ Richard DeSimone
Name:		Richard DeSimone
Title:		Chief Financial Officer

SIGNATURE PAGE

ASSET PURCHASE AGREEMENT

CONFIDENTIAL TREATMENT REQUESTED

EX-21.1

EXHIBIT 21.1

SUBSIDIARIES OF PDL BIOPHARMA, INC.

Name of Subsidiary	Jurisdiction of Incorporation
PDL BioPharma France S.A.S.	France
Fremont Management, Inc.	Delaware
Fremont Holding L.L.C.	California

EX-99.1

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Exhibit 99.1

1400 Seaport Boulevard
Redwood City, CA 94063

[                        ], 2008

Dear PDL BioPharma Stockholder:

        On April 10, 2008, we announced a plan to spin off our biotechnology business (the "Biotechnology Business") into a separate publicly traded U.S. company, currently named Biotech Spinco, Inc. ("BioCo") but to be renamed prior to the spin-off. PDL BioPharma, Inc. ("PDL") will continue to own the antibody humanization royalty patents and operate the related business (the "Royalty Business").

        We expect to complete this spin-off on [                                    ], 2008. We will accomplish the spin-off through a pro rata dividend of the common stock of BioCo, a new publicly traded U.S. company, to PDL's stockholders. At the time of the spin-off, you will receive one share of BioCo common stock for every five shares of PDL common stock that you hold at 5:00 p.m., Eastern Time, on [                                    ], 2008, the record date for this dividend. However, if you sell your shares of PDL common stock prior to the ex-dividend date you also will be selling your right to receive shares of BioCo common stock. We will not issue any fractional shares of BioCo, so if you otherwise would have been entitled to a fractional share of BioCo in the spin-off, you would receive the net cash value of such fractional share instead. We will apply to have the common stock of BioCo listed on the Nasdaq Global Market under the symbol "[            ]". Shares of PDL will continue to be listed on the Nasdaq Global Select Market when the spin-off is completed and will trade under the symbol "PDLI".

        You will not need to take any action to receive BioCo shares and you will not be required to pay anything for the new BioCo shares or surrender any of your PDL shares. The distribution of BioCo shares will not qualify for tax-free treatment, and thus your receipt of all or a portion of the BioCo shares may be taxable to you as a dividend. You should consult your own tax advisor as to the particular tax consequences of the distribution to you, including the applicability and effect of any U.S. federal, state, local and non-U.S. tax laws.

        Our Board of Directors has determined that a strategic separation of our two businesses is in the best interests of our stockholders. We anticipate that, by separating the businesses, each will be able to better focus on its distinct type of business. We believe that the separation of our Biotechnology Business from our Royalty Business will enhance value for stockholders and allow stockholders to realize the value of each company fully and independently. Additionally, we also believe that the separation of the two businesses will simplify the profile of each company, allowing investors to more easily evaluate each company.

        Enclosed please find an Information Statement that describes the spin-off and the business of BioCo, which we are providing to all PDL stockholders in accordance with U.S. law. The Information Statement describes in detail the distribution of BioCo common stock to holders of PDL common stock and contains important business and financial information about BioCo. We encourage you to read this information carefully. Please note that stockholder approval is not required for this spin-off, so we are not asking you for a proxy.

        If you have any questions regarding the spin-off, please contact our investor relations department by calling 650-454-1508 or sending a letter to: Investor Relations, PDL BioPharma, Inc., 1400 Seaport Boulevard, Redwood City, CA 94603.

Sincerely,

Andrew Guggenhime
Senior Vice President and Chief Financial Officer
PDL BioPharma, Inc.

This Information Statement is first being mailed to stockholders on or about [                        ], 2008. This Information Statement is furnished for informational purposes only.

[Biotech Spinco, Inc. Letterhead]

[                        ], 2008

Dear Future Biotech Spinco, Inc. Stockholder:

        It is my great pleasure to welcome you as a stockholder of Biotech Spinco, Inc. ("BioCo"), to be renamed prior to the spin-off, and introduce you to our company. We are a biotechnology company that designs and develops antibody therapeutics for the treatment of oncology and immunologic diseases that improve upon existing therapies.

        Antibodies for a wide range of indications have become an accepted and proven therapeutic modality, as evidenced by the numerous antibody therapeutics that are currently on the market, yet there remain many opportunities to create new as well as improved antibodies. We intend to build on our years of experience in antibody engineering and design to discover and develop antibodies that improve upon or offer advantages over current treatment options. In addition to strong antibody-focused research and discovery capabilities, we currently have four investigational compounds in clinical development for oncology and immunologic diseases.

        As you know, the Board of Directors of our parent company, PDL BioPharma, Inc., has approved a plan to spin off BioCo into a separate publicly traded company. We expect to complete the spin-off on [            ], 2008. We will apply to have our common stock listed on the Nasdaq Global Market under the symbol "[            ]".

        With our promising clinical pipeline, antibody engineering capabilities, experienced management team and strong balance sheet, we believe that we will begin our future as an independent public company from a position of considerable strength. This spin-off should enable us to operate our business with even greater focus and agility. As a BioCo stockholder, you can share in our progress as we strive to continue strengthening and growing our business. I invite you to learn more about BioCo and our opportunity as a soon-to-be independent publicly traded company by reading the attached Information Statement.

Sincerely,

  
Andrew Guggenhime
Senior Vice President and Chief Financial Officer
Biotech Spinco, Inc.

Information contained herein is subject to completion or amendment. A Registration Statement on Form 10 relating to these securities has been filed with the Securities and Exchange Commission.

Preliminary and Subject to Completion, dated August     , 2008

Information Statement

Biotech Spinco, Inc. Common Stock
(par value $0.01 per share)

        We are furnishing this Information Statement to the stockholders of PDL BioPharma, Inc., or PDL, in connection with PDL's distribution to holders of its common stock of all outstanding shares of common stock of Biotech Spinco, Inc., or BioCo. At this time, BioCo is a wholly owned subsidiary of PDL. After the spin-off is completed, BioCo will be a separate publicly traded company and will own and operate the biotechnology business (the "Biotechnology Business") currently owned and operated by PDL. PDL will continue to own its antibody humanization royalty patents and operate the business related to those patents (the "Royalty Business"). We plan to rename BioCo prior to the completion of the spin-off.

        If you are a holder of record of PDL common stock at 5:00 p.m., Eastern Time, on [                        ], 2008, which will be the record date for the distribution, you will be entitled to receive one share of our common stock for every five shares of PDL common stock that you hold on the record date. However, if you sell your shares of PDL common stock prior to the ex-dividend date, you also will be selling your right to receive shares of BioCo common stock. Our common stock will be issued in book-entry form only, which means no physical stock certificates will be issued. No fractional shares of BioCo common stock will be issued. If you otherwise would have been entitled to a fractional share of BioCo common stock in the distribution, you will receive the net cash value of such fractional share instead. Immediately after the distribution is completed on the distribution date, we will be an independent publicly traded company. We expect the distribution to occur on [                        ], 2008.

        No stockholder vote is required for the spin-off to occur. We are not asking you for a proxy, and you are requested not to send us a proxy. No action is necessary for you to receive the shares of our common stock to which you are entitled in the spin-off. This means that:

•

You do not need to pay any consideration to BioCo or to PDL; and



•

You do not need to surrender or exchange any shares of PDL common stock to receive your shares of our common stock.

        Currently, there is no public trading market for the common stock of BioCo, although we expect that a "when-issued" trading market will develop on or shortly after the record date for the distribution. We will apply to have our common stock traded on the Nasdaq Global Market under the symbol " [                        ]".

As you review this Information Statement, you should carefully consider the matters described in "Risk Factors" beginning on page 12.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this Information Statement is truthful or complete. Any representation to the contrary is a criminal offense.

This Information Statement does not constitute an offer to sell or the solicitation of an offer to buy any securities.

        If you have inquiries related to the distribution, you should contact PDL's transfer agent, BNY Mellon Shareowner Services, at 525 Market Street, Suite 3500, San Francisco, California 94105, or (877) 424-4271.

Table of Contents

	Pages
Explanatory Note	1
Summary	2
Risk Factors	12
Forward-Looking Statements	30
The Spin-Off	31
Dividend Policy	38
Capitalization	39
Our Business	40
Historical Selected Financial Data	51
Management's Discussion and Analysis of Financial Condition and Results of Operations	53
Our Relationship with PDL after the Spin-Off	71
Unaudited Pro Forma Condensed Combined Balance Sheet	75
Management	76
Board of Directors	77
Compensation Discussion and Analysis	84
Security Ownership of Certain Beneficial Owners and Management	107
Related Person Transactions	111
Description of Capital Stock	111
No Dissenters' Rights	114
Indemnification of Officers and Directors	114
Distribution of Information Statement	115
Where to Obtain More Information	115
Index to Combined Financial Statements	F-1
Report of Independent Registered Public Accounting Firm	F-2

Explanatory Note

        BioCo is furnishing this Information Statement to you solely to provide you with information regarding both the spin-off and our company. It is not, and should not be construed as, an inducement or encouragement to buy or sell any securities of BioCo or PDL.

        You should rely only on the information contained in this Information Statement. We have not authorized any other person to provide you with information different from that contained in this Information Statement. The information contained in this Information Statement is believed by us to be accurate as of its date. Therefore, you should assume that the information contained in this Information Statement is accurate only as of the date on the front cover of this Information Statement or other date stated in this Information Statement, regardless of the time of delivery of this Information Statement. Our business, financial condition, results of operations and prospects may have changed since that date, and neither we nor PDL will update the information except in the normal course of our respective public disclosure obligations and practices or as specifically indicated in this Information Statement.

        We own or have rights to numerous trademarks, trade names, copyrights and other intellectual property used in our business. All other company names, tradenames and trademarks included in this Information Statement are trademarks, registered trademarks or trade names of their respective owners.

        As used in this Information Statement, the terms "we," "us," "our," and the "Company" mean BioCo (unless the context indicates a different meaning).

        We describe in this Information Statement the Biotechnology Business transferred to us by PDL in connection with the spin-off as though the Biotechnology Business were our business for all historical periods described. However, BioCo is a newly-formed entity that has not conducted any operations prior to the spin-off and some of the actions necessary to transfer assets and liabilities of PDL to us have not occurred but will occur before the effectiveness of the spin-off. References in this Information Statement to the historical assets, liabilities, products, business or activities of our business are intended to refer to the historical assets, liabilities, products, business or activities of the Biotechnology Business as those were conducted as part of PDL prior to the spin-off.

1

Summary

        The following is a summary of some of the information contained in this Information Statement. We urge you to read this entire document carefully, including the risk factors, our historical combined financial statements and the notes to those financial statements and our unaudited pro forma condensed combined balance sheet.

Our Company

        We are a biotechnology company that designs and develops antibody therapeutics for the treatment of oncology and immunologic diseases. Antibodies have become an accepted and proven therapeutic modality and numerous antibody therapeutics for a wide range of indications are currently on the market. Despite these advances, there remain many opportunities to create new and improved antibodies. Building on our years of experience in antibody engineering and design, we are focused on discovering and developing antibodies that improve upon or offer advantages over current treatment options.

        Our business strategy focuses primarily on the following two areas:

•

Developing and expanding our pipeline of antibodies:  We are focused on advancing our existing clinical programs and expanding our pipeline with additional antibody development programs. We currently have four antibodies in the clinic, two in phase 2 and two in phase 1, for oncology and immunologic disease indications. We also seek to expand our pipeline either through in-house discovery or via in-licensing opportunities. Consistent with this goal, we have identified an IND candidate for a fifth antibody, our lead preclinical antibody candidate, for an immunologic disease indication.



•

Discovering new antibodies:  Building on our years of experience in the humanization of antibodies, we are leveraging our strength in antibody engineering to identify and design antibodies that target new mechanisms and disease pathways, and to improve upon the overall characteristics of antibody therapeutics. Our research efforts focus on the identification and validation of novel targets, while we also utilize our unique antibody engineering technologies to explore the development of improved next-generation antibodies.

        We believe we can leverage our key strengths to successfully implement our strategy and efficiently develop antibody therapeutics that transform medical care. Our key strengths and assets include the following: our ability to engineer and optimize therapeutic antibodies and direct them to novel validated targets; our process sciences capabilities to create highly efficient manufacturing of antibodies from clinical through to commercial scale; our early development capabilities, including our portfolio of phase 1 and phase 2 antibody product candidates in oncology and immunology; our experienced management team; and our strong cash position and balance sheet.

        We believe that strategic collaborations and licensing activities also will help us to succeed at implementing our strategy and increase the potential success of our research and development programs and the Company. Through such strategic collaborations or licensing activities, we believe we can enhance our ability to develop and expand our pipeline of antibodies and discover new antibodies.

        We have several antibodies in various stages of development for cancer and immunologic diseases. The table below lists the antibodies for which we are pursuing development activities either on our own or in collaboration. Not all clinical trials for each product candidate are listed below. The development

2

and commercialization of our product candidates are subject to numerous risks and uncertainties, as noted under "Risk Factors".

Product Candidate	Indication/Description	Program Status	Collaborator
Daclizumab	Multiple sclerosis	Phase 2		Biogen Idec
	Asthma	Phase 2b program being evaluated		—
	Transplant Maintenance	Phase 2 program being evaluated		—
Volociximab (M200)	Solid tumors	Phase 2		Biogen Idec
Elotuzumab (HuLuc63)	Multiple myeloma	Phase 1		—
PDL192	Solid tumors	Phase 1		—
PDL241	Immunologic diseases	Preclinical		—
Other preclinical research candidates	Oncology / Immunology	Multiple candidates under evaluation

        We were incorporated in Delaware on July 29, 2008.

Reasons for the Spin-Off

        On April 10, 2008, PDL announced a plan to spin off its Biotechnology Business into a separate publicly traded company. PDL and we believe that the separation of the Biotechnology Business from the Royalty Business will enhance value for stockholders of PDL and BioCo by creating significant opportunities and benefits, including:

•

allowing investors to realize the value of each company fully and independently and enhancing our market recognition with investors;



•

allowing each company to focus its efforts on and allocate its resources towards its own business opportunities and challenges, with the management of BioCo focusing on the discovery and development of novel antibodies and the management of PDL focusing its efforts to maximize the value of the royalties from its antibody humanization patents;



•

providing that PDL's future antibody humanization royalties accrue directly to the benefit of PDL stockholders; and



•

increasing our ability to attract and retain employees by providing equity compensation tied directly to our performance, and our research and development efforts in particular.

Summary of the Spin-Off

        The following is a brief summary of the terms of the spin-off. Please see "The Spin-Off" for a more detailed description of the matters described below.

Distributing company	PDL BioPharma, Inc.
Distributed company	Biotech Spinco, Inc.
Distribution ratio	Each holder of PDL common stock will receive one share of our common stock for every five shares of PDL common stock held on the Record Date.
Securities to be distributed	Approximately 23.9 million shares of our common stock. The shares of our common stock to be distributed will constitute all of the outstanding shares of our common stock immediately after the spin-off.

3

Distribution agent, transfer agent and registrar for BioCo shares	BNY Mellon Shareowner Services
Record Date	5:00 p.m. Eastern Time on [                                    ], 2008
Distribution Date	[                                    ], 2008
Stock exchange listing	Currently there is no public market for our common stock. We will apply to have our common stock listed on the Nasdaq Global Market under the symbol "[            ]".
U.S. federal income tax consequences	The distribution of our common stock will not qualify for tax-free treatment, and thus your receipt of all or a portion of our common stock may be taxable to you as a dividend. An amount equal to the fair market value of our common stock received by you (including any fractional shares deemed to be received) on the distribution date will be treated as a taxable dividend to the extent of your ratable share of any 2008 earnings and profits of PDL with the excess treated as a non-taxable return of capital to the extent of your tax basis in PDL common stock and any remaining excess treated as capital gain. PDL will not be able to advise stockholders of the amount of 2008 earnings and profits of PDL until approximately January 2009. For a more detailed discussion see "The Spin-Off—Certain U.S. Federal Income Tax Consequences" beginning on page 33.
Purposes of the Distribution	PDL's Board and management have determined that the spin-off will enhance long-term stockholder value by providing the benefits set forth below under the caption "The Spin-Off—Reasons for the Spin-Off."

Summary of the Spin-Off Questions and Answers about the Spin-off

How will the spin-off work? The spin-off will be accomplished through a series of transactions by which PDL will contribute to us its Biotechnology Business, which we refer to as the contribution, and PDL will distribute to its stockholders all of the outstanding shares of our common stock on a pro rata basis, which we refer to as the distribution. When we refer to the occurrence of the spin-off, we are referring to the date the spin-off is finalized and our stock is distributed to you. For additional information on the transactions in the spin-off, see "The Spin-Off—Manner of Effecting the Spin-Off" beginning on page 32.

4

What will our relationship with PDL be after the spin-off?	PDL and BioCo each will be independent, publicly traded companies. However, we will enter into agreements with PDL that will ease the transition of PDL and BioCo into two independent, publicly traded companies following the spin-off. These agreements will also allocate responsibility for obligations arising before and after the spin-off, including, among others, obligations relating to taxes. For additional information on our relationship with PDL after the spin-off, see "Our Relationship with PDL after the Spin-Off" beginning on page 71.
When will the spin-off be completed?	PDL expects to complete the spin-off by distributing shares of our common stock on [                                    ], 2008, to holders of record of PDL common stock on the record date. As discussed under "The Spin-Off—Trading of PDL Common Stock After the Record Date and Prior to the Ex-Dividend Date," if you sell your shares of PDL common stock in the "regular way" market after the record date and prior to the ex-dividend date, you also will be selling your right to receive shares of our common stock in connection with the spin-off. For additional information on the spin-off, see "The Spin-Off—Results of the Spin-Off" beginning on page 33.
What do I have to do to participate in the distribution?	Nothing. You are not required to take any action to receive shares of our common stock in the spin-off. No vote of PDL stockholders will be taken for the spin-off. If you own shares of PDL common stock as of the close of business on the record date and do not sell those shares in the "regular way" market prior to the ex-dividend date, a book-entry account statement reflecting your ownership of shares of our common stock will be mailed to you, or your brokerage account will be credited for the shares, on or about [                        ], 2008. Do not mail in PDL common stock certificates in connection with the spin-off.

5

How many shares of your common stock will I receive?	PDL will distribute one share of our common stock for every five shares of PDL common stock you own of record as of the close of business on the record date and do not sell in the "regular way" market prior to the ex-dividend date. Cash will be distributed in lieu of fractional shares, as described below. Based on approximately 119.4 million shares of PDL common stock that we expect to be outstanding on the record date, PDL will distribute a total of approximately 23.9 million shares of our common stock. The number of shares of our common stock that PDL will distribute to its stockholders will be reduced to the extent that cash payments are to be made in lieu of the issuance of fractional shares of our common stock and to the extent that shares of our common stock are held back and sold on the market to satisfy backup withholding taxes and non-U.S. holder dividend withholding taxes and brokerage and other costs, and will be increased to the extent, if any, that PDL options are exercised prior to the record date. For additional information on the distribution, see "The Spin-Off—Results of the Spin-Off" beginning on page 33.
How will PDL distribute fractional shares of BioCo common stock?	PDL will not distribute any fractional shares of our common stock to its stockholders. Instead, the distribution agent will aggregate fractional shares into whole shares, sell the whole shares in the open market at prevailing market prices and distribute the aggregate net cash proceeds of the sales pro rata to each holder who otherwise would have been entitled to receive a fractional share in the distribution. Recipients of cash in lieu of fractional shares will not be entitled to any interest on the amounts of payment made in lieu of fractional shares. The receipt of cash in lieu of fractional shares generally will be taxable to the recipient stockholders as described in "The Spin-Off—Certain U.S. Federal Income Tax Consequences" beginning on page 33.
Can PDL decide to cancel the distribution of BioCo common stock even if all the conditions have been met?	Yes. PDL has the right to terminate the distribution, and the spin-off, even if all of the conditions set forth in the Separation and Distribution Agreement are satisfied, if at any time the Board of PDL determines that the distribution is not in the best interest of PDL and its stockholders or that market conditions are such that it is not advisable to separate the Biotechnology Business from PDL.

6

Will I receive physical certificates representing shares of BioCo common stock following the separation?	No. We will not issue physical stock certificates in the distribution, even if requested. Instead, PDL, with the assistance of BNY Mellon Shareowner Services, the distribution agent, will electronically issue shares of our common stock to you or to your bank or brokerage firm on your behalf by way of direct registration in book-entry form. The book-entry system allows registered stockholders to hold their shares without physical stock certificates. A benefit of issuing stock electronically in book-entry form is that there will be none of the physical handling and safekeeping responsibilities that are inherent in owning physical stock certificates. For additional information, see "The Spin-Off—Manner of Effecting the Spin-Off" beginning on page 32.
How will the spin-off affect my tax basis in PDL common stock?	Your tax basis in shares of our common stock received in the distribution generally will equal the fair market value of such shares on the distribution date (including any fractional share deemed to be received). For a more detailed discussion see "The Spin-Off—Certain U.S. Federal Income Tax Consequences" beginning on page 33.
	You should consult your own tax advisor as to the particular tax consequences of the distribution to you, including the applicability and effect of any U.S. federal, state and local and non-U.S. tax laws.
What will happen to PDL stock options and restricted shares?	Stock options and restricted stock awards issued by PDL will adjust in accordance with the plans under which they were issued. We expect that PDL will terminate the employment of nearly all PDL employees in connection with the spin-off and that these employees will be hired by BioCo. Unvested PDL options held by these employees would expire upon the termination of their PDL employment and the vested portion of these options will remain exercisable for three months after termination of employment by PDL. Any unvested restricted shares held by terminated employees will be forfeited upon termination of employment. We expect to issue new BioCo options and restricted shares to our employees see "Compensation Discussion and Analysis—Re-Engagement Grants" beginning on page 91.

7

Do you intend to pay dividends on your common stock?	We currently do not intend to pay dividends on our common stock. The declaration and amount of dividends will be determined by our Board and will depend on our financial condition, earnings, capital requirements, legal requirements, regulatory constraints, contractual restrictions, and any other factors that our Board believes are relevant. See "Dividend Policy" on page 38 for additional information on our dividend policy following the spin-off.
What if I want to sell my PDL common stock or BioCo common stock?	You should consult your financial advisors, such as your stockbroker, bank or tax advisor. Neither PDL nor BioCo makes any recommendation as to the purchase, retention or sale of shares of PDL common stock or the BioCo common stock to be distributed. If you decide to sell any shares before the ex-dividend date, you should make sure your stockbroker, bank or other nominee understands whether you want to sell your PDL common stock or the BioCo common stock you will receive in the distribution or both.
Where will I be able to trade shares of BioCo common stock?	There is no current trading market for our common stock. We will apply to have our common stock authorized for listing on the Nasdaq Global Market under the symbol "[            ]." We expect that a limited market, commonly known as a "when-issued" trading market, for our common stock will begin on or shortly after [                                    ], 2008. The term "when-issued" means that shares can be traded prior to the time shares are actually available or issued. We expect that on the distribution date or the first trading day after the distribution date, "when-issued" trading in our common stock will end and "regular way" trading will begin. "Regular way" trading refers to trading after a security has been issued and typically involves a transaction that settles on the third full business day following the date of a trade. Shares of our common stock generally will be freely tradable following the spin-off. For additional information regarding the trading of our common stock, see "The Spin-Off—Market for Our Common Stock; Trading of Our Common Stock in Connection with the Spin-Off" beginning on page 36.
Will the number of PDL shares I own change as a result of the spin-off?	No. The number of shares of PDL common stock you own will not change as a result of the spin-off.

8

What will happen to the listing of PDL common stock?	Nothing. It is expected that after the distribution of BioCo common stock, PDL common stock will continue to be traded on the Nasdaq Global Select Market under the symbol "PDLI".
Are there any risks to owning BioCo common stock?	Yes. Our business is subject to both general and specific risks relating to our operations, anticipated net losses, and our operating as a stand alone company. Our business is also subject to risks relating to the separation. These and other risks are described in "Risk Factors" beginning on page 12. We encourage you to read that section carefully.
Who do I contact for information regarding you and the spin-off?	Before the spin-off, you should direct inquiries relating to the spin-off to:
	Investor Relations PDL BioPharma, Inc. 1400 Seaport Boulevard Redwood City, CA 94603
	After the spin-off, you should direct inquiries relating to our common stock to:
	Investor Relations Biotech Spinco, Inc. 1400 Seaport Boulevard Redwood City, CA 94603
	After the spin-off, the transfer agent and registrar for our common stock will be:
	BNY Mellon Shareowner Services 525 Market Street, Suite 3500 San Francisco, CA 94105

9

Summary Historical Combined Financial Information

        The following table sets forth certain summary historical financial information as of and for each of the years in the five-year period ended December 31, 2007 and as of March 31, 2008 and for the three months ended March 31, 2008 and 2007, which have been derived from our (i) audited combined financial statements as of December 31, 2007, and 2006 and for the years ended December 31, 2007, 2006 and 2005, which are included elsewhere in this Information Statement, (ii) unaudited combined financial statements as of December 31, 2005, 2004 and 2003 and for the years ended December 31, 2004 and 2003, which are not included in this Information Statement and (iii) unaudited condensed combined financial statements as of and for the three months ended March 31, 2008 and 2007, which are included elsewhere in this Information Statement. In our opinion, the summary historical financial information derived from our unaudited combined financial statements and our unaudited condensed combined financial statements is presented on a basis consistent with the information in our audited combined financial statements. The summary historical financial information may not be indicative of the results of operations or financial position that we would have obtained if we had been an independent company during the periods presented or of our future performance as an independent company. See "Risk Factors."

        The following table also sets forth pro forma balance sheet data as of March 31, 2008, which has been derived from our historical combined financial statements as of such date. The pro forma adjustments are based upon available information and assumptions that we believe are reasonable.

        The summary historical and pro forma financial information should be read in conjunction with "Selected Financial Information," "Management's Discussion and Analysis of Financial Condition and Results of Operations," the unaudited pro forma condensed combined financial statements and corresponding notes and the combined financial statements and corresponding notes included elsewhere in this Information Statement.

Combined Statements of Operations Data

				Years Ended December 31,															Three Months ended March 31,
(In thousands)				2007			2006			2005			2004			2003			2008			2007
Revenues
	Collaboration			$	24,632		$	48,548		$	19,433		$	3,602		$	—		$	2,682		$	8,811
	Other				1,660			2,869			9,424			7,269			10,167			1,000			—
			Total revenues		26,292			51,417			28,857			10,871			10,167			3,682			8,811
Costs and expenses
Research and development					195,130			200,720			155,816			122,641			82,732			45,239			47,580
General and administrative					45,045			36,590			25,833			27,358			23,404			12,765			8,647
Gain on sale of assets(1)					—			—			—			—			—			(49,671	)		—
Acquired in-process research and development(2)					—			—			—			—			85,993			—			—
Restructuring charges					6,668			—			—			—			—			5,547			—
Asset impairment charges					5,513			900			15,769			—			—			3,521			—
	Total operating expenses				252,356			238,210			197,418			149,999			192,129			17,401			56,227
		Operating loss			(226,064	)		(186,793	)		(168,561	)		(139,128	)		(181,962	)		(13,719	)		(47,416	)
Other income (expense)					(871	)		737			1,982			2,198			1,828			3			1
Interest expense					(639	)		(552	)		(595	)		(637	)		(559	)		(434	)		(128	)
	Loss before income taxes				(227,574	)		(186,608	)		(167,174	)		(137,567	)		(180,693	)		(14,150	)		(47,543	)
Income tax expense					123			81			47			60			55			28			30
	Net loss			$	(227,697	)	$	(186,689	)	$	(167,221	)	$	(137,627	)	$	(180,748	)	$	(14,178	)	$	(47,573	)

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Combined Balance Sheet Data

	December 31,														March 31, 2008
(In thousands)	2007			2006			2005		2004			2003			Actual			Proforma
Cash and cash equivalents	$	—		$	—		$	—	$	—		$	—		$	—		$	375,000	(3)
Restricted cash—current and long-term	$	28,274		$	18,269		$	—	$	—		$	—		$	18,274		$	18,274
Working capital (deficit)	$	(19,106	)	$	(51,522	)	$	16,573	$	(29,816	)	$	(27,166	)	$	(21,390	)	$	353,610
Total assets	$	368,956		$	327,157		$	328,313	$	305,994		$	225,669		$	166,091		$	541,091
Long-term obligations, less current portion	$	31,349		$	33,425		$	7,296	$	7,769		$	8,628		$	31,847		$	31,847
Total parent company equity	$	262,570		$	204,086		$	227,979	$	258,961		$	185,782		$	64,824		$	439,824	(4)

(1)

The gain on sale of assets of $49.7 million relates to the sale of our manufacturing and related administrative facilities in Brooklyn Park, Minnesota, and related assets therein, to Genmab A/S and the assumption of certain of our lease obligations related to our facilities in Plymouth, Minnesota (together, the "Manufacturing Assets") during March 2008. See Note 6 to the Combined Financial Statements for further information.

(2)

Represents acquired in-process research and development related to our acquisition of Eos Biotechnology, Inc. and the purchase of certain technology from Hoffmann-La Roche Inc. and F. Hoffmann-La Roche Ltd. (together, "Roche") that had not yet achieved technological feasibility. See Note 5 for further information on our Roche arrangement.

(3)

Represents cash funding by PDL of $375 million for a capital contribution based on the anticipated post-separation capital structure.

(4)

Represents the capitalization of BioCo, including the assumed issuance of approximately 23.6 million BioCo common shares at $0.01 par value, which is based on the number of outstanding shares of PDL's common stock as of March 31, 2008 and the distribution ratio.

11

Risk Factors

This Information Statement includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended. All statements other than statements of historical facts are "forward looking statements" for purposes of these provisions, including any projections of earnings, revenues or other financial items, any statements of the plans and objectives of management for future operations, any statements concerning proposed new products or licensing or collaborative arrangements, any statements regarding future economic conditions or performance, and any statement of assumptions underlying any of the foregoing. In some cases, forward-looking statements can be identified by the use of terminology such as "believes," "may," "will," "expects," "plans," "anticipates," "estimates," "potential," or "continue" or the negative thereof or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained in this Information Statement are reasonable, there can be no assurance that such expectations or any of the forward-looking statements will prove to be correct, and actual results could differ materially from those projected or assumed in the forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to inherent risks and uncertainties, including the risk factors set forth below, and for the reasons described elsewhere in this Information Statement. All forward-looking statements and reasons why results may differ included in this Information Statement are made as of the date hereof, and we assume no obligation to update these forward-looking statements or reasons why actual results might differ.

Risks Relating to the Spin-Off

We may not realize the potential benefits from the spin-off; PDL stockholders may not realize the potential benefits of the spin-off.

        We may not realize the potential benefits that we expect from our spin-off from PDL. Further, PDL stockholders may not realize the intended benefits of the spin-off. We have described those anticipated benefits elsewhere in this Information Statement. See "The Spin-Off—General." However, by separating from PDL, there is a risk that our company may be more susceptible to market fluctuations and other adverse events than we would have been were we still a part of the current PDL. In addition, we will incur significant costs, including those described below, which may exceed our estimates, and we will incur some negative effects from our separation from PDL, including the loss of royalty revenue derived from PDL's Royalty Business.

Our historical and pro forma financial information is not necessarily indicative of our future financial position, future results of operations or future cash flows and does not reflect what our financial position, results of operations or cash flows would have been as a stand-alone company during the periods presented.

        Our historical financial information included in this Information Statement does not necessarily reflect what our financial position, results of operations or cash flows would have been as a stand-alone company during the periods presented and is not necessarily indicative of our future financial position, future results of operations or future cash flows. This is primarily a result of the following factors:

•

Prior to our separation, our business was operated by PDL as part of its broader corporate organization and we did not operate as a stand-alone company.



•

Certain general administrative functions were performed by PDL for the combined entity. Our historical combined financial statements reflect allocations of costs for services shared with PDL. These allocations will differ from the costs we will incur for these services as an independent company.

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•

Our historical financial statements include the operation of our manufacturing facility. The facility was sold in the first quarter of 2008.



•

During fiscal 2007 and fiscal 2008 we substantially reduced the number of employees of the Biotechnology Business and we are in the process of implementing the reductions.



•

After the completion of our separation, the cost of capital for our business may be higher than PDL's cost of capital prior to our separation because PDL's credit ratings are higher than what ours are contemplated to be following the separation.

        The unaudited pro forma condensed combined balance sheet as of March 31, 2008 assumes the cash funding by PDL of $375 million for a capital contribution based on the anticipated post-separation capital structure. The pro forma financial position of BioCo as of March 31, 2008 also will differ from the financial position of BioCo after the spin-off due to losses incurred by BioCo after March 31, 2008. Please refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Unaudited Pro Forma Condensed Combined Balance Sheet" and our historical combined financial statements and the notes to those statements included elsewhere in this Information Statement.

As a stand-alone company, we will not receive any of the royalty revenue or cash flows derived from PDL's Royalty Business.

        For fiscal 2007, PDL received $221 million or approximately 85% of its revenue from continuing operations from royalties derived from PDL's Royalty Business. After the completion of the separation, we will not receive any such revenue. PDL will initially contribute to us cash and cash equivalents of $375 million, which amount will be increased by any milestones or similar payments received by PDL on or prior to the distribution date related to the Biotechnology Business. We expect that this initial cash contribution as well as future payments from our collaboration agreement with Biogen Idec MA, Inc. ("Biogen Idec"), the asset purchase agreement with EKR Therapeutics, Inc. ("EKR") and certain other agreeements, each of which is being assigned to BioCo, would fund BioCo's operations and working capital requirements for approximately the next three years after the closing of the spin-off, based on current operating plans. We cannot assure you, however, that such funds will meet our working capital and operational needs or that our working capital requirements will not increase beyond our current expectations. We will likely need to obtain additional financing from banks, through public offerings or private placements of debt or equity securities, strategic relationships or other arrangements to fully execute our business strategy.

Concerns about our prospects as a stand-alone company could affect our ability to retain employees.

        Our employees have experienced substantial organizational and operational changes over the prior 18 months as a result of changes in PDL's business and operations, including reductions-in-force as well as changes in management. The spin-off represents a further change and our employees may have concerns about our prospects as a stand-alone company, including our ability to successfully operate the new entity and our ability maintain our independence after the spin-off. If we are not successful in assuring our employees of our prospects as an independent company, our employees may seek other employment, which could materially adversely affect our business.

We have no history operating as an independent company upon which you can evaluate us.

        We do not have an operating history as a stand-alone entity. While our Biotechnology Business has constituted a substantial part of the historic operations of PDL, we have not operated as a stand-alone company without the Royalty Business. Following the spin-off, as an independent company, our ability to satisfy our obligations and achieve profitability will be solely dependent upon the future performance

13

of our Biotechnology Business, and we will not be able to rely upon the capital resources and cash flows of the Royalty Business remaining with PDL.

We may be required to satisfy certain indemnification obligations to PDL or may not be able to collect on indemnification rights from PDL.

        Under the terms of the Separation and Distribution Agreement, we agreed to indemnify PDL from and after the spin-off with respect to indebtedness, liabilities and obligations, other than PDL's convertible notes, that PDL will retain that do not relate to PDL's Royalty Business. We are not aware of any existing indemnification obligations at this time, but any such indemnification obligations that may arise could be significant. Our ability to satisfy these indemnities, if called upon to do so, will depend upon our future financial strength. We cannot determine whether we will have to indemnify PDL for any substantial obligations after the distribution.

We may have received better terms from unaffiliated third parties than the terms we receive in our agreements with PDL.

        The agreements we will enter into with PDL in connection with the spin-off, including the Non-Exclusive Cross License Agreement, Employee Matters Agreement and Transition Services Agreement, were determined by management and the Board of PDL in the context of the spin-off while we were still part of PDL and, accordingly, may not reflect terms that would have resulted from arm's-length negotiations between unaffiliated third parties. The terms of the agreements relate to, among other things, the licensing of intellectual property and the provision of certain employment and transition services. We may have received better terms from third parties because, among other things, third parties may have competed with each other to win our business. See "Our Relationship with PDL after the Spin-Off."

The distribution of our common stock will not qualify for tax-free treatment, and thus your receipt of all or a portion of our common stock may be taxable to you as a dividend.

        The distribution of our common stock will not qualify for tax-free treatment, and thus your receipt of all or a portion of our common stock may be taxable to you as a dividend. An amount equal to the fair market value of our common stock received by you (including any fractional shares deemed to be received) on the distribution date will be treated as a dividend to the extent of your ratable share of any 2008 earnings and profits of PDL with the excess treated as a non-taxable return of capital to the extent of your tax basis in PDL common stock and any remaining excess treated as capital gain. Although PDL will be ascribing a value to our shares in this distribution for tax purposes, this valuation is not binding on the Internal Revenue Service ("IRS") or any other tax authority. These taxing authorities could ascribe a higher valuation to our shares, particularly if our stock trades at prices significantly above the value ascribed to our shares by PDL in the period following the distribution. You should consult your own tax advisor as to the particular tax consequences of the distribution to you.

Risks Relating to the Company

We anticipate that we will incur losses for the foreseeable future. We may never achieve or sustain profitability. If additional capital is not available, we may have to curtail or cease operations.

        Our business has experienced significant net losses and we expect to continue to incur additional net losses over the next several years as we continue our research and development activities and incur significant preclinical and clinical development costs. Since we or our collaborators or licensees may not successfully develop additional products, obtain required regulatory approvals, manufacture products at an acceptable cost or with appropriate quality, or successfully market such products with desired

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margins, our expenses may continue to exceed any revenues we may receive. Our commitment of resources to the continued development of our products will require significant additional funds for development. Our operating expenses also may increase if:

•

our earlier stage potential products move into later stage clinical development, which is generally a more expensive stage of development;



•

additional pre-clinical product candidates are selected for further clinical development;



•

we pursue clinical development of our potential products in new indications;



•

we increase the number of patents we are prosecuting or otherwise expend additional resources on patent prosecution or defense; and



•

we invest in research or acquire additional technologies, product candidates or businesses.

        In the absence of substantial licensing, milestone and other revenues from third-party collaborators, royalties on sales of products licensed under our intellectual property rights, future revenues from our products in development or other sources of revenues, we will continue to incur operating losses and may require additional capital to fully execute our business strategy. The likelihood of reaching, and time required to reach, sustained profitability are highly uncertain.

        Although we expect that we will have sufficient cash to fund our operations and working capital requirements for approximately the next three years after the spin-off based on current operating plans, we may need to raise additional capital in the future to:

•

fund our research and development programs;



•

develop and commercialize our product candidates;



•

respond to competitive pressures; and



•

acquire complementary businesses or technologies.

        Our future capital needs depend on many factors, including:

•

the scope, duration and expenditures associated with our research and development programs;



•

continued scientific progress in these programs;



•

the outcome of potential licensing transactions, if any;



•

competing technological developments;



•

our proprietary patent position, if any, in our product candidates;



•

our facilities expenses, which will vary depending on the time and terms of any facility sublease we may enter into; and



•

the regulatory approval process for our product candidates.

        We may seek to raise necessary funds through public or private equity offerings, debt financings or additional collaborations and licensing arrangements. We may not be able to obtain additional financing on terms favorable to us, if at all. General market conditions may make it very difficult for us to seek financing from the capital markets. We may be required to relinquish rights to our technologies or product candidates, or grant licenses on terms that are not favorable to us, in order to raise additional funds through collaborations or licensing arrangements. If adequate funds are not available, we may have to delay, reduce or eliminate one or more of our research or development programs and reduce overall overhead expenses. These actions may reduce the market price of our common stock.

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We may obtain future financing through the issuance of debt or equity, which may have an adverse effect on our stockholders or may otherwise adversely affect our business.

        If we raise funds through the issuance of debt or equity, any debt securities or preferred stock issued will have rights, preferences and privileges senior to those of holders of our common stock in the event of liquidation. In such event, there is a possibility that once all senior claims are settled, there may be no assets remaining to pay out to the holders of common stock. In addition, if we raise funds through the issuance of additional equity, whether through private placements or public offerings, such an issuance would dilute ownership of current stockholders in us.

        The terms of debt securities may also impose restrictions on our operations, which may include limiting our ability to incur additional indebtedness, to pay dividends on or repurchase our capital stock, or to make certain acquisitions or investments. In addition, we may be subject to covenants requiring us to satisfy certain financial tests and ratios, and our ability to satisfy such covenants may be affected by events outside of our control.

Our operating expenses and results and any future revenue likely will fluctuate in future periods.

        Our revenues and expenses may be unpredictable and may fluctuate from quarter to quarter due to, among other things, the timing and the unpredictable nature of clinical trial, manufacturing and related expenses, including payments owed by us and to us under collaborative agreements for reimbursement of expenses, and future milestone revenues under collaborative agreements. In addition, the recognition of clinical trial and other expenses that we otherwise would recognize over a period of time under applicable accounting principles may be accelerated in certain circumstances. In such a case, it may cause our expenses during that period to be higher than they otherwise would have been had the circumstances not occurred. For example, if we terminate a clinical trial for which we paid non-refundable upfront fees to a clinical research organization and in which we did not accrue all of the patient costs, the recognition of the expense associated with those fees that we were recognizing as we accrued patient costs would be accelerated and recognized in the period in which the termination occurred.

        We will assume from PDL the real property leases held by PDL, including the leases for our corporate headquarters in Redwood City, California consisting of approximately 450,000 square feet of office and lab space. We expect to utilize only a portion of this space given our expected scope of operations. We are therefore actively seeking to sublease most or all of these facilities to a third party, and anticipate that we will be able to do so. However, if we do not sublease the facilities or do not sublease them on terms that we anticipate, our total operating expenses will be higher than anticipated.

We need to hire and retain a Chief Executive Officer in order to succeed.

        We do not currently have a Chief Executive Officer. Although we are conducting a search for a new Chief Executive Officer, the market for hiring qualified Chief Executive Officers in the biotechnology field is highly competitive. If we are unable to hire and retain a qualified Chief Executive Officer, our business, operating results and financial condition could be materially and adversely affected.

We must attract and retain key employees in order to succeed.

        To be successful, we must attract and retain qualified clinical, scientific, management and other personnel and we face significant competition for experienced personnel. If we are unsuccessful in attracting and retaining qualified personnel, particularly at the management level, our business could be impaired. The uncertainty caused by the strategic review and asset sales processes, restructuring and related reductions-in-force that PDL undertook created anxiety among PDL employees, including those employees who are expected to join BioCo. We believe this caused attrition at PDL to increase because

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of employees' uncertainty regarding the continuation of employment. PDL and we have put in place severance, retention and compensation programs in an effort to mitigate the number of voluntary terminations, however, these programs may not provide effective incentive to employees to stay with us. The uncertainly may also make the recruitment of key personnel more difficult, which could adversely affect our operations, particularly if we lose and need to replace key executives.

If our research and development efforts are not successful, we may not be able to effectively develop new products.

        We are engaged in research activities intended to, among other things, identify antibody product candidates that we may progress into clinical development. These research activities include efforts to discover and validate new targets for antibodies in oncology and immunologic diseases. We obtain new targets through our own drug discovery efforts and through in-licensing targets from institutions or other biotechnology or pharmaceutical companies. Our success in identifying new antibody product candidates depends upon our ability to discover and validate new targets, either through our own research efforts, or through in-licensing or collaborative arrangements. In order to increase the possibilities of identifying antibodies with a reasonable chance for success in clinical studies, part of our business strategy is to identify a higher number of potential targets than we expect to be able to progress through clinical development.

        Our antibody product candidates are in various stages of development and many are in an early development stage. If we are unsuccessful in our research efforts to identify and obtain rights to new targets and generate antibody product candidates that lead to the required regulatory approvals and the successful commercialization of products, our ability to develop new products could be harmed.

        To supplement our own research efforts, from time to time we may in-license or otherwise acquire from others rights to products in-development or early-stage technology. Acquiring rights to products in this manner poses risks, including that we may not be unable to successfully integrate the research, development and commercialization capabilities necessary to bring these products to market.

The failure to gain market acceptance of our product candidates among the medical community would adversely affect our revenue.

        Even if approved, our product candidates may not gain market acceptance among physicians, patients, third-party payers and the medical community. We may not achieve market acceptance even if clinical trials demonstrate safety and efficacy and we obtain the necessary regulatory and reimbursement approvals. The degree of market acceptance of any product candidates that we develop will depend on a number of factors, including:

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establishment and demonstration of clinical efficacy and safety;



•

cost-effectiveness of our product candidates;



•

their potential advantage over alternative treatment methods;



•

reimbursement policies of government and third-party payers; and



•

marketing and distribution support for our product candidates, including the efforts of our collaborators where they have marketing and distribution responsibilities.

        Physicians will not recommend our products until clinical data or other factors demonstrate the safety and efficacy of our product as compared to conventional drug and other treatments. Even if we establish the clinical safety and efficacy of our product candidates, physicians may elect not to use our product for any number of other reasons, including whether the mode of administration of our products is effective for certain indications. Antibody products, including our product candidates as they would be used for certain disease indications, are typically administered by infusion or injection,

17

which requires substantial cost and inconvenience to patients. Our product candidates, if successfully developed, may compete with a number of drugs and therapies that may be administered more easily. The failure of our product candidates to achieve significant market acceptance would materially harm our business, financial condition and results of operations.

We may not receive the contingent consideration related to the sale of the product rights to new formulations of Cardene® and the ularitide development-stage product under our Asset Purchase Agreement with EKR.

        In March 2008, PDL sold the product rights to the marketed product Cardene, new formulations of Cardene IV and the ularitide development-stage product, among other assets, to EKR. The transaction included contingent consideration of up to $85 million in development and sales milestones related to the new Cardene IV formulations, as well as royalty payments related to sales of the new Cardene IV formulations and ularitide, $25 million of which PDL received in August 2008. In connection with the spin-off, PDL assigned to us the asset purchase agreement under which EKR is obligated to pay the remaining $60 million in milestone payments and royalty payments dependent upon certain contingencies, including future net sales. We cannot assure you that these development and sales milestones will be met and that we will be able to receive any of the $60 million in remaining milestone payments or any of the royalty payments based on future net sales.

We face significant competition.

        We face significant competition from entities who have substantially greater resources than we have, more experience in the commercialization and marketing of pharmaceuticals, superior product development capabilities and superior personnel resources. Potential competitors in the United States and other countries include major pharmaceutical, biotechnology and chemical companies, specialized pharmaceutical companies and universities and other research institutions. These entities have developed and are developing human or humanized antibodies or other compounds for treating cancers or immunologic diseases that may compete with our products in development and technologies that may compete with our development products or antibody technologies. These competitors may succeed in more rapidly developing and marketing technologies and products that are more effective than our product candidates or technologies or that would render any future commercialized products or technology obsolete or noncompetitive. Our product candidates and any future commercialized products may also face significant competition from both brand-name and generic manufacturers that could adversely affect any future sales of our products.

        Any product that we or our collaborators succeed in developing and for which regulatory approval is obtained must then compete for market acceptance and market share. The relative speed with which we and our collaborators can develop products, complete the clinical testing and approval processes, and supply commercial quantities of the products to the market compared to competitive companies will affect market success. In addition, the amount of marketing and sales resources and the effectiveness of the marketing used with respect to a product will affect its marketing success.

We must protect our patent and other intellectual property rights to succeed.

        Our success is dependent in significant part on our ability to develop and protect patent and other intellectual property rights and operate without infringing the intellectual property rights of others.

        Our pending patent applications may not result in the issuance of valid patents or the claims and claim scope of our issued patents may not provide competitive advantages. Also, our patent protection may not prevent others from developing competitive products using related or other technology that does not infringe our patent rights. A number of companies, universities and research institutions have filed patent applications or received patents in the areas of antibodies and other fields relating to our

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programs. Some of these applications or patents may be competitive with our applications or have claims that could prevent the issuance of patents to us or result in a significant reduction in the claim scope of our issued patents. In addition, patent applications are confidential for a period of time after filing. We therefore may not know that a competitor has filed a patent application covering subject matter similar to subject matter in one of our patent applications or that we were the first to invent the innovation we seek to patent. This may lead to disputes including interference proceeding or litigation to determine rights to patentable subject matter. These disputes are often expensive and may result in our being unable to patent an innovation.

        The scope, enforceability and effective term of patents can be highly uncertain and often involve complex legal and factual questions and proceedings. No consistent policy has emerged regarding the breadth of claims in biotechnology patents, so that even issued patents may later be modified or revoked by the relevant patent authorities or courts. These proceedings could be expensive, last several years and either prevent issuance of additional patents to us or result in a significant reduction in the scope or invalidation of our patents. Any limitation in claim scope could reduce our ability to negotiate future collaborative research and development agreements based on these patents. Moreover, the issuance of a patent in one country does not assure the issuance of a patent with similar claim scope in another country, and claim interpretation and infringement laws vary among countries, so we are unable to predict the extent of patent protection in any country.

        In addition to seeking the protection of patents and licenses, we also rely upon trade secrets, know-how and continuing technological innovation that we seek to protect, in part, by confidentiality agreements with employees, consultants, suppliers and licensees. If these agreements are not honored, we might not have adequate remedies for any breach. Additionally, our trade secrets might otherwise become known or patented by our competitors.

We may need to obtain patent licenses from others in order to manufacture or sell our potential products and we may not be able to obtain these licenses on terms acceptable to us or at all.

        Other companies, universities and research institutions may obtain patents that could limit our ability to use, import, manufacture, market or sell our products or impair our competitive position. As a result, we may need to obtain licenses from others before we could continue using, importing, manufacturing, marketing, or selling our products. We may not be able to obtain required licenses on terms acceptable to us, if at all. If we do not obtain required licenses, we may encounter significant delays in product development while we redesign potentially infringing products or methods or we may not be able to market our products at all.

        We do not have a license to an issued U.S. patent assigned to Stanford University and Columbia University, which may cover a process used to produce our potential products. We have been advised that an exclusive license has been previously granted to a third party, Centocor, under this patent. If our processes were found to be covered by either of these patents, we might need to obtain licenses or to significantly alter our processes or products. We might not be able to successfully alter our processes or products to avoid conflicts with these patents or to obtain licenses on acceptable terms or at all.

        We do not have licenses to issued U.S. patents which may cover one of our development-stage products. If we successfully develop this product, we might need to obtain licenses to these patents to commercialize the product. In the event that we need to obtain licenses to these patents, we may not be able to do so on acceptable terms or at all.

If our collaborations are not successful or are terminated by our collaborators, we may not effectively develop and market some of our product candidates.

        We have agreements with biotechnology and other companies to develop, manufacture and market certain of our potential products. In some cases, we rely on our collaborators to manufacture such

19

products and essential components for those products, design and conduct clinical trials, compile and analyze the data received from these trials, obtain regulatory approvals and, if approved, market these licensed products. As a result, we may have limited or no control over the manufacturing, development and marketing of these potential products and little or no opportunity to review the clinical data prior to or following public announcement. In addition, the design of the clinical studies may not be sufficient or appropriate for regulatory review and approval and we may have to conduct further studies in order to facilitate approval.

        In September 2005, PDL entered into a collaboration agreement with Biogen Idec for the co-development of daclizumab in certain indications, including MS, and volociximab (M200) in all indications. In connection with the spin-off, PDL will be assigning its rights and obligations under this collaboration agreement to us. This agreement is particularly important to us. The collaboration agreement provides significant combined resources for the development, manufacture and potential commercialization of covered products. We and Biogen Idec each assume certain responsibilities and share expenses. Because of the broad scope of the collaboration, we are particularly dependent upon the performance by Biogen Idec of its obligations under the agreement. The failure of Biogen Idec to perform its obligations, our failure to perform our obligations, our failure to effectively manage the relationship, or a material contractual dispute between us and Biogen Idec could have a material adverse effect on our prospects or financial results. Moreover, our financial results depend in substantial part upon our efforts and related expenses for these programs. Our revenues and expenses recognized under the collaboration will vary depending on the work performed by us and Biogen Idec in any particular reporting period.

        We rely on other collaborators, such as contract manufacturers, clinical research organizations, medical institutions and clinical investigators, including physician sponsors, to conduct nearly all of our clinical trials, including recruiting and enrolling patients in the trials. If these parties do not successfully carry out their contractual duties or meet expected deadlines, we may be delayed or may not obtain regulatory approval for or commercialize our product candidates. If any of the third parties upon whom we rely to conduct our clinical trials do not comply with applicable laws, successfully carry out their obligations or meet expected deadlines, our clinical trials may be extended, delayed or terminated.

        If the quality or accuracy of the clinical data obtained by third party contractors is compromised due to their failure to adhere to applicable laws, our clinical protocols or for other reasons, we may not obtain regulatory approval for or successfully commercialize any of our product candidates. If our relationships with any of these organizations or individuals terminates, we believe that we would be able to enter into arrangements with alternative third parties. However, replacing any of these third parties could delay our clinical trials and could jeopardize our ability to obtain regulatory approvals and commercialize our product candidates on a timely basis, if at all.

        Our collaborators can terminate our collaborative agreements under certain conditions, and in some cases on short notice. A collaborator may terminate its agreement with us or separately pursue alternative products, therapeutic approaches or technologies as a means of developing treatments for the diseases targeted by us, or our collaborative effort. Even if a collaborator continues to contribute to the arrangement, it may nevertheless decide not to actively pursue the development or commercialization of any resulting products. In these circumstances, our ability to pursue potential products could be severely limited.

        Continued funding and participation by collaborators will depend on the continued timely achievement of our research and development objectives, the retention of key personnel performing work under those agreements and on each collaborator's own financial, competitive, marketing and strategic capabilities and priorities. These considerations include:

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the commitment of each collaborator's management to the continued development of the licensed products or technology;

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•

the relationships among the individuals responsible for the implementation and maintenance of the development efforts; and



•

the relative advantages of alternative products or technology being marketed or developed by each collaborator or by others, including their relative patent and proprietary technology positions, and their ability to manufacture potential products successfully.

        Our ability to enter into new relationships and the willingness of our existing collaborators to continue development of our potential products depends upon, among other things, our patent position with respect to such products. If we are unable to successfully maintain our patents we may be unable to collect royalties on existing licensed products or enter into additional agreements.

        In addition, our collaborators may independently develop products that are competitive with products that we have licensed to them. This could reduce our revenues or the likelihood of achieving revenues under our agreements with these collaborators.

The clinical development of drug products is inherently uncertain and expensive and subject to extensive government regulation.

        Our future success depends entirely upon the success of our clinical development efforts. Clinical development, however, is a lengthy, time-consuming and expensive process and subject to significant risks of failure. In addition, we must expend significant amounts to comply with extensive government regulation of the clinical development process.

        Before obtaining regulatory approvals for the commercial sale of any products, we must demonstrate through preclinical testing and clinical trials that our product candidates are safe and effective for their intended use in humans. We have incurred and will continue to incur substantial expense for, and we have devoted and expect to continue to devote a significant amount of time to, preclinical testing and clinical trials. Despite the time and expense incurred, our clinical trials may not adequately demonstrate the safety and effectiveness of our product candidates.

        Completion of clinical development generally takes several years or more. The length of time necessary to complete clinical trials and submit an application for marketing and manufacturing approvals varies significantly according to the type, complexity and intended use of the product candidate and is difficult to predict. Further, we, the United States Food and Drug Administration, ("FDA"), European Medicines Agency ("EMEA"), investigational review boards or data safety monitoring boards may decide to temporarily suspend or permanently terminate ongoing trials. Failure to comply with extensive regulations may result in unanticipated delay, suspension or cancellation of a trial or the FDA's or EMEA's refusal to accept test results. As a result of these factors, we cannot predict the actual expenses that we will incur with respect to preclinical or clinical trials for any of our potential products, and we expect that our expense levels will fluctuate unexpectedly in the future. Despite the time and expense incurred, we cannot guarantee that we will successfully develop commercially viable products that will achieve FDA or EMEA approval or market acceptance, and failure to do so would materially harm our business, financial condition and results of operations.

        Early clinical trials such as phase 1 and 2 trials generally are designed to gather information to determine whether further trials are appropriate and, if so, how such trials should be designed. As a result, data gathered in these trials may indicate that the endpoints selected for these trials are not the most relevant for purposes of assessing the product or the design of future trials. Moreover, success or failure in meeting such early clinical trial endpoints may not be dispositive of whether further trials are appropriate and, if so, how such trials should be designed. We may decide, or the FDA or other regulatory agencies may require us, to make changes in our plans and protocols. Such changes may relate, for example, to changes in the standard of care for a particular disease indication, comparability of efficacy and toxicity of potential drug product where a change in the manufacturing process or

21

manufacturing site is proposed, or competitive developments foreclosing the availability of expedited approval procedures. We may be required to support proposed changes with additional preclinical or clinical testing, which could delay the expected time line for concluding clinical trials.

        Larger or later stage clinical trials may not produce the same results as earlier trials. Many companies in the pharmaceutical and biotechnology industries, including us, have suffered significant setbacks in clinical trials, including advanced clinical trials, even after promising results had been obtained in earlier trials. For example, in August 2007, PDL announced that it would terminate the phase 3 program of its Nuvion® (visilizumab) antibody in intravenous steroid-refractory ulcerative colitis because data from treated patients showed insufficient efficacy and an inferior safety profile in the visilizumab arm compared to IV steroids alone.

        Even when a drug candidate shows evidence of efficacy in a clinical trial, it may be impossible to further develop or receive regulatory approval for the drug if it causes an unacceptable incidence or severity of side effects, or further development may be slowed down by the need to find dosing regimens that do not cause such side effects.

        In addition, we may not be able to successfully commence and complete all of our planned clinical trials without significant additional resources and expertise because we have a number of potential products in clinical development. The approval process takes many years, requires the expenditure of substantial resources, and may involve post-marketing surveillance and requirements for post-marketing studies. The approval of a product candidate may depend on the acceptability to the FDA or other regulatory agencies of data from our clinical trials. Regulatory requirements are subject to frequent change. Delays in obtaining regulatory approvals may:

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adversely affect the successful commercialization of any drugs that we develop;



•

impose costly procedures on us;



•

diminish any competitive advantages that we may attain; and



•

adversely affect our receipt of any revenues or royalties.

        In addition, we may encounter regulatory delays or failures of our clinical trials as a result of many factors, all of which may increase the costs and expense associated with the trial, including:

•

changes in regulatory policy during the period of product development;



•

delays in obtaining sufficient supply of materials to enroll and complete clinical studies according to planned timelines;



•

delays in obtaining regulatory approvals to commence a study;



•

delays in identifying and reaching agreement on acceptable terms with prospective clinical trial sites;



•

delays in the enrollment of patients;



•

lack of efficacy during clinical trials; or



•

unforeseen safety issues.

        Regulatory review of our clinical trial protocols may cause us in some cases to delay or abandon our planned clinical trials. Our potential inability to commence or continue clinical trials, to complete the clinical trials on a timely basis or to demonstrate the safety and efficacy of our potential products, further adds to the uncertainty of regulatory approval for our potential products.

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We may be unable to enroll a sufficient number of patients in a timely manner in order to complete our clinical trials.

        The rate of completion of clinical trials is significantly dependent upon the rate of patient enrollment. Patient enrollment is a function of many factors, including:

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the size of the patient population;



•

perceived risks and benefits of the drug under study;



•

availability of competing therapies, including those in clinical development;



•

availability of clinical drug supply;



•

availability of clinical trial sites;



•

design of the protocol;



•

proximity of and access by patients to clinical sites;



•

patient referral practices of physicians;



•

eligibility criteria for the study in question; and



•

efforts of the sponsor of and clinical sites involved in the trial to facilitate timely enrollment.

        We may have difficulty obtaining sufficient patient enrollment or clinician support to conduct our clinical trials as planned, and we may need to expend substantial additional funds to obtain access to resources or delay or modify our plans significantly. These considerations may result in our being unable to successfully achieve our projected development timelines, or potentially even lead us to consider the termination of ongoing clinical trials or development of a product for a particular indication.

Changes in the U.S. and international health care industry, including regarding reimbursement rates, could adversely affect the commercial value of our development product candidates.

        The U.S. and international health care industry is subject to changing political, economic and regulatory influences that may significantly affect the purchasing practices and pricing of pharmaceuticals. The FDA and other health care policies may change, and additional government regulations may be enacted, which could prevent or delay regulatory approval of our product candidates. Cost containment measures, whether instituted by health care providers or imposed by government health administration regulators or new regulations, could result in greater selectivity in the purchase of drugs. As a result, third-party payers may challenge the price and cost effectiveness of our products. In addition, in many major markets outside the United States, pricing approval is required before sales may commence. As a result, significant uncertainty exists as to the reimbursement status of approved health care products.

        We may not be able to obtain or maintain our desired price for the products we develop. Any product we introduce may not be considered cost effective relative to alternative therapies. As a result, adequate third-party reimbursement may not be available to enable us to obtain or maintain prices sufficient to realize an appropriate return on our investment in product development, should any of our development products be approved for marketing. Also, the trend towards managed health care in the United States and the concurrent growth of organizations such as health maintenance organizations, as well as legislative proposals to reform health care or reduce government insurance programs, may all result in lower prices, reduced reimbursement levels and diminished markets for our development products. These factors will also affect the products that are marketed by our collaborators and licensees. We cannot predict the likelihood, nature or extent of adverse government regulation that may arise from future legislation or administrative action, either in the United States or abroad. If we are

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not able to maintain regulatory compliance, we might not be permitted to market our future products and our business could suffer.

We rely on sole source, third parties to manufacture our products.

        We do not have the capability to manufacture any of our development-stage products. We rely upon third parties, including Biogen Idec and Genmab, for our manufacturing requirements. In connection with PDL's recent sale of its manufacturing facility to Genmab, PDL entered into a supply agreement with Genmab that has an initial term that expires in March 2010. In connection with the spin-off, PDL assigned such supply agreement to us. If we experience supply problems with our manufacturing partners, there may not be sufficient supplies of our development-stage products for us to meet clinical trial demand, in which case our operations and results could suffer.

        Our products must be manufactured in FDA-approved facilities and the process for qualifying and obtaining approval for a manufacturing facility is time-consuming. The manufacturing facilities on which we rely will be subject to ongoing, periodic unannounced inspection by the FDA and state agencies to ensure compliance with good manufacturing practices.

        If our relationship with Genmab or Biogen Idec were to terminate unexpectedly or on short notice or expire without being renewed, our ability to meet clinical trial demand for our development-stage products could be adversely affected while we qualify a new manufacturer for that product and our operations and future results could suffer. In addition, we would need to expend significant amounts to qualify a new manufacturer and transfer technology to the new manufacturer which would also adversely affect our results of operations.

        Product supply interruptions, whether as a result of regulatory action or the termination of a relationship with a manufacturer, could significantly delay clinical development of our potential products, reduce third-party or clinical researcher interest and support of proposed clinical trials, and possibly delay commercialization and sales of these products.

        Our ability to file for, and to obtain, regulatory approvals for our products, as well as the timing of such filings, will depend on the abilities of the contract manufacturers we engage. We or our contract manufacturers may encounter problems with the following:

•

production yields;



•

quality control and assurance;



•

availability of qualified personnel;



•

availability of raw materials;



•

adequate training of new and existing personnel;



•

ongoing compliance with standard operating procedures;



•

ongoing compliance with FDA regulations;



•

production costs; and



•

development of advanced manufacturing techniques and process controls.

Manufacturing changes may result in delays in obtaining regulatory approval or marketing for our products.

        If we make changes in the manufacturing process, we may be required to demonstrate to the FDA and corresponding foreign authorities that the changes have not caused the resulting drug material to differ significantly from the drug material previously produced. Further, any significant manufacturing

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changes for the production of our product candidates could result in delays in development or regulatory approval or in the reduction or interruption of commercial sales of our product candidates. Our or our contract manufacturers' inability to maintain manufacturing operations in compliance with applicable regulations within our planned time and cost parameters could materially harm our business, financial condition and results of operations.

        We have made manufacturing changes and are likely to make additional manufacturing changes for the production of our products currently in clinical development. These manufacturing changes or an inability to immediately show comparability between the older material and the newer material after making manufacturing changes could result in delays in development or regulatory approvals or in reduction or interruption of commercial sales and could impair our competitive position.

Our business may be harmed if we cannot obtain sufficient quantities of raw materials.

        We depend on outside vendors for the supply of raw materials used to produce our product candidates for use in clinical trials. Once a supplier's materials have been selected for use in the manufacturing process, the supplier in effect becomes a sole or limited source of that raw material due to regulatory compliance procedures. If the third-party suppliers were to cease production or otherwise fail to supply us with quality raw materials and we were unable to contract on acceptable terms for these services with alternative suppliers, our ability to produce our products and to conduct preclinical testing and clinical trials of product candidates would be adversely affected. This could impair our competitive position.

We must comply with extensive government regulations and laws.

        We and our collaboration partners are subject to extensive regulation by federal government, state governments, and the foreign countries in which we conduct our business.

        In particular, we are subject to extensive and rigorous government regulation as a developer of drug products. For example, the FDA regulates, among other things, the development, testing, research, manufacture, record-keeping, labeling, storage, approval, quality control, adverse event reporting, advertising, promotions, sale and distribution of biotechnology products. Our product candidates are subject to extensive regulation by foreign governments. The regulatory review and approval process, which includes preclinical studies and clinical trials of each product candidate, is lengthy, expensive and uncertain.

        We must rely on our contract manufacturers and third-party suppliers for regulatory compliance and adhering to the FDA's current Good Manufacturing Practices ("cGMP") requirements. If these manufacturers or suppliers fail to comply with applicable regulations, including FDA pre-or post-approval inspections and cGMP requirements, then the FDA could sanction us. These sanctions could include fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing approval of our products, delay, suspension or withdrawal of approvals, license revocation, product seizures or recalls, operational restrictions or criminal prosecutions, any of which could significantly and adversely affect our business.

        If our operations are found to violate any applicable law or other governmental regulations, we may be subject to civil and criminal penalties, damages and fines. Similarly, if the hospitals, physicians or other providers or entities with which we do business are found non-compliant with applicable laws, they may be subject to sanctions, which could also have a negative impact on us. The risk of our being found in violation of these laws is increased by the fact that many of them have not been fully interpreted by the regulatory authorities or the courts, and their provisions are open to a variety of interpretations, and additional legal or regulatory change. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses, divert our management's attention from the operation of our business and damage our reputation.

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        We expend a significant amount on compliance efforts and such expenses are unpredictable and may adversely affect our results. Changing laws, regulations and standards may also create uncertainty and increase insurance costs. We are committed to compliance and maintaining high standards of corporate governance and public disclosure. As a result, we intend to invest all reasonably necessary resources to comply with evolving standards, and this investment may result in increased general and administrative expenses and a diversion of management time and attention from revenue-generating activities to compliance activities.

We may be unable to obtain or maintain regulatory approval for our products.

        Even if the FDA grants us marketing approval for a product, the FDA may impose post-marketing requirements, such as:

•

labeling and advertising requirements, restrictions or limitations, such as the inclusion of warnings, precautions, contra-indications or use limitations that could have a material impact on the future profitability of our product candidates;



•

adverse event reporting;



•

testing and surveillance to monitor our product candidates and their continued compliance with regulatory requirements; and



•

inspection of products and manufacturing operations and, if any inspection reveals that the product or operation is not in compliance, prohibiting the sale of all products, suspending manufacturing or withdrawing market clearance.

        The discovery of previously unknown problems with our product candidates, including adverse events of unanticipated severity or frequency, may result in restrictions of the products, including withdrawal from manufacture. Additionally, certain material changes affecting an approved product such as manufacturing changes or additional labeling claims are subject to further FDA review and approval. The FDA may revisit and change its prior determination with regard to the safety or efficacy of our products and withdraw any required approvals after we obtain them. Even prior to any formal regulatory action requiring labeling changes or affecting manufacturing, we could voluntarily decide to cease the distribution and sale or recall any of our future products if concerns about their safety and efficacy develop.

        As part of the regulatory approval process, we or our contractors must demonstrate the ability to manufacture the pharmaceutical product to be approved. Accordingly, the manufacturing process and quality control procedures are required to comply with the applicable FDA cGMP regulations and other regulatory requirements. Good manufacturing practice regulations include requirements relating to quality control and quality assurance as well as the corresponding maintenance of records and documentation. Manufacturing facilities must pass an inspection by the FDA before initiating commercial manufacturing of any product. Pharmaceutical product manufacturing establishments are also subject to inspections by state and local authorities as well as inspections by authorities of other countries. To supply pharmaceutical products for use in the United States, foreign manufacturing establishments must comply with these FDA approved guidelines. These foreign manufacturing establishments are subject to periodic inspection by the FDA or by corresponding regulatory agencies in these countries under reciprocal agreements with the FDA. The FDA enforces post-marketing regulatory requirements, such as cGMP requirements, through periodic unannounced inspections. Failure to pass an inspection could disrupt, delay or shut down our manufacturing operations. Although we do not have currently marketed products, the foregoing considerations would be important to our future selection of contract manufacturers.

        Our collaborators, licensees and we also are subject to foreign regulatory requirements regarding the manufacture, development, marketing and sale of pharmaceutical products and, if the particular

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product is manufactured in the United States, FDA and other U.S. export provisions. These requirements vary widely in different countries. Difficulties or unanticipated costs or price controls may be encountered by us or our licensees or marketing collaborators in our respective efforts to secure necessary governmental approvals. This could delay or prevent us, our licensees or our marketing collaborators from marketing potential pharmaceutical products.

        Further, regulatory approvals may be withdrawn if we do not comply with regulatory standards or if problems with our products occur. In addition, under a BLA, the manufacturer continues to be subject to facility inspection and the applicant must assume responsibility for compliance with applicable pharmaceutical product and establishment standards. If we fail to comply with applicable FDA and other regulatory requirements at any stage during the regulatory process, we may be subject to sanctions, including:

•

warning letters;



•

clinical holds;



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product recalls or seizures;



•

changes to advertising;



•

injunctions;



•

refusal of the FDA to review pending market approval applications or supplements to approval applications;



•

total or partial suspension of product manufacturing, distribution, marketing and sales;



•

civil penalties;



•

withdrawals of previously approved marketing applications; and



•

criminal prosecutions.

We may incur significant costs in order to comply with environmental regulations or to defend claims arising from accidents involving the use of hazardous materials.

        We are subject to federal, state and local laws and regulations governing the use, discharge, handling and disposal of materials and wastes used in our operations. As a result, we may be required to incur significant costs to comply with these laws and regulations. We cannot eliminate the risk of accidental contamination or injury from these materials. In the event of such an accident, we could be held liable for any resulting damages and incur liabilities, which exceed our resources. In addition, we cannot predict the extent of the adverse effect on our business or the financial and other costs that might result from any new government requirements arising out of future legislative, administrative or judicial actions.

We may be subject to product liability claims, and our insurance coverage may not be adequate to cover these claims.

        We face an inherent business risk of exposure to product liability claims in the event that the use of products during research and development efforts or after commercialization results in adverse effects. This risk exists even with respect to any products that receive regulatory approval for commercial sale. While we maintain liability insurance for our products, it may not be sufficient to satisfy any or all liabilities that may arise. Also, adequate insurance coverage may not be available in the future at acceptable cost, if at all.

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Risks Relating to Our Common Stock

There is no existing market for our common stock and a trading market that will provide you with adequate liquidity may not develop for our common stock. In addition, once our common stock begins trading, the market price for our shares may fluctuate widely.

        There is currently no public market for our common stock. It is anticipated that on or shortly after the record date for the distribution, trading of shares of our common stock will begin on a "when-issued" basis and will continue up to either the distribution date or the first trading date after the distribution date, after which "regular way" trading of our common stock will begin. However, there can be no assurance that an active trading market for our common stock will develop as a result of the distribution or be sustained in the future.

        Market prices for securities of biotechnology companies have been highly volatile, and we expect such volatility to continue for the foreseeable future, so that investment in our securities involves substantial risk. Additionally, the stock market from time to time has experienced significant price and volume fluctuations unrelated to the operating performance of particular companies. The following are some of the factors that may have a significant effect on the market price of our common stock:

•

developments or disputes as to patent or other proprietary rights;



•

approval or introduction of competing products and technologies;



•

results of clinical trials;



•

failures or unexpected delays in timelines for our potential products in development, including the obtaining of regulatory approvals;



•

delays in manufacturing or clinical trial plans;



•

fluctuations in our operating results;



•

market reaction to announcements by other biotechnology or pharmaceutical companies;



•

initiation, termination or modification of agreements with our collaborators or disputes or disagreements with collaborators;



•

loss of key personnel;



•

litigation or the threat of litigation;



•

public concern as to the safety of drugs developed by us;



•

sales of our common stock held by insiders; and



•

comments and expectations of results made by securities analysts or investors.

        If any of these factors causes us to fail to meet the expectations of securities analysts or investors, or if adverse conditions prevail or are perceived to prevail with respect to our business, the price of the common stock would likely drop significantly. A significant drop in the price of a company's common stock often leads to the filing of securities class action litigation against the Company. This type of litigation against us could result in substantial costs and a diversion of management's attention and resources.

Substantial sales of common stock may occur in connection with this distribution, which could cause our stock price to decline.

        The shares of our common stock that PDL intends to distribute to its stockholders generally may be sold immediately in the public market. Although we have no actual knowledge of any plan or intention on the part of any 5% or greater stockholder to sell our common stock following the

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distribution, we believe that many current PDL stockholders are particularly focused on the value of the Royalty Business. Therefore, it is possible that some PDL stockholders, including possibly some of our large stockholders, will sell our common stock received in the distribution. In addition, PDL stockholders may sell our stock because our business profile or market capitalization as an independent company does not fit their investment objectives. The sales of significant amounts of our common stock or the perception in the market that this will occur may result in the lowering of the market price of our common stock.

Your percentage ownership in BioCo may be diluted in the future.

        Your percentage ownership in BioCo may be diluted in the future because of equity awards that we expect will be granted to our directors, officers and employees as well as other equity instruments such as debt and equity financing. Prior to the separation and record date for the distribution, we expect PDL will approve the BioCo 2008 Equity Incentive Plan (the "2008 Equity Incentive Plan"), which will provide for the grant of equity-based awards, including restricted stock, restricted stock units, stock options, stock appreciation rights and other equity-based awards, to our directors, officers and other employees, advisors and consultants.

        For a more detailed description of the 2008 Equity Incentive Plan, see "Management—Executive Compensation."

Provisions in our certificate of incorporation and bylaws and of Delaware law may prevent or delay an acquisition of our company, which could decrease the trading price of our common stock.

        Our certificate of incorporation, bylaws and Delaware law contain provisions that are intended to deter coercive takeover practices and inadequate takeover bids by making such practices or bids unacceptably expensive to the raider and to encourage prospective acquirors to negotiate with our Board rather than to attempt a hostile takeover. These provisions include, among others:

•

no right of our stockholders to act by written consent;



•

procedures regarding how stockholders may present proposals or nominate directors for election at stockholder meetings;



•

the right of our Board to issue preferred stock without stockholder approval; and



•

no stockholder rights to call a special stockholders meeting.

        Delaware law also imposes some restrictions on mergers and other business combinations between us and any holder of 15% or more of our outstanding common stock. For more information, see "Description of Capital Stock."

        We believe these provisions protect our stockholders from coercive or otherwise unfair takeover tactics by requiring potential acquirors to negotiate with our Board and by providing our Board with more time to assess any acquisition proposal. These provisions are not intended to make our company immune from takeovers. However, these provisions apply even if the offer may be considered beneficial by some stockholders and could delay or prevent an acquisition that our Board determines is not in the best interests of our company and our stockholders.

We do not expect to pay any dividends in the foreseeable future.

        We do not expect to declare dividends in the foreseeable future. We currently intend to retain any potential future earnings to support our operations and to finance the growth and development of our business. There can be no assurance that we will have sufficient surplus under Delaware law to be able to pay any dividends.

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Forward-Looking Statements

        This Information Statement contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended. All statements other than statements of historical facts are "forward-looking statements" for purposes of these provisions, including any projections of earnings, revenues or other financial items, any statements of the plans and objectives of management for future operations, including any statements concerning proposed new products or licensing or collaborative arrangements, any statements regarding future economic conditions or performance, and any statement of assumptions underlying any of the foregoing. In some cases, forward-looking statements can be identified by the use of terminology such as "may," "will," "expects," "plans," "anticipates," "estimates," "potential," or "continue" or the negative thereof or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable, there can be no assurance that such expectations or any of the forward-looking statements will prove to be correct, and actual results could differ materially from those projected or assumed in the forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to inherent risks and uncertainties, including but not limited to the risk factors set forth below, and for the reasons described elsewhere in this Information Statement. All forward-looking statements and reasons why results may differ included in this Information Statement are made as of the date hereof, and we assume no obligation to update these forward-looking statements or reasons why actual results might differ.

        We neither have any intention, nor do we assume any obligation, to update any forward-looking statements after we distribute this Information Statement, even if new information becomes available in the future.

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The Spin-Off

Reasons for the Spin-Off

        PDL was organized as a Delaware corporation in 1986 under the name Protein Design Labs, Inc. In 2006, PDL changed its name to PDL BioPharma, Inc. PDL operated three businesses: (1) the Biotechnology Business, (2) the Royalty Business and (3) commencing in early 2005, the development, sale and marketing of non-antibody commercial products, referred to as the "Commercial and Cardiovascular Business."

        In early 2007, the PDL Board undertook a strategic evaluation of PDL's businesses. That review led to a decision announced on October 1, 2007 to seek the sale of PDL as a whole or its key assets (the "sale process"). During the strategic review and the sale process, PDL's Board examined numerous strategic alternatives. As a result of the process, in March 2008, PDL sold its Commercial and Cardiovascular Business in two separate transactions, and sold its manufacturing facility which comprised part of the Biotechnology Business.

        During and in connection with the sale process, PDL's Board explored, in consultation with financial and legal advisors, strategic alternatives available to increase long-term stockholder value from the Biotechnology Business and the Royalty Business. While the two remaining businesses were historically related, they have different business models, distinct cost structures and can be operated independently with limited operational overlap. The interests of investors generally appeared to be focused on one or the other of these businesses, and few investors appeared to be interested in both. In addition, potential acquirers who might be interested in either one of theses assets may not necessarily be interested in the other. After consideration of these and other factors, PDL's Board believed that maximizing value to stockholders may best be achieved by the separation and independent operation of the Biotechnology Business and the Royalty Business.

        Accordingly in April 2008, PDL's Board decided to pursue the separation of the two remaining businesses through the spin-off. On April 10, 2008, PDL announced that its Board had authorized in principle the distribution of our common stock to PDL's stockholders in a spin-off of the Biotechnology Business from PDL.

        PDL and we believe that the spin-off of our Biotechnology Business from PDL will provide several opportunities and benefits that are expected to enhance stockholder value, including the following:

•

Business Focus.  Each company will be better able to focus its efforts on and allocate its resources towards its own business opportunities and challenges, with the management of BioCo focusing on the discovery and development of antibody therapeutics and the management of PDL focusing its efforts to maximize the value of the royalties from the licensing of its antibody humanization patents;



•

Market Recognition.  The investment community, including analysts, stockholders and prospective investors in each company, will be better able to realize the value of each company fully and independently and enhance the market recognition of each company with investors;



•

Securing the Humanization Royalty Stream.  The separation provided by the spin-off will ensure that PDL's future antibody humanization royalties accrue directly to the benefit of PDL stockholders and will not be used to fund the Biotechnology Business; and



•

Employee Incentives.  We will be able to increase our ability to attract and retain employees by providing equity compensation tied directly to our performance, and our research and development efforts in particular.

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Manner of Effecting the Spin-Off

        The general terms and conditions of the spin-off will be set forth in the Separation and Distribution Agreement to be entered into by PDL and us. For a description of the expected terms of that agreement, see "Our Relationship with PDL after the Spin-Off—Separation and Distribution Agreement."

         Overview.    The spin-off will be accomplished through a series of transactions, pursuant to the terms and conditions of the Separation and Distribution Agreement, by which PDL will contribute to BioCo its Biotechnology Business, including certain intellectual property, but not PDL's antibody humanization patents, and distribute to its stockholders of record all of the outstanding shares of BioCo's common stock. As discussed under "The Spin-Off—Trading of PDL Common Stock After the Record Date and Prior to the Ex-Dividend Date," if a holder of record of PDL common stock sells those shares in the "regular way" market prior to the ex-dividend date, that stockholder also will be selling the right to receive shares of BioCo common stock in the distribution. The distribution will be made in book-entry form on the basis of one share of BioCo common stock for every five shares of PDL common stock held on the record date of [                                    ], 2008. We will instruct BNY Mellon Shareowner Services, as distribution agent, to record the distribution on the distribution date to the holders of PDL common stock at the close of business on the record date (or their designated transferees) unless the shares of PDL common stock had been sold prior to the ex-dividend date. Each share of BioCo common stock that PDL distributes will be validly issued, fully paid and nonassessable and free of preemptive rights.

         Fractional Shares.    PDL will not distribute any fractional shares of our common stock to its stockholders. Instead, the distribution agent will aggregate fractional shares into whole shares, sell the whole shares in the open market at prevailing market prices and distribute the aggregate net cash proceeds of the sales pro rata (based on the fractional share such holder would otherwise be entitled to receive) to each holder who otherwise would have been entitled to receive a fractional share in the distribution. The distribution agent, in its sole discretion, without any influence by PDL or us, will determine when, how, through which broker-dealer and at what price to sell the whole shares. Any broker-dealer used by the distribution agent will not be an affiliate of either PDL or us. Recipients of cash in lieu of fractional shares will not be entitled to any interest on the amounts of payment made in lieu of fractional shares. If you physically hold PDL common stock certificates and are the registered holder, you will receive a check from the distribution agent in an amount equal to your pro rata share of the aggregate net cash proceeds of the sales. We estimate that it will take approximately four to six weeks from the distribution date for the distribution agent to complete the distributions of the aggregate net cash proceeds. If you hold your PDL common stock through a bank or brokerage firm, your bank or brokerage firm will receive on your behalf your pro rata share of the aggregate net cash proceeds of the sales, which should electronically credit your account for your share of such proceeds.

         Book Entry Statements.    A book-entry account statement reflecting your ownership of shares of BioCo common stock will be mailed to you, or your brokerage account should be credited for the shares, on or about [                                    ], 2008. We will not issue physical stock certificates in the spin-off, even if requested.

         Cash Contribution.    At the closing of the spin-off, PDL will provide BioCo cash and cash equivalents amounting to $375 million, which amount will be increased by any milestones or similar payments received by PDL on or prior to the distribution date related to the Biotechnology Business. We expect that this initial cash contribution, as well as future payments from our collaboration agreement with Biogen Idec, the asset purchase agreement with EKR and certain other agreements, each of which is being assigned to BioCo, would fund BioCo's operations and working capital requirements for approximately the next three years after the closing of the spin-off, based on current operating plans.

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Formation of a Holding Company Prior to the Spin-Off

        In connection with and prior to the spin-off, PDL organized BioCo in July 2008 as a Delaware corporation for the purpose of transferring to BioCo the Biotechnology Business and completing the spin-off.

Results of the Spin-Off

        Following the spin-off, BioCo will be an independent, publicly traded company owning and operating what had previously been PDL's Biotechnology Business. We expect to have approximately 23.9 million shares of our common stock issued and outstanding immediately following the spin-off based on the distribution ratio described above and the anticipated number of outstanding shares of PDL common stock on [                                    ], 2008, the record date. The actual number of shares to be distributed will be determined based on the number of shares of PDL common stock outstanding on the record date and will be reduced to the extent that cash payments are to be made in lieu of the issuance of fractional shares of our common stock and to the extent that shares of our common stock are held back and sold on the market to satisfy backup withholding taxes and non-U.S. holder dividend withholding taxes and brokerage and other costs, and may be increased if PDL option holders exercise any stock options prior to the record date.

Certain U.S. Federal Income Tax Consequences

        The following summarizes certain U.S. federal income tax consequences of the distribution by PDL of shares of our common stock to holders of PDL common stock. This summary is based on the Internal Revenue Code of 1986, as amended (the "Code"), Treasury regulations promulgated thereunder and judicial and administrative interpretations of the Code and the Treasury regulations, all as in effect on the date hereof and is subject to change, possibly with retroactive effect. This summary assumes that the distribution will be consummated in accordance with the Separation and Distribution Agreement and as described in this Information Statement. This summary is for general information only and does not purport to be a complete description of the tax consequences of the distribution nor does it address the effects of any estate, gift or other non-income federal tax laws or any state, local or non-U.S. tax laws on the distribution. The tax treatment of a PDL stockholder may vary depending upon that stockholder's particular situation, and certain stockholders (including, but not limited to, insurance companies, tax-exempt organizations, financial institutions, broker-dealers, partners in partnerships that hold stock in PDL, pass-through entities, traders in securities who elect to apply a mark-to-market method of accounting, stockholders who hold their PDL stock as part of a "hedge," "straddle," "conversion," or "constructive sale transaction," and individuals who received shares of PDL common stock upon the exercise of employee stock options or otherwise as compensation) may be subject to special rules not discussed below. The summary is limited to stockholders that hold their shares of PDL common stock as a capital asset within the meaning of Section 1221 of the Code.

        You are urged to consult your own tax advisor as to the particular tax consequences of the distribution to you, including the applicability and effect of any U.S. federal, state, and local and non-U.S. tax laws and of changes in applicable tax laws.

        For purposes of this summary, a "U.S. Holder" means a beneficial owner of shares of PDL common stock that for U.S. federal income tax purposes is (1) an individual citizen or resident of the United States, (2) a corporation or other entity subject to tax as a corporation that is created or organized under the laws of the United States or any state thereof or the District of Columbia, (3) an estate the income of which is subject to U.S. federal income taxation regardless of its source, or (4) a trust (A) if a court within the United States is able to exercise primary supervision over its administration and one or more U.S. persons have the authority to control all of its substantial decisions or (B) that has made a valid election to be treated as a U.S. person for such purposes. A

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"Non-U.S. Holder" is a beneficial owner (other than an entity treated as a partnership for U.S. federal income tax purposes) of shares of PDL common stock who is not a U.S. Holder. If an entity treated as a partnership for U.S. federal income tax purposes owns shares of PDL common stock, the tax treatment of a partner in the partnership generally will depend upon the status of the partner and the activities of the partnership. Partners in a partnership that own shares of PDL common stock should consult their own tax advisor as to the particular tax consequences applicable to them.

U.S. Holders

        A U.S. Holder receiving our shares in the distribution will be treated as receiving a distribution of property equal to the fair market value of the shares received (including any fractional shares deemed to be received, as described below) on the distribution date. That distribution will be treated as taxable dividend income to the extent of such holder's ratable share of PDL's 2008 earnings and profits, if any. If the aggregate amount of distributions made during PDL's 2008 taxable year (including the $4.25 cash per share of common stock distributed to PDL stockholders in May 2008, the value of the BioCo shares distributed and any other distributions during the year) exceed PDL's 2008 earnings and profits, the portion of each distribution treated as a taxable dividend will generally be based on the ratio of PDL's 2008 earnings and profits for the year (without regard to distributions) to total distributions made during the year. Any amount of the distribution that exceeds a U.S. Holder's ratable share of PDL's 2008 earnings and profits will be treated first as a tax-free return of capital to the extent of the U.S. Holder's adjusted tax basis in its shares of PDL common stock (thus reducing such adjusted tax basis until such basis is reduced to zero) with any remaining amount being treated as capital gain. Such capital gain will be long-term capital gain if the U.S. Holder's holding period for its shares of PDL common stock exceeds one year on the distribution date.

        A U.S. Holder's tax basis in shares of our common stock received in the distribution (including any fractional shares deemed to be received, as described below) generally will equal the fair market value of such shares on the distribution date, and the holding period for such shares will begin the day after the distribution date. The holding period for the U.S. Holder's shares of PDL common stock will not be affected by the distribution.

        Any cash received by a U.S. Holder in lieu of a fractional share of our common stock should be treated as if such fractional share had been received by the U.S. Holder as part of the distribution and then sold by such holder for such amount of cash received. Accordingly, such holder generally should recognize capital gain or loss equal to the difference, if any, between the cash so received and the amount of tax basis allocable to such fractional share.

        The actual tax impact of the distribution will be affected by a number of factors that are unknown at this time, including PDL's final earnings and profits for 2008 (including the gain, if any, PDL recognizes upon the distribution) and the fair market value on the distribution date of our common stock. Thus, a definitive calculation of the U.S. federal income tax impact on a U.S. Holder will not be possible until after the close of PDL's 2008 taxable year. PDL will notify U.S. Holders of the tax attributes and amount of the distribution on an IRS Form 1099-DIV. Although PDL will ascribe a value to our shares in this distribution for tax purposes, this valuation is not binding on the IRS or any other tax authority. These taxing authorities could ascribe a higher valuation to our shares, particularly if our stock trades at prices significantly above the value ascribed to our shares by PDL in the period following the distribution.

        Corporate U.S. Holders may be entitled to a dividends-received deduction with respect to the distribution for U.S. federal income tax purposes, subject to certain limitations and requirements. Corporate U.S. Holders should be aware that under certain circumstances, a corporation that receives an "extraordinary dividend" is required to (1) reduce its tax basis (but not below zero) by the portion of such dividend that is not taxed because of the dividends received deduction and (2) treat the

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non-taxed portion of such dividend as gain from the sale or exchange of the distributing corporation's stock for the taxable year in which such dividend is received (to the extent that the non-taxed portion of such dividend exceeds such holder's tax basis). A dividend paid on common stock is generally deemed to be "extraordinary" for this purpose if the amount of such dividend equals or exceeds ten percent of the U.S. Holder's adjusted basis in such share of stock.

        Individual and certain other non-corporate U.S. Holders may qualify for preferential rates of taxation with respect to their taxable dividend income, provided that a minimum holding period and other requirements are satisfied. Such U.S. Holders who receive an "extraordinary dividend" will be required to treat any losses on the sale of PDL common stock as long-term capital losses to the extent such taxable dividend income received by them qualifies for preferential rates of taxation.

        U.S. Holders should consult their own tax advisor with respect to the potential application of the extraordinary dividend rules to the distribution of shares of our common stock.

        In general, information regarding the amount of any dividends paid to U.S. Holders is reported to the IRS unless an exception applies. In addition, backup U.S. federal income tax withholding may apply with respect to the amount of the distribution of our shares of common stock treated as a dividend paid to a U.S. Holder, unless the U.S. Holder provides a correct taxpayer identification number (which, in the case of an individual, is his or her social security number) and certifies whether such U.S. holder is subject to backup withholding of U.S. federal income tax by properly completing and executing an IRS Form W-9 (or successor form) or otherwise establishes a basis for exemption from backup withholding. Some U.S. Holders (including, among others, corporations) are not subject to these backup withholding and information reporting requirements. If backup withholding is required, shares of our common stock will be held back and sold on the market to the extent necessary to remit cash to the IRS and to pay brokerage and other costs.

Non-U.S. Holders

        The treatment, for U.S. federal income tax purposes, of the distribution of our shares as a taxable dividend, a tax-free return of capital or as a capital gain for Non-U.S. Holders will be determined in the manner described above under "U.S. Holders."

        To the extent that amounts received by a Non-U.S. Holder are treated as taxable dividends, such dividends generally will be subject to U.S. withholding tax at a rate of 30% unless such holder is entitled to an exemption from or reduced rate of withholding tax under an applicable income tax treaty. To receive a reduced treaty rate, a Non-U.S. Holder must provide to our distribution agent BNY Mellon Shareowner Services, prior to the distribution, with a properly completed and executed IRS Form W-8BEN (or successor form).

        Amounts treated as taxable dividends received by a Non-U.S. Holder that are effectively connected with a U.S. trade or business conducted by the Non-U.S. Holder (and, if an income tax treaty applies, are attributable to a Non-U.S. Holder's permanent establishment in the United States) are exempt from this withholding tax. To obtain this exemption, a Non-U.S. Holder must provide our distribution agent BNY Mellon Shareowner Services, prior to the distribution, with a properly completed and executed IRS Form W-8ECI (or successor form). Effectively connected dividends (and, if an income tax treaty applies, dividends attributable to a permanent establishment), although not subject to withholding tax, are subject to U.S. federal income tax at the same graduated rates applicable to U.S. persons, net of certain deductions and credits. In addition, dividends received by a corporate Non-U.S. Holder that are effectively connected with a U.S. trade or business of the corporate Non-U.S. Holder (and, if an income tax treaty applies, are attributable to a corporate Non-U.S. Holder's permanent establishment in the United States) may also be subject to a branch profits tax at a rate of 30% (or such lower rate as may be specified in an applicable income tax treaty).

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        Because a definitive calculation of the U.S. federal income tax impact of the distribution will not be possible until after the close of PDL's 2008 taxable year (as described above under "U.S. Holders"), PDL and other applicable withholding agents will withhold an amount equal to 30% of the fair market value of our common stock distributed to a Non-U.S. Holder (as if the gross amount of such distribution was a taxable dividend) unless a reduced rate of withholding or an exemption from withholding is applicable. In addition, because the distribution is an in-kind distribution, PDL and other applicable withholding agents will collect the amount required to be withheld (to the extent any cash in lieu of fractional shares is insufficient) by reducing to cash for remittance to the IRS a sufficient portion of the shares of our common stock that a Non-U.S. Holder would otherwise receive and such Non-U.S. Holder may bear brokerage or other costs for this withholding procedure. Non-U.S. Holders should consult their own tax advisors regarding their entitlement to benefits under an applicable treaty or other exemption and the manner of claiming the benefits of such treaty or other exemption.

        Non-U.S. Holders may be eligible to obtain a refund of any excess amounts currently withheld if (1) all or a portion of the distribution is treated as a tax-free return of capital or capital gain or (2) the Non-U.S. Holder is eligible for a reduced rate of withholding tax pursuant to an applicable income tax treaty.

        Generally, PDL must report annually to the IRS the amount of dividends paid, the name and address of the recipient, and the amount, if any, of tax withheld. A similar report is sent to the holder. Pursuant to income tax treaties or other agreements, the IRS may make its reports available to tax authorities in the Non-U.S. Holder's country of residence.

        Payments of dividends made to Non-U.S. Holders may be subject to additional information reporting and backup withholding. Backup withholding will not apply if the Non-U.S. Holder establishes an exemption, for example, by properly certifying its non-U.S. status on an IRS Form W-8BEN (or successor form). Notwithstanding the foregoing, backup withholding may apply if either PDL or PDL's paying agent has actual knowledge, or reason to know, that the holder is a U.S. person.

        Backup withholding is not an additional tax. Rather, the U.S. income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of U.S. federal income tax, a credit or refund may be obtained, provided that the required information is furnished to the IRS in a timely manner.

Market for Our Common Stock; Trading of Our Common Stock in Connection with the Spin-Off

        There is currently no trading market for our common stock. We will apply to have our common stock authorized for listing on the Nasdaq Global Market under the symbol "[                                    ] ". We expect that a limited market, commonly known as a "when-issued" trading market, for our common stock will develop on or shortly after [                                    ], 2008, the record date of the distribution. The term "when-issued" means that our shares will trade even though PDL has not yet issued and distributed the BioCo shares. "When-issued" trading in our common stock will end and "regular way" trading will begin either on the distribution date or the first trading date after the distribution date. "Regular way" trading with respect to our common stock refers to trading after PDL has issued and distributed BioCo shares to PDL's stockholders. Neither PDL nor we will set the initial trading price of our common stock; the public markets will establish our trading price.

        We cannot predict the price at which our common stock will trade either in the "when-issued" trading market or in the "regular way" trading market after the spin-off. In fact, the combined trading prices of a share of our common stock, adjusted for the distribution ratio, and a share of PDL common stock after the spin-off may not equal or exceed the trading price of a share of PDL common stock immediately prior to the spin-off. The price at which our common stock trades is likely to fluctuate significantly, particularly until an orderly public market develops. Prices for our common stock will be

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determined in the public markets and may be influenced by many factors, many of which are beyond our control, including:

•

lack of a trading history;



•

changes in expectations concerning our future financial performance and the future performance of the biotechnology industry in general, including financial estimates and recommendations by securities analysts;



•

the progress of our clinical trials;



•

announcements regarding existing or new collaborations;



•

our financial results and differences between our actual financial and operating results and those expected by investors and analysts;



•

strategic moves by us or our competitors, such as acquisitions or restructurings;



•

changes in the regulatory environment governing our business;



•

our capital structure, including the amount of any indebtedness;



•

general economic, industry and market conditions;



•

the depth and liquidity of the market for our common stock;



•

investor and analyst perceptions of our business and us; and



•

the impact of the factors referred to in "Risk Factors."

        We have appointed BNY Mellon Shareowner Services to serve as transfer agent and registrar for our common stock.

        Shares of our common stock distributed to holders of PDL common stock in connection with the spin-off will be transferable under the Securities Act of 1933, as amended, which we refer to as the Securities Act, except for shares received by persons who may be deemed to be our affiliates. Persons who may be deemed to be our affiliates after the spin-off generally include individuals or entities that control, are controlled by or are under common control with us and may include certain of our officers, directors or principal stockholders. After we become a publicly traded company, securities held by our affiliates will be subject to the resale restrictions under the Securities Act. Our affiliates will be permitted to sell shares of our common stock only pursuant to an effective registration statement or an exemption from the registration requirements of the Securities Act, such as the exemption afforded by Rule 144 under the Securities Act.

Trading of PDL Common Stock After the Record Date and Prior to the Ex-Dividend Date

        Beginning on the record date and through the day prior to the ex-dividend date, PDL common stock will trade "regular way" with the symbol "PDLI". On the "regular way" market, from the record date through the date before the ex-dividend date set by Nasdaq, shares of PDL common stock will trade with an entitlement to shares of our common stock distributed in connection with the spin-off. After the ex-dividend date, shares of PDL common stock will trade without an entitlement to shares of our common stock distributed in connection with the spin-off. Therefore, if you own shares of PDL common stock at 5:00 p.m. Eastern Time on the record date and sell those shares on the regular way market prior to the ex-dividend date, you also will be selling your right to receive the shares of our common stock that would have been distributed to you in connection with the spin-off. If you hold those shares of PDL common stock held on the record date through the ex-dividend date, then PDL will distribute to you shares of our common stock with respect to your ownership of those shares of PDL common stock, even if you sell the shares of PDL common stock thereafter.

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        During the time period between the record date and the ex-dividend date, we anticipate that PDL common stock will also be available to trade on an "ex-distribution when-issued market "with the symbol "PDLIV". On an "ex-distribution" market, shares of PDL common stock would trade without an entitlement to shares of our common stock distributed in connection with the spin-off. The "ex-distribution when-issued market" will cease to exist as of the ex-dividend date.

Distribution Conditions and Termination

        We expect that the distribution will be effective, and the spin-off complete, on the distribution date, [                                    ], 2008, provided that, among other things:

•

the SEC has declared effective our registration statement on Form 10, of which this Information Statement is a part, under the Exchange Act and no stop order relating to our Form 10 registration statement is in effect;



•

PDL and BioCo have received all permits, registrations and consents required under the securities or blue sky laws of states or other political subdivisions of the United States or of foreign jurisdictions in connection with the distribution;



•

PDL and BioCo have received all permits, registrations, clearances and consents from governmental authorities and third persons necessary to effect the spin-off and to permit the operation of our businesses thereafter;



•

the Nasdaq Global Market has approved our common stock for listing, subject to official notice of issuance;



•

no order, injunction or decree issued by any court of competent jurisdiction or other legal restraint or prohibition preventing consummation of the spin-off or any of the transactions related thereto, including the transfers of assets and liabilities contemplated by the Separation and Distribution Agreement, is in effect; and



•

no other events or developments shall have occurred that, in the judgment of the Board of PDL, in its sole and absolute discretion, would result in the spin-off having a material adverse effect on PDL or its stockholders.

        The fulfillment of the foregoing conditions will not create any obligation on PDL's part to effect the distribution, and the Board of PDL has reserved the right to amend, modify or abandon the distribution and the related transactions at any time prior to the distribution date. The Board of PDL may waive any of these conditions in its sole and absolute discretion.

Reason for Furnishing this Information Statement

        This Information Statement is being furnished solely to provide information to stockholders of PDL who will receive shares of BioCo common stock in connection with our spin-off. It is not provided as an inducement or encouragement to buy or sell any of our securities. You should not assume that the information contained in this Information Statement is accurate as of any date other than the date set forth on the cover. Changes to the information contained in this Information Statement may occur after that date, and we undertake no obligation to update the information.

Dividend Policy

        We do not currently anticipate paying any dividends for the foreseeable future. The declaration and payment of dividends are subject to the discretion of our Board. Any future determination to pay dividends will depend on our financial condition, earnings, capital requirements, legal requirements, regulatory constraints, contractual restrictions and other factors deemed relevant at the time by our Board.

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Capitalization

        The following table sets forth BioCo's capitalization as of March 31, 2008 on a historical basis and on a pro forma basis to give effect to the pro forma adjustments included in our unaudited pro forma condensed combined balance sheet. The pro forma adjustments are based upon available information and assumptions that management believes are reasonable; however, such adjustments are subject to change based on the finalization of the terms of the spin-off and the transaction agreements. In addition, such adjustments are estimates and may not prove to be accurate or indicative of future adjustments.

        You should read this table together with "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Unaudited Pro Forma Condensed Combined Balance Sheet" and our historical combined financial statements and the notes to those statements included elsewhere in this Information Statement.

			March 31, 2008
			Historical			Pro Forma
(In thousands, except per share amounts)			(unaudited)
Cash and cash equivalents			$	—		$	375,000	(1)
Liabilities:
	Long-term liabilities		$	31,847		$	31,847
Stockholders' equity:
		Preferred stock, $0.01 par value; none authorized, issued and outstanding; 10 million shares authorized pro forma; none issued and outstanding pro forma		—			—
		Common stock, $0.01 par value; none authorized, issued and outstanding; 140 million shares authorized pro forma; 23.6 million shares issued and outstanding pro forma		—			236	(2)
		Additional paid-in capital		—			440,109
		Accumulated other comprehensive loss		(521	)		(521	)
		Parent company investment		65,345			—
Total stockholders' equity				64,824			439,824
Total capitalization			$	96,671		$	471,671

(1)

Represents the initial cash contribution of $375 million in connection with the spin-off of the Biotechnology Business.

(2)

Represents the distribution of 23.6 million shares of our common stock to holders of PDL common stock based on the number of shares of PDL common stock outstanding at March 31, 2008.

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Our Business

        We are a biotechnology company that designs and develops antibody therapeutics for the treatment of oncology and immunologic diseases. Antibodies have become an accepted and proven therapeutic modality and numerous antibody therapeutics for a wide range of indications are currently on the market. Despite these advances, there remain many opportunities to create new and improved antibodies. Building on our years of experience in antibody engineering and design, we are focused on discovering and developing antibodies that improve upon or offer advantages over current treatment options.

        Our business strategy focuses primarily on the following two areas:

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Developing and expanding our pipeline of antibodies:  We are focused on advancing our existing clinical programs and expanding our pipeline with additional antibody development programs. We currently have four antibodies in the clinic, two in phase 2 and two in phase 1, for oncology and immunologic disease indications. We also seek to expand our pipeline either through in-house discovery or via in-licensing opportunities. Consistent with this goal, we have identified an IND candidate for a fifth antibody, our lead preclinical antibody candidate, for an immunologic disease indication.



•

Discovering new antibodies:  Building on our years of experience in the humanization of antibodies, we are leveraging our strength in antibody engineering to identify and design antibodies that target new mechanisms and disease pathways, and to improve upon the overall characteristics of antibody therapeutics. Our research efforts focus on the identification and validation of novel targets, while we also utilize our unique antibody engineering technologies to explore the development of improved next-generation antibodies.

        We believe we can leverage our key strengths to successfully implement our strategy and efficiently develop antibody therapeutics that transform medical care. Our key strengths and assets include the following:

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Our ability to engineer and optimize therapeutic antibodies and direct them to novel validated targets;



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Our process sciences capabilities to create highly efficient manufacturing of antibodies from clinical through to commercial scale;



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Our early development capabilities, including our portfolio of phase 1 and phase 2 antibody product candidates in oncology and immunology;



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Our experienced management team; and



•

Our strong cash position and balance sheet.

        We believe that strategic collaborations and licensing activities also will help us to succeed at implementing our strategy and increase the potential success of our research and development programs and the Company. Through such strategic collaborations or licensing activities, we believe we can enhance our ability to develop and expand our pipeline of antibodies and discover new antibodies.

        Strategic collaborations can help to increase the potential value of our drug development programs and our company in a number of ways, including: (1) allowing us to retain economic participation in programs, (2) supporting the discovery and development of additional antibody products, (3) bringing new capabilities and knowledge that can enhance our own research and development capabilities, (4) helping to accelerate our development timelines and (5) mitigating the overall risk of our strategy.

        Licensing activities include both in-licensing and out-licensing activities. We will continue to pursue in-licensing of antibody candidates to expand or diversify our pipeline and in-licensing of new

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technologies that may be complementary to our current antibody discovery capabilities. In addition, we intend to evaluate opportunities to develop and out-license new, proprietary antibody technologies, which we believe may provide advantages to pharmaceutical and biotechnology companies involved in the development of antibody therapeutics.

Our Product Pipeline

        We have several antibodies in various stages of development for cancer and immunologic diseases. The table below lists the antibodies for which we are pursuing development activities either on our own or in collaboration. Not all clinical trials for each product candidate are listed below.

Product Candidate	Indication/Description	Program Status	Collaborator
Daclizumab	Multiple sclerosis	Phase 2		Biogen Idec
	Asthma	Phase 2b program being evaluated		—
	Transplant Maintenance	Phase 2 program being evaluated		—
Volociximab (M200)	Solid tumors	Phase 2		Biogen Idec
Elotuzumab (HuLuc63)	Multiple myeloma	Phase 1		—
PDL192	Solid tumors	Phase 1		—
PDL241	Immunologic diseases	Preclinical		—
Other preclinical research candidates	Oncology / Immunology	Multiple candidates under evaluation

         Daclizumab.    Daclizumab is a humanized monoclonal antibody that binds to the alpha chain (CD25) of the interleukin-2 (IL-2) receptor on activated T cells, which are white blood cells that play a role in inflammatory and immune-mediated processes in the body. Daclizumab is the active component of the drug Zenapax, which has been approved for acute transplant rejection and has been marketed by Hoffmann La-Roche (Roche).

        Beyond transplant induction therapy, we believe this antibody mechanism has potential in a wide range of inflammatory diseases, including multiple sclerosis and asthma, and that it may also be effective as a maintenance therapy in patients who have undergone an organ transplant. We have created a new high-yield manufacturing process and a higher concentration formulation required to move daclizumab into these larger areas of immunological disease. Currently, we have a worldwide strategic development collaboration for daclizumab with Biogen Idec, Inc. in multiple sclerosis and other immunologic disease areas in which we share development costs and commercial rights. Outside of the Biogen Idec collaboration, BioCo wholly owns the rights for daclizumab in respiratory (asthma) and transplant maintenance indications.

         Daclizumab in Multiple Sclerosis:    We and our partner, Biogen Idec, are currently testing daclizumab as a monotherapy for relapsing multiple sclerosis in a phase 2 study. In 2007, we and Biogen Idec announced that the CHOICE trial, a phase 2, randomized, double-blind, placebo-controlled trial of daclizumab conducted in 270 patients, met its primary endpoint in relapsing MS patients being treated with interferon beta. These data showed daclizumab administered at 2 mg/kg every two weeks as a subcutaneous injection added to interferon beta therapy significantly reduced new or enlarged gadolinium-enhancing lesions at week 24 compared to interferon beta therapy alone. We and Biogen Idec continue to evaluate the results of the CHOICE study to help further inform the development of daclizumab for multiple sclerosis.

        In the first quarter of 2008, we and Biogen Idec initiated a phase 2 monotherapy trial of daclizumab, the SELECT trial, to advance the overall clinical development program in relapsing MS. This trial is currently ongoing. Results of this study will further guide the potential later stage

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development of daclizumab in which we anticipate Biogen Idec will play a lead role, leveraging their experience in the commercialization of treatments for multiple sclerosis.

         Daclizumab in Asthma:    We have previously conducted a phase 2, double-blind, placebo-controlled clinical trial for daclizumab in patients with moderate to severe asthma. This study demonstrated a statistically significant benefit in the primary and several secondary endpoints encouraging us to continue to pursue this indication. We are currently proposing additional testing for daclizumab in this area and we are in the process of outlining an appropriate development plan in discussions with the FDA.

         Daclizumab in Transplant Maintenance:    A potential extension of daclizumab clinical use is in transplant maintenance. Data from various studies have suggested a role for daclizumab in this indication, and we are evaluating opportunities and next steps for this program.

         Volociximab (M200).    Volociximab is a chimeric monoclonal antibody that inhibits the functional activity of a5ß1 integrin, a protein found on activated endothelial cells. Blocking the activity of a5ß1 integrin has been found to prevent angiogenesis, which is the formation of new blood vessels that feed tumors and allow them to grow and metastasize.

        We believe that volociximab may have potential in treating a range of solid tumors and that its role in angiogenesis may also aid in the treatment of age-related macular degeneration (AMD). Currently, we have a worldwide strategic development partnership with Biogen Idec for volociximab in oncology. We and Biogen Idec also have an out-licensing agreement with Ophthotech Corporation for the development of volociximab in AMD.

         Volociximab in Solid Tumors:    We and our partner, Biogen Idec, are currently investigating volociximab in various open-label clinical trials in patients with advanced solid tumors. These include phase 1-2 and phase 1 clinical trials in ovarian cancer and non-small cell lung cancer (NSCLC). Previously, we have conducted studies of volociximab in third-line ovarian cancer, pancreatic cancer, renal cell carcinoma and melanoma. These data and associated analyses have contributed to our understanding of the mechanism and safety profile of volociximab, and we are applying this knowledge to our ongoing programs. We plan to continue to evaluate the data from our ongoing studies in ovarian cancer and NSCLC and collaborate with Biogen Idec on the future development plans for this antibody.

         Volociximab in Eye Disorders:    We and Biogen Idec have licensed voloxicimab for ophthalmic indications to Ophthotech for various milestones and eventual royalties on potential product sales. See Our Business—Strategic Collaborations and Licensing.

         Elotuzumab (HuLuc63).    Elotuzumab is a humanized monoclonal antibody that binds to CS1, a cell surface glycoprotein that is highly expressed on myeloma cells but minimally expressed on normal human cells. Elotuzumab may also induce anti-tumor effects through antibody-dependent cellular cytotoxicity (ADCC) activity on myeloma cells. We believe elotuzumab has significant potential as a targeted therapy for multiple myeloma.

        Elotuzumab is currently in phase 1 clinical studies as both a monotherapy in relapsed refractory, multiple myeloma patients and combination therapy as a second line treatment in patients with multiple myeloma. We have previously published early results from the ongoing monotherapy study reflecting early pharmacokinetic (PK) and tolerance data. We also published preclinical data supporting the use of elotuzamab in combination with other agents. In July 2008, we initiated a phase 1 combination trial of elotuzamab with Revlimid® (lenalidomide) in patients with multiple myeloma. Two additional phase 1 trials are ongoing, one of elotuzumab in combination with Velcade® (bortezomib) and another of elotuzumab as a monotherapy in this same patient population.

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        Preclinical data from our elotuzumab program are suggestive of the antibody's biologic activity. Our scientific rationale supporting the development of this antibody includes reduction of human multiple myeloma tumors in animal models, destruction of multiple myeloma cells directly from patients, and an extensive analysis of the target for elotuzumab, CS1, which is highly expressed in almost all cases of multiple myeloma independent of stage or prior therapy.

         PDL192.    PDL192 is a humanized monoclonal antibody that binds to the TWEAK (tumor necrosis factor-like weak inducer of apoptosis) receptor (TweakR), also known as Fn14 or TNFRSF12A, a cell surface protein with homology to the family of tumor necrosis factor (TNF) receptors. PDL192 appears to have dual mechanisms of action, where the binding to the target results in a biological signal detrimental to the cancer cell. In addition, PDL192 may be able to recruit the immune system to also mediate ADCC activity to help destroy the tumor. Our scientists have demonstrated that TweakR is over-expressed in a number of solid tumor indications including pancreatic, colon, lung, renal, breast and head and neck cancers, and ongoing scientific work will help prioritize those tumors for therapeutic testing. In preclinical studies, PDL192 also has been shown to inhibit tumor growth of various models of human cancer in mice. We filed the IND for PDL192 in the second quarter of 2008 and have initiated a phase 1 dose escalation program in solid tumors.

         PDL241.    PDL241 is a novel humanized monoclonal antibody that we believe may have potential in immunologic diseases. We are currently conducting preclinical toxicology and IND-enabling studies for this lead preclinical candidate, which we hope to advance into the clinic. Preclinical data, including its target and potential mechanism, will be made available in conjunction with our expected future IND filing for this antibody.

         Preclinical research candidates.    We are currently evaluating a series of discovery-stage antibody and target combinations, as well as multiple next-generation antibodies, for their suitability to progress into the clinic. Our goal is to continue to characterize a pool of novel and next-generation antibodies, from which we can advance the most promising candidates into clinical development.

Our Research and Development Capabilities

        Our main research and development organizations include (1) research and discovery, (2) product operations and (3) preclinical and clinical development sciences and clinical development. We have a broad range of capabilities, with departments that specialize in all major areas of the entire drug discovery and development process.

Research and Discovery

        Our goals for research and discovery activities are to continue to create antibodies through both our established and new antibody engineering technologies, and to apply these antibodies to targets that are the result of our target validation efforts.

        To accomplish this, our research and discovery group specializes in understanding the structural and functional nature of the antibody. By changing certain features of the antibody, we can optimize characteristics that may enhance the antibody's overall therapeutic potential. We also investigate novel target molecules and their functionally relevant biological pathways. This is done through the combined application of in vitro cell biology with animal efficacy models in oncology and immunology. By pairing together advances in antibody engineering, new targets, and appropriate biological systems, we intend to continue to move promising programs towards development.

        In addition to the biological models and systems we use to prove the required potency in testing antibody—target combinations, we also use those systems to probe and expand the scientific support of our programs during development. As an example, we test our antibodies in animal models of human tumor reduction with the new standards of care as they evolve in oncology, providing guidance and

43

scientific rationale for specific combinations of drugs to test in the clinic. Two examples of the success of our target discovery, validation and ongoing research efforts are elotuzumab (for multiple myeloma) and PDL192 (for solid tumors), both of which are humanized antibodies to novel targets. Each program has demonstrated efficacy in the corresponding animal tumor models. The target and antibody combinations are both first of their kind in human testing and thus have characteristics and features that have the potential to open up new avenues of inhibition in these cancer types.

        Building on our history with humanizing antibodies, our focus has evolved and we have been developing new proprietary antibody engineering technologies to optimize antibody therapeutics. These technologies are applicable regardless of the underlying platform—chimeric, humanized or fully human—and enable us to alter specific antibody traits and features. These technologies include novel comprehensive methods to modulate binding affinity, increase half-life, decrease immunogenicity, and customize amino acid sequences within the antibody structure. Our goal is to develop technologies that enable our researchers to bring novel and competitive antibody traits to our new programs for testing in humans.

Product Operations

        Our product operations organization includes process, pharmaceutical and analytical development, supply chain and product quality functions. Product operations serves as an integrated unit for transitioning antibody molecules from research and discovery in order to develop robust and efficient processes, pharmaceutical dosage forms, comprehensive analytical packages, and ensure adequate supplies of antibody product for preclinical and clinical testing through outsourcing. Our technology platform for the production of antibodies is well characterized and established to reliably support the movement of antibody molecules through various stages of clinical development.

        Antibodies for use as human therapeutics are generally manufactured using mammalian cell lines. We produce and characterize such cell lines in our facilities, and engage in development activities intended to improve the productivity and ability of these cell lines to produce monoclonal antibodies with desirable physicochemical and biological characteristics. The productivity of our cell lines for antibodies is competitive with that of other biotechnology companies. Our process scientists work closely with research and preclinical scientists to expedite the movement of lead antibody candidates into first in human clinical studies. Our ability to develop robust and consistent bioprocesses, scale-up and transfer processes to manufacturing plants and establish comparability between materials produced at various scales is key for ensuring a consistent supply of study drug for clinical studies. We believe our knowledge and capabilities in cell line generation, bioprocess, pharmaceutical and analytical development provide a competitive advantage over those companies that currently lack such comprehensive process development operations.

        The manufacture of pharmaceutical products is an expensive, multi-step, complex process. Products used in clinical trials must be manufactured in facilities that meet all applicable regulations including current Good Manufacturing Practices as outlined by the FDA, the European Medicines Agency (EMEA) and other regulatory authorities. Steps in the manufacturing process, including the manufacture of the active pharmaceutical ingredient, filling, finishing, labeling and packaging of finished drug products, may be managed by multiple third-parties and require extensive coordination and oversight by us.

        To fulfill our manufacturing needs in the near-term, we have entered into a clinical supply agreement pursuant to which Genmab manufactures on our behalf clinical trial material for certain of our pipeline products with a minimum commitment through March 2010. Our partner Biogen Idec also manufactures volociximab, which is part of our joint collaboration with them. Additionally, we believe there is adequate capacity available in the contract manufacturing industry presently for production and

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fill-finish of antibodies. We anticipate continuing to rely on partners and contract manufacturing organizations for production of clinical trial supply materials for the foreseeable future.

Preclinical and Clinical Development Sciences and Clinical Development

        Our preclinical and clinical development sciences activities focus on further characterizing our engineered antibodies, with the goal of maximizing our knowledge of the antibodies before they enter human testing. We conduct extensive in vivo pharmacology studies in animal models to assess dosing, toxicology pharmacokinetics, and pharmacodynamics which provide information for the design of subsequent clinical trials. These researchers also support our ongoing clinical trials by conducting immunogenicity and biomarker assays, both of which are critical to understanding how antibodies function in humans.

        Our lead preclinical product candidate is PDL241, a humanized antibody. We are completing preclinical studies of PDL241 and anticipate filing a U.S. IND for this antibody in the next 12-18 months, should the results of our preclinical studies support such a filing, which is consistent with our goal of continuing to expand our pipeline.

        Our clinical development organization includes personnel in the U.S. and Europe (based in France) and relies on a strategic outsourcing approach. We have expertise in the traditional clinical development functions, including clinical operations and therapeutic area expertise, regulatory affairs, drug safety, biometry, medical writing, quality and compliance, all of which is supported by our program management group. We outsource the majority of the tactical work to contract research organizations, and our in-house personnel provide strategic and operational oversight of the programs to ensure that our clinical trials are appropriately conducted and managed.

        Together, our preclinical and clinical capabilities are focused on supporting our current pipeline programs and demonstrating their advantages in medical care. These capabilities enable us to conduct clinical research activities for our earlier stage programs and, in cases where the program is in a strategic collaboration, provide strategic input and scientific knowledge consistent with the joint development activities. Our clinical experts also provide input to our research and discovery operations to inform their activities to generate new antibodies and identify the promising ones for further research and development activity.

Strategic Collaborations and Licensing Agreements

        A major area of our business is the pursuit and maintenance of strategic collaborations and licensing activities to help us execute our strategy and share the costs and mitigate the risks of drug development.

Strategic Development Collaborations

        Strategic development collaborations generally represent relationships in which we and a collaborator share in the effort, costs and success of an antibody development program. The terms of such agreements generally provide for license fees, research funding, the opportunity to receive milestone payments related to research results and subsequent product development activities and, if successful, milestones, royalties and/or a share of the profits related to the sales of the product. Strategic development collaborations can help enhance the overall value of our clinical and preclinical programs by enhancing our development capabilities, therapeutic area knowledge and financial resources.

        Our collaboration agreement with Biogen Idec provides for the joint development, manufacture and commercialization of daclizumab in MS and indications other than transplant and respiratory diseases, and for shared development and commercialization of volociximab (M200) in all indications.

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This agreement requires each party to undertake extensive efforts in support of the collaboration and requires the performance of both parties to be successful. Under the collaboration agreement, in the U.S. and Europe, we and Biogen Idec equally share the costs of all development activities and, if any of the products are commercialized, all operating profits. Each party will have co-promotion rights in the U.S. and Europe, based upon sales capabilities of each party at the time. Outside the U.S. and Europe, Biogen Idec will fund all incremental development and commercialization costs and pay a royalty to us on sales of collaboration products. We are eligible to receive development and commercialization milestones based on the further successful development of these antibodies.

Licensing and Other Agreements

        In addition to development collaborations, we continue to pursue agreements in which we out-license our antibody engineering capabilities and technology expertise, as well as certain research and preclinical assets. We generally out-license product candidates when we believe the program is not a strategic fit for our portfolio development strategy.

        We currently have a number of license agreements in place with parties who are pursuing the development of product candidates that were generated by our internal research and discovery efforts or were licensed by us. Certain of these arrangements, which are summarized below, may generate potential milestone payments should the licensees achieve operational milestones and potential royalties if the licensed product candidates are approved for marketing.

•

Abbott Laboratories, Inc.—In 2003, we and Abbott entered into a licensing agreement that provides Abbott certain rights to intellectual property related to fully human antibodies capable of binding interleukin-12 (IL-12) or its receptor. Abbott has announced that its anti-IL-12 biologic, ABT-874, is in phase 3 development for psoriasis. ABT-874 is also in early studies for Crohn's disease. Under the terms of the agreement, we are entitled to receive development milestone payments and royalties on future sales of this antibody.



•

Actinium Pharmaceuticals, Inc.—In 2003, we licensed HuM195, an anti-CD33 antibody, to Actinium and we are entitled to receive future milestones and royalties under the license agreement with Actinium. Actinium has announced that it is conducting ongoing clinical development activities to support HuM195.



•

EKR Therapeutics, Inc.—In 2008, we entered into an agreement with EKR for the sale of our cardiovascular assets, including a currently marketed antihypertensive product, Cardene, and the development product, ularitide. Under the agreement, we are entitled to milestones and royalties related to future sales of new formulations of Cardene and to royalties related to future sales of ularitide.



•

Genentech,  Inc.—In 2005, we entered into an agreement with Genentech to sub-license development and commercialization rights to Genentech for antibody-drug conjugates (ADC) directed against the TMEFF2 antigen, which is frequently differentially expressed in prostate cancer. Prior to the agreement, our scientists conducted preclinical work to validate the target and characterize the antibody. We believe that Genentech continues clinical development activities to support this antibody. Under the agreement, we received an upfront licensing fee, and we are entitled to receive milestone payments and royalties on future sales.



•

Ophthotech Corporation—In 2008, we and Biogen Idec entered into an exclusive worldwide licensing agreement with Ophthotech, a privately held biopharmaceutical company focused on developing ophthalmic therapies for back-of-the-eye diseases, for our volociximab antibody to treat age-related macular degeneration (AMD). Under the agreement, Ophthotech was granted worldwide development and commercial rights to all ophthalmic uses of volociximab. Biogen Idec and we each received an equity position in Ophthotech and are entitled receive

46

development milestone payments and royalties on future product sales. We believe Ophthotech continues its research efforts and that it intends to advance volociximab into clinical testing in the near future.



•

Seattle Genetics, Inc.—In 2005, Seattle Genetics exclusively licensed rights to our anti-CD33 program for both unconjugated antibody and antibody-drug conjugate (ADC) applications. Seattle Genetics is conducting phase 1 and phase 2 clinical development of SGN-33, or lintuzumab, a humanized monoclonal antibody that targets the CD33 antigen, in patients with acute myeloid leukemia or myeloid displastic syndrome, and has received orphan drug designation from the FDA for SGN-33 in both diseases. In 2007, Seattle Genetics also licensed rights from us to another preclinical target. We are entitled to receive future milestones and royalties under these agreements.

Our Patents and Other Proprietary Rights

        We expend a significant amount of our resources on research and development efforts to discover and develop innovative therapies for severe or life-threatening illnesses and to develop proprietary development technologies. Obtaining, maintaining and protecting the intellectual property rights, including patent rights, developed through our research and development efforts, is essential for our business to succeed. To that end, we actively seek to implement patent strategies to maximize the effectiveness of our intellectual property positions. We have been issued numerous U.S and foreign patents and have a variety of patent applications pending in the U.S. and various foreign countries covering, among other things, compositions of matter, drug formulations, methods of use and action, and manufacturing.

        While we file and prosecute patent applications to protect our inventions, our pending patent applications may not result in the issuance of patents or our issued patents may not provide competitive advantages. Also, our patent protection may not prevent others from developing competitive products using related or other technology.

        In addition to seeking the protection of patents and licenses, we also rely upon trade secrets, know-how and continuing technological innovation, which we seek to protect, in part, by confidentiality agreements with employees, consultants, suppliers and licensees. If these agreements are not honored, we might not have adequate remedies for any breach. Additionally, our trade secrets might otherwise become known or patented by our competitors.

        A number of companies, universities and research institutions have filed patent applications or received patents in the areas of antibodies and other fields relating to our programs. Some of these applications or patents may be competitive with our applications or contain material that could prevent the issuance of patents to us or result in a significant reduction in the scope of our issued patents. Additionally, other companies, universities and research institutions may obtain patents that could limit our ability to use, import, manufacture, market or sell our products, commonly referred to as our "freedom to operate," or impair our competitive position. As a result, we might be required to obtain licenses from others before we could continue using, importing, manufacturing, marketing, or selling our products. We may not be able to obtain required licenses on terms acceptable to us, if at all. If we do not obtain required licenses, we may encounter significant delays in product development while we redesign potentially infringing products or methods or may not be able to market our products at all.

        The scope, enforceability and effective term of issued patents can be highly uncertain and often involve complex legal and factual questions. No consistent policy has emerged regarding the breadth of claims in biotechnology patents, so that even issued patents may later be modified or revoked by the relevant patent authorities or courts. Moreover, the issuance of a patent in one country does not assure the issuance of a patent with similar claim scope in another country, and claim interpretation and infringement laws vary among countries, so we are unable to predict the extent of patent protection in

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any country. We cannot assure you that the patents we obtain or the unpatented proprietary technology we hold will afford us significant commercial protection. Additional information regarding risks associated with our patents and other proprietary rights that affect our business is contained under the headings "We must protect our patents and other intellectual property rights to succeed" and "We may need to obtain patent licenses from others in order to manufacture or sell our potential products and we may not be able to obtain these licenses on terms acceptable to us or at all" under the heading "Risk Factors".

Government Regulation

        The manufacturing, testing, labeling, approval and storage of our products are subject to rigorous regulation by numerous governmental authorities in the United States and other countries at the federal, state and local level, including the FDA. The process of obtaining approval for a new pharmaceutical product or for additional therapeutic indications within this regulatory framework requires expenditure of substantial resources and usually takes several years. Companies in the pharmaceutical and biotechnology industries, including us, have suffered significant setbacks in various stages of clinical trials, even in advanced clinical trials after promising results had been obtained in earlier trials.

        The process for obtaining FDA approval of drug candidates customarily begins with the filing with the FDA of an IND for the use of a drug candidate to treat a particular indication. If the IND is accepted by the FDA, we would then start human clinical trials to determine, among other things, the proper dose, safety and efficacy of the drug candidate in the stated indication. The clinical trial process is customarily divided into three phases—phase 1, phase 2 and phase 3. Each successive phase is generally larger and more time-consuming and expensive than the preceding phase. Throughout each phase we are subject to extensive regulation and oversight by the FDA. Even after a drug is approved and being marketed for commercial use, the FDA may require that we conduct additional trials, including "phase 4" trials, to further study safety or efficacy.

        As part of the regulatory approval process, we must demonstrate to the FDA the ability to manufacture a pharmaceutical product before we receive marketing approval. The manufacturing and quality control procedures we and our manufacturing partners must undertake must conform to rigorous standards in order to receive FDA approval and the validation of these procedures is a costly endeavor. Pharmaceutical manufacturers are subject to inspections by the FDA and local authorities as well as inspections by authorities of other countries. To supply pharmaceutical products for use in the United States, foreign manufacturers must comply with these FDA-approved guidelines. These foreign manufacturers are also subject to periodic inspection by the FDA or by corresponding regulatory agencies in these countries under reciprocal agreements with the FDA. Moreover, state, local and other authorities may also regulate pharmaceutical product manufacturing facilities. Before we are able to manufacture commercial products, we or our contract manufacturer, as the case may be, must meet FDA guidelines.

        For the development of pharmaceutical products outside the United States, we and our collaborators are subject to foreign regulatory requirements and, if the particular product is manufactured in the United States, FDA and other U.S. export provisions. Requirements relating to manufacturing, conduct of clinical trials and product licensing vary widely in different countries. We or our licensees may encounter difficulties or unanticipated costs or price controls in our respective efforts to secure necessary governmental approvals. This could delay or prevent us or our licensees from marketing potential pharmaceutical products. In addition, our promotional materials and activities must also comply with FDA regulations and other guidelines.

        Both before and after marketing approval is obtained, a pharmaceutical product, its manufacturer and the holder of the Biologics License Application ("BLA") or New Drug Application ("NDA") for

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the pharmaceutical product are subject to comprehensive regulatory oversight. The FDA may deny approval to a BLA or NDA if applicable regulatory criteria are not satisfied. Moreover, even if regulatory approval is granted, such approval may be subject to limitations on the indicated uses for which we may market the pharmaceutical product. Further, marketing approvals may be withdrawn if compliance with regulatory standards is not maintained or if problems with the pharmaceutical product occur following approval. In addition, under a BLA or NDA, the manufacturer of the product continues to be subject to facility inspections and the applicant must assume responsibility for compliance with applicable pharmaceutical product and establishment standards. Violations of regulatory requirements at any stage may result in various adverse consequences, which may include, among other adverse actions, withdrawal of the previously approved pharmaceutical product or marketing approvals or the imposition of criminal penalties against the manufacturer or BLA or NDA holder.

        The marketing and sale of approved pharmaceutical product is subject to strict regulation. Physicians may prescribe pharmaceutical or biologic products for uses that are not described in a product's labeling or differ from those tested by us and approved by the FDA. While such "off-label" uses are common and the FDA does not regulate physicians' choice of treatments, the FDA does restrict a company's communications on the subject of "off-label" use. Companies cannot promote FDA-approved pharmaceutical or biologic products for off-label uses. If any advertising or promotional activities we undertake fail to comply with applicable regulations or guidelines regarding "off-label" use, we may be subject to warnings or enforcement action.

Competition

        Potential antibody-based competitors have developed and are developing mouse, chimeric, human and humanized antibodies or other compounds for treating cancers and immunologic diseases. In addition, a number of academic and commercial organizations are actively pursuing similar technologies, and several companies have developed or may develop technologies that may compete with our antibody technology platform. Competitors may succeed in more rapidly developing and marketing technologies and products that are more effective than our products or that would render our products or technology obsolete or noncompetitive. Our collaborators may also independently develop products that are competitive with products that we have licensed to them. Any product that we or our collaborators succeed in developing and for which regulatory approval is obtained must then compete for market acceptance and market share. The relative speed with which we and our collaborators can develop products, complete clinical testing and approval processes, and supply commercial quantities of the products to the market compared to competitive companies will affect market success. In addition, the amount of marketing and sales resources, and the effectiveness of the marketing used with respect to a product will affect its success.

        Other competitive factors affecting our business generally include:

•

product efficacy and safety;



•

timing and scope of regulatory approval;



•

product availability, marketing and sales capabilities;



•

reimbursement coverage;



•

the amount of clinical benefit of our product candidates relative to their cost;



•

method of and frequency of administration of any of our product candidates which may be commercialized;



•

patent protection of our product candidates;

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•

the capabilities of our collaborators; and



•

the ability to hire qualified personnel.

Employees

        Following the spin-off, we estimate that we will have approximately 385 full-time employees. Of the total, we estimate that 269 will be engaged in research and development and 116 in general and administrative functions. We expect to employ 105 of these employees during a transition period after the spin-off, of whom we estimate that 63 will be engaged in research and development and 42 in general and administrative functions. The number of transition employees will decline as we move forward and is expected to decline to zero by March 31, 2009. Our scientific staff members have diversified experience and expertise in molecular and cell biology, biochemistry, immunology, protein chemistry, computational chemistry and computer modeling. Our success will depend in large part on our ability to attract and retain skilled and experienced employees. None of our employees is covered by a collective bargaining agreement. We consider our relations with our employees to be good.

Environmental Compliance

        We seek to comply with environmental statutes and the regulations of federal, state and local governmental agencies. We have put into place processes and procedures and maintain records in order to monitor environmental compliance. We may invest additional resources, if required, to comply with applicable regulations, and the cost of such compliance may increase significantly.

Properties

        The following table identifies the location and general character of each of our principal facilities:

Location	Principal Uses	Approximate Floor Area (Sq. Ft.)		Owned/Lease Expiration Date
Redwood City, California	Laboratory and General Office Space		450,000	December 2021
Paris, France	General Office Space		3,000	August 2013

        Our corporate headquarters are located in Redwood City, California. We have options to extend the terms of our leases for such location for up to ten years to December 2031. We also have a right of first refusal to lease space in two other buildings on the corporate office campus in which our two leased buildings in Redwood City are located.

        In connection with our restructuring plan, which was initiated in March 2008 in an effort to reduce operating costs to a level we believe is consistent with a biotechnology company focused solely on discovery and development of novel antibodies, we are actively seeking to sublease excess capacity in our corporate headquarters. We own substantially all of the equipment used in our facilities.

Legal Proceedings

        From time to time we are party to a variety of legal proceedings that arise in the normal course of our business. While the results of these legal proceedings cannot be predicted with certainty, management believes that the final outcome of currently pending proceedings will not have, individually or in the aggregate, a material adverse effect on our financial position, results of operation or cash flow.

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Historical Selected Financial Data

        The tables below set forth selected historical financial data of BioCo. This information has been prepared from BioCo's audited combined financial statements as of December 31, 2007 and 2006 and for each of the three years in the period ended December 31, 2007, and the unaudited combined financial statements as of March 31, 2008 and for the three months ended March 31, 2008 and 2007, included herein. Financial information as of December 31, 2005, 2004 and 2003 and for each of the two years in the period ended December 31, 2004 has been prepared from unaudited combined financial statements not included herein. During these periods, BioCo was an integrated business of PDL. The historical financial information is not likely to be indicative of BioCo's future performance or its future financial position or results of operations, and it does not provide or reflect data as if BioCo had actually operated as a separate, stand-alone entity during the periods covered. Per share data has not been presented as no common shares were outstanding during the periods presented and such information would not be meaningful.

        The selected historical financial data should be read in conjunction with the combined financial statements and related notes and "Management's Discussion and Analysis of Financial Condition and Results of Operations," included elsewhere in this Information Statement.

Combined Statements of Operations Data

				Years Ended December 31,															Three Months ended March 31,
(In thousands)				2007			2006			2005			2004			2003			2008			2007
Revenues
	Collaboration			$	24,632		$	48,548		$	19,433		$	3,602		$	—		$	2,682		$	8,811
	Other				1,660			2,869			9,424			7,269			10,167			1,000			—
			Total revenues		26,292			51,417			28,857			10,871			10,167			3,682			8,811
Costs and expenses
Research and development					195,130			200,720			155,816			122,641			82,732			45,239			47,580
General and administrative					45,045			36,590			25,833			27,358			23,404			12,765			8,647
Gain on sale of assets(1)					—			—			—			—			—			(49,671	)		—
Acquired in-process research and development(2)					—			—			—			—			85,993			—			—
Restructuring charges(3)					6,668			—			—			—			—			5,547			—
Asset impairment charges(4)					5,513			900			15,769			—			—			3,521			—
	Total operating expenses				252,356			238,210			197,418			149,999			192,129			17,401			56,227
		Operating loss			(226,064	)		(186,793	)		(168,561	)		(139,128	)		(181,962	)		(13,719	)		(47,416	)
Other income (expense)					(871	)		737			1,982			2,198			1,828			3			1
Interest expense					(639	)		(552	)		(595	)		(637	)		(559	)		(434	)		(128	)
	Loss before income taxes				(227,574	)		(186,608	)		(167,174	)		(137,567	)		(180,693	)		(14,150	)		(47,543	)
Income tax expense					123			81			47			60			55			28			30
	Net loss			$	(227,697	)	$	(186,689	)	$	(167,221	)	$	(137,627	)	$	(180,748	)	$	(14,178	)	$	(47,573	)

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Combined Balance Sheet Data

	December 31,														March 31,
(In thousands)	2007			2006			2005		2004			2003			2008
Restricted cash—current and long-term	$	28,274		$	18,269		$	—	$	—		$	—		$	18,274
Working capital (deficit)	$	(19,106	)	$	(51,522	)	$	16,573	$	(29,816	)	$	(27,166	)	$	(21,390	)
Total assets	$	368,956		$	327,157		$	328,313	$	305,994		$	225,669		$	166,091
Long-term obligations, less current portion	$	31,349		$	33,425		$	7,296	$	7,769		$	8,628		$	31,847
Total parent company equity	$	262,570		$	204,086		$	227,979	$	258,961		$	185,782		$	64,824

(1)

The gain on sale of assets of $49.7 million relates to the sale of our manufacturing and related administrative facilities in Brooklyn Park, Minnesota, and related assets therein, to Genmab A/S and the assumption of certain of our lease obligations related to our facilities in Plymouth, Minnesota (together, the "Manufacturing Assets") during March 2008. See Note 6 to the Combined Financial Statements for further information.

(2)

Represents acquired in-process research and development related to our acquisition of Eos Biotechnology, Inc. and the purchase of certain technology from Hoffmann-La Roche Inc. and F. Hoffmann-La Roche Ltd. (together, "Roche") that had not yet achieved technological feasibility. See Note 5 for further information on our Roche arrangement.

(3)

See Note 7 to the Combined Financial Statements for details related to our restructuring charges.

(4)

See Note 8 to the Combined Financial Statements for details related to our asset impairment charges.

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Management's Discussion and Analysis of Financial Condition and Results of Operations

        This Information Statement includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities and Exchange Act of 1934, as amended. All statements other than statements of historical facts are "forward looking statements" for purposes of these provisions, including any projections of earnings, revenues or other financial items, any statements of the plans and objectives of management for future operations, any statements concerning proposed new products or licensing or collaborative arrangements, any statements regarding future economic conditions or performance, and any statement of assumptions underlying any of the foregoing. In some cases, forward-looking statements can be identified by the use of terminology such as "believes," "may," "will," "expects," "plans," "anticipates," "estimates," "potential," or "continue" or the negative thereof or other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements contained in this report are reasonable, there can be no assurance that such expectations or any of the forward-looking statements will prove to be correct, and actual results could differ materially from those projected or assumed in the forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to inherent risks and uncertainties, including the risk factors described in "Risk Factors" and for the reasons described elsewhere in this Information Statement. All forward-looking statements and reasons why results may differ included in this Information Statement are made as of the date hereof, and we assume no obligation to update these forward-looking statements or reasons why actual results might differ.

Overview

        We are a biotechnology company that designs and develops antibody therapeutics for the treatment of oncology and immunologic diseases. Antibodies have become an accepted and proven therapeutic modality and numerous antibody therapeutics for a wide range of indications are currently on the market. Despite these advances, there remain many opportunities to create new and improved antibodies. Building on our years of experience in antibody engineering and design, we are focused on discovering and developing antibodies that improve upon or offer advantages over current treatment options.

        Our business strategy focuses primarily on the following two areas:

•

Developing and expanding our pipeline of antibodies:  We are focused on advancing our existing clinical programs and expanding our pipeline with additional antibody development programs. We currently have four antibodies in the clinic, two in phase 2 and two in phase 1, for oncology and immunologic disease indications. We also seek to expand our pipeline either through in-house discovery or via in-licensing opportunities. Consistent with this goal, we have identified an IND candidate for a fifth antibody, our lead preclinical antibody candidate, for an immunologic disease indication.



•

Discovering new antibodies:  Building on our years of experience in the humanization of antibodies, we are leveraging our strength in antibody engineering to identify and design antibodies that target new mechanisms and pathways in disease, and to improve upon the overall characteristics of antibody therapeutics. Our research efforts focus on the identification and validation of novel targets, while we also utilize our unique antibody engineering technologies to explore the development of improved next-generation antibodies.

        We believe we can leverage our key strengths to successfully implement our strategy and efficiently develop antibody therapeutics that transform medical care. Our key strengths and assets include the following: our ability to engineer and optimize therapeutic antibodies and direct them to novel validated targets; our process sciences capabilities to create highly efficient manufacturing of antibodies from clinical through to commercial scale; our early development capabilities, including our portfolio of

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phase 1 and phase 2 antibody product candidates in oncology and immunology; our experienced management team; and our strong cash position and balance sheet.

        We believe that strategic collaborations and licensing activities also will help us to succeed at implementing our strategy and increase the potential success of our research and development programs and the Company. Through such strategic collaborations or licensing activities, we believe we can enhance our ability to develop and expand our pipeline of antibodies and discover new antibodies.

        Strategic collaborations can help to increase the potential value of our drug development programs and our company in a number of ways, including: (1) allowing us to retain economic participation in programs, (2) supporting the discovery and development of additional antibody products, (3) bringing new capabilities and knowledge that can enhance our own research and development capabilities, (4) helping to accelerate our development timelines and (5) mitigating the overall risk of our strategy.

        Licensing activities include both in-licensing and out-licensing activities. We will continue to pursue in-licensing of antibody candidates to expand or diversify our pipeline and in-licensing of new technologies that may be complementary to our current antibody discovery capabilities. In addition, we intend to evaluate opportunities to develop and out-license new, proprietary antibody technologies, which we believe may provide advantages to pharmaceutical and biotechnology companies involved in the development of antibody therapeutics.

        We have never operated as a separate, stand-alone entity. In addition, there have been a number of events over the past several years that have had a significant impact on our operations. As a result of these factors, our historical financial results are not likely to be indicative of our future financial performance. Events that have had a significant impact on our operations include:

•

Our collaboration agreements and amendments and terminations of those agreements have materially affected our historical revenues and other financial results. In 2005, we amended a prior agreement with Hoffmann-La Roche Inc. and F. Hoffmann-La Roche Ltd. (together, "Roche") which effectively resulted in the elimination of royalties on sales of the antibody product Zenapax after the first quarter of 2006. We had been generating royalties from Zenapax sales beginning the first quarter of 1998. In addition, in 2004 and in 2005, we entered into collaboration agreements with Roche for the development of daclizumab for the treatment of asthma and transplant maintenance, respectively. However, in 2006 and in 2007, Roche terminated these collaboration agreements. See Note 5 to the Combined Financial Statements for further details about our arrangements with Roche. As we no longer recognize revenue from sales of Zenapax, and as we currently only have one collaboration agreement (with Biogen Idec), going forward, absent any additional collaboration agreements and the receipt of certain contingent consideration milestone payments and royalties as described below, we anticipate that our revenues will be lower than the levels experienced in 2007, 2006 and 2005.



•

We began building a state-of-the-art, commercial scale manufacturing facility in March 2002 to initially manufacture our development-stage products and, ultimately, our commercial products. We placed the facility into service in July 2006. We incurred significant capital expenditures to build this facility and our total research and development expenses increased significantly over this period to staff and ultimately run these manufacturing operations. In March 2008, in connection with our overall strategic process, we sold this facility. For the foreseeable future, we will utilize external contract manufacturing organizations to manufacture product for our development programs. As a result of the sale of the manufacturing facility and our decision to outsource manufacturing activities, we expect our manufacturing-related research and development expenses in the near-term to be significantly lower than the levels experienced in 2007, 2006 and 2005.

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•

In connection with our overall strategic process, developments in our pipeline programs and our effort to reduce our operating expenses to a level more consistent with a company focused solely on antibody discovery and development, in March 2008, we commenced a restructuring plan pursuant to which we eliminated approximately 120 employment positions and would eliminate approximately 130 additional employment positions over the subsequent 12 months. Subsequent to the restructuring, which is expected to be substantially completed by the end of the first quarter of 2009, we expect to have approximately 300 employees, significantly below our historical levels. Once we complete the restructuring, we expect our total operating expenses in the near-term to be significantly lower than the levels experienced in 2007, 2006 and 2005. However, we will not achieve the full benefit of the restructuring until we complete the planned restructuring activities, as our operating expenses will include expenses relating to severance benefits for the future termination of employees and retention for these employees through their termination dates.

        Overall, we expect that in the near-term, both our total revenues and, particularly after we complete the restructuring, our total operating expenses, will be lower than the levels experienced in 2007, 2006 and 2005. Future revenue will vary from period to period and will substantially depend on whether (1) we are successful in our existing collaboration and receive milestone payments thereunder, (2) we are successful in entering into new collaboration agreements and (3) we receive the contingent consideration milestone payments and any royalties under the asset purchase agreement with EKR and the amount and timing of all these potential payments. Revenues will also vary depending on which party in any collaboration is incurring the majority of development costs in any period. In the future, after we complete our restructuring plans, we would expect our operating expense increases or decreases to correlate generally with the development of our potential products. Future operating expenses also will depend on whether we are successful in entering into new collaboration agreements and will vary from period to period depending on which party in our existing collaboration, and any potential new collaborations, is incurring the majority of development costs in any period. In addition, we are actively seeking to sublease excess capacity in our Redwood City facilities. If we are able to sublease any of this excess capacity, our lease expenses would decline. The process of subleasing office space can be lengthy and uncertain and we cannot assure if and when we may sublease any of our excess capacity or the amount of excess capacity that we may ultimately be able to sublease. Our total operating expenses will vary depending on the outcome and timing of this process.

Summary Financial Results

        Over the past three years, our total revenues fluctuated from $28.9 million in 2005 to $51.4 million in 2006 to $26.3 million in 2007. These fluctuations primarily were due to the impact of our arrangements with Roche as described above and, to a lesser degree, our collaboration with Biogen Idec. Over this same three-year period, our total operating expenses increased from a low of $197.4 million in 2005 to a high of $252.4 million in 2007. Our research and development expenses increased primarily due to the advancement of our clinical development programs and the scale-up of our manufacturing operations and the headcount growth required to support these activities. General and administrative expenses also increased over this period to support the growth of our research and development business.

        During the years ended December 31, 2007, 2006 and 2005, we recognized net losses of $227.7 million, $186.7 million and $167.2 million, respectively. During these periods, our historical financial results have included certain gains and losses, including a $49.7 million gain on the sale of our manufacturing facility during the first quarter of 2008 and asset impairment charges of $3.5 million, $5.5 million, $0.9 million and $15.8 million in the first quarter of 2008 and the years ended December 31, 2007, 2006 and 2005, respectively. With respect to our restructuring activities that were initiated in the third quarter of 2007 and in the first quarter of 2008, we recognized restructuring

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expenses resulting from the downsizing of our workforce totaling $5.5 million and $6.7 million in the first quarter of 2008 and the year ended December 31, 2007, respectively.

Economic and Industry-Wide Factors

        Various economic and industry-wide factors are relevant to us and could affect our business, including the factors set forth below.

•

Our business will depend in significant part on our ability to successfully develop innovative new drugs. Drug development, however, is highly uncertain and very expensive, typically requiring hundreds of millions invested in research, development and manufacturing elements. Identifying drug candidates to study in clinical trials requires significant investment and may take several years. In addition, the clinical trial process for drug candidates is usually lengthy, expensive and subject to high rates of failure throughout the development process. As a result, a majority of the clinical trial programs for drug candidates are terminated prior to applying for regulatory approval. Even if a drug receives FDA or other regulatory approval, such approval could be conditioned on the need to conduct additional trials, or we could be required to or voluntarily decide to suspend marketing of a drug as a result of safety or other events.

•

Our industry is subject to extensive government regulation, and we must make significant expenditures to comply with these regulations. For example, the FDA regulates, among other things, the development, testing, research, manufacture, safety, efficacy, record-keeping, labeling, storage, approval, quality control, adverse event reporting, advertising, promotions, sale and distribution of our products. The development of our products outside of the United States is subject to similar extensive regulation by foreign governments, which regulations are not harmonized with the regulations of the United States.



•

The manufacture of antibodies for use as therapeutics in compliance with regulatory requirements is complex, time-consuming and expensive. If our product candidates are not manufactured in accordance with FDA and European good manufacturing practices, we may not be able to obtain regulatory approval for our product candidates. We do not have either facilities or resources to manufacture our potential products. Accordingly, we are reliant on third-party manufacturers for the supply of all of our development products.



•

Our business success is dependent in significant part on our success in establishing intellectual property rights, either internally or through in-license of third-party intellectual property rights, and protecting our intellectual property rights. If we are unable to protect our intellectual property, we may not be able to compete successfully and our revenues and operating results would be adversely affected. Our pending patent applications may not result in the issuance of valid patents or our issued patents may not provide competitive advantages or may be reduced in scope. Proceedings to protect our intellectual property rights are expensive, can, and have, continued over many years and could result in a significant reduction in the scope or invalidation of our patents, which could adversely affect our results of operations.



•

To be successful, we must retain qualified scientific, clinical, operations, marketing, administrative and management personnel. We face significant competition for experienced personnel.



•

Our long-term prospects will be dependent upon our ability to secure capital resources.

        See also "Risk Factors" for additional information on these economic and industry-wide and other factors and the impact they could have on our business and results of operations.

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The Separation of BioCo from PDL

        On April 10, 2008, PDL announced its intention to separate its Biotechnology Business into an independent, publicly traded company through a spin-off of 100% of our stock to PDL stockholders. Completion of the spin-off is expected in the fourth quarter of 2008, subject to certain conditions, including final approval from PDL's Board to complete the spin-off. Following the distribution, PDL's stockholders will own 100% of the equity in both companies. The separation will not require a vote by PDL stockholders. The Biotechnology Business discussed herein represents the historical operating results and financial condition of BioCo. Any references to "we," "us," "BioCo" or the "Company" refer to the Biotechnology Business as operated as a part of PDL prior to the spin-off.

Basis of Presentation

        The combined financial statements have been prepared using PDL's historical cost basis of the assets and liabilities of the various activities that comprise the Biotechnology Business as a component of PDL and reflect the results of operations, financial condition and cash flows of the Biotechnology Business as a component of PDL. The statements of operations include expense allocations for general corporate overhead functions historically shared with PDL, including finance, legal, human resources, investor relations and other administrative functions, which include the costs of salaries, benefits and other related costs, as well as consulting and other professional services. Where appropriate, these allocations were made on a specific identification basis. Otherwise, the expenses related to services provided to the Biotechnology Business by PDL were allocated to BioCo based on the relative percentages, as compared to PDL's other businesses, of headcount or another appropriate methodology depending on the nature of each item of cost to be allocated.

        The costs historically allocated to us by PDL for the services it has shared with us may not be indicative of the costs we will incur for these services following the spin-off. Certain anticipated incremental costs and other adjustments that give effect to the spin-off are not reflected in our historical combined financial statements.

Critical Accounting Policies and the Use of Estimates

        The preparation of our combined financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in our combined financial statements and accompanying notes. Actual results could differ materially from those estimates. The items in our combined financial statements requiring significant estimates and judgments are as follows:

Revenue Recognition

        We have entered and may enter into collaboration and licensing arrangements that contain multiple elements, such as upfront license fees, reimbursement of research and development expenses, milestones related to the achievement of particular stages in product development and royalties. Under these types of arrangements, we may receive nonrefundable upfront fees, time-based licensing fees and reimbursement for all or a portion of certain predefined research and development or post-commercialization expenses, and our licensees may make milestone payments to us when they or we achieve certain levels of development with respect to the licensed technology. Generally, when there is more than one deliverable under the agreement, we account for the revenue as a single unit of accounting under Emerging Issues Task Force ("EITF") Issue No. 00-21, "Revenue Arrangement with Multiple Deliverables," for revenue recognition purposes. As a combined unit of accounting, the upfront payments are recognized ratably as the underlying services are provided under the arrangement. We recognize "at risk" milestone payments upon achievement of the underlying milestone event and when they are due and payable under the arrangement. Milestones are deemed to be "at

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risk" when, at the onset of an arrangement, management believes that they will require a reasonable amount of effort to be achieved and are not simply reached by the lapse of time or perfunctory effort. We currently determine attribution methods for each payment stream based on the specific facts and circumstances of the arrangement. The Emerging Issues Task Force could provide additional guidance in Issue No. 08-1, "Revenue Recognition for a Single Unit of Accounting" which could change our method of revenue recognition.

Collaborative Arrangements

        In December 2007, the Financial Accounting Standards Board ("FASB") ratified the final consensuses in EITF Issue No. 07-1, "Accounting for Collaborative Arrangements" ("EITF 07-1"), which requires certain income statement presentation of transactions with third parties and of payments between the parties to the collaborative arrangement, along with disclosure about the nature and purpose of the arrangement. We are required to adopt EITF 07-1 on or before January 1, 2009. We have elected to early adopt the provisions of EITF 07-1 and have presented our collaboration revenues and expenses in accordance with EITF 07-1 for all periods presented.

        Collaboration agreements, including our existing collaboration agreement, involve a combination of upfront fees, milestones and reimbursement of development costs for which we may not be able to establish fair value of the undelivered elements. When we can not establish such fair value, we recognize the upfront fees and certain milestones that are not deemed to be "at risk" over the estimated development period. With respect to the reimbursement of development costs, each quarter, we and our collaborator(s) reconcile what each party has incurred in terms of development costs, and we record either a net receivable or a net payable in our combined financial statements. For each quarterly period, if we have a net receivable from a collaborator, we recognize revenues by such amount, and if we have a net payable to our collaborator, we recognize additional research and development expenses by such amount. Therefore, our revenues and research and development expenses may fluctuate depending on which party in the collaboration is incurring the majority of the development costs in any particular quarterly period.

Clinical Trial Expenses

        We base our cost accruals for clinical trials on estimates of the services received and efforts expended pursuant to contracts with numerous clinical trial centers and clinical research organizations (the "CROs"). In the normal course of business, we contract with third parties to perform various clinical trial activities in the ongoing development of potential drugs. The financial terms of these agreements vary from contract to contract, are subject to negotiation and may result in uneven payment flows. Payments under the contracts depend on factors such as the achievement of certain events, the successful accrual of patients or the completion of portions of the clinical trial or similar conditions. The objective of our accrual policy is to match the recording of expenses in our combined financial statements to the actual services received and efforts expended. As such, we recognize direct expenses related to each patient enrolled in a clinical trial on an estimated cost-per-patient basis as services are performed. In addition to considering information from our clinical operations group regarding the status of our clinical trials, we rely on information from CROs, such as estimated costs per patient, to calculate our accrual for direct clinical expenses at the end of each reporting period. For indirect expenses, which relate to site and other administrative costs to manage our clinical trials, we rely on information provided by the CRO, including costs incurred by the CRO as of a particular reporting date, to calculate our indirect clinical expenses. In the event of early termination of a clinical trial, we would recognize expenses in an amount based on our estimate of the remaining non-cancelable obligations associated with the winding down of the clinical trial, which we would confirm directly with the CRO.

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        If our CROs were to either under or over report the costs that they have incurred or if there is a change in the estimated per patient costs, it could have an impact on our clinical trial expenses during the period in which they report a change in estimated costs to us. Adjustments to our clinical trial accruals primarily relate to indirect costs, for which we place significant reliance on our CROs for accurate information at the end of each reporting period. Based upon the magnitude of our historical adjustments, we believe that it is reasonably possible that a change in estimate related to our clinical accruals could be approximately 1% of our annual research and development expenses.

Employee Stock-Based Compensation

        Our employees have in the past received PDL stock-based compensation awards. We account for employee stock-based compensation costs in accordance with Statement of Financial Accounting Standards ("SFAS") No. 123R ("SFAS No. 123R"), which requires us to measure compensation cost for stock awards at fair value and recognize compensation expense over the service period for which awards are expected to vest. We utilize the Black-Scholes option pricing model to estimate the fair value of stock-based compensation at the date of grant, which requires the input of highly subjective assumptions, including expected volatility and expected holding period.

        Further, SFAS No. 123(R) requires that employee stock-based compensation costs be recognized over the requisite service period, or the vesting period, in a manner similar to all other forms of compensation paid to employees. The allocation of employee stock-based compensation costs to each operating expense line are estimated based on specific employee headcount information at each grant date and estimated stock option forfeiture rates and would be revised, if necessary, in future periods if actual employee headcount information or forfeitures differ materially from those estimates. As a result, the amount of employee stock-based compensation costs we recognize in each operating expense category in future periods may differ significantly from what we have recorded in the current period. For the first quarter of 2008, we estimated our future forfeiture rate to be approximately 10%, which is based on historical forfeiture rates adjusted for certain one-time events and the impact of more recent trends on our future forfeitures. An approximate seven percentage point change in the rate of estimated stock option forfeitures could result in an increase or decrease to stock-based compensation expense of approximately $1.0 million.

Results of Operations

Revenues

        Revenues consist of (1) license and milestone revenues from collaborations, (2) reimbursement of research and development ("R&D") expenses under collaborations and (3) other revenues. Other revenues include license and milestone revenues from the outlicensing of our technologies, humanization services revenues and royalty revenues from sales of Zenapax (daclizumab) by Roche.

		Years Ended December 31,						Three Months Ended March 31,
(In thousands)		2007		2006		2005		2008		2007
License and milestones from collaborations		$	19,217	$	29,764	$	9,395	$	1,825	$	6,031
Reimbursement of R&D services under collaborations			5,415		18,784		10,038		857		2,780
Other			1,660		2,869		9,424		1,000		—
	Total revenues	$	26,292	$	51,417	$	28,857	$	3,682	$	8,811

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		Annual Percent Change						Interim Percent Change
		2007/2006			2006/2005			2008/2007
License and milestones from collaborations			(35	)%		217	%		(70	)%
Reimbursement of R&D services under collaborations			(71	)%		87	%		(69	)%
Other			(42	)%		(70	)%		*
	Total revenues		(49	)%		78	%		(58	)%

*

Not presented as calculation is not meaningful.

        Total revenues increased by 78% in 2006 from 2005 primarily due to (1) the acceleration of $20.5 million in previously deferred revenue that we recognized during the second half of 2006 related to Roche's election to discontinue its involvement in both the asthma and transplant maintenance collaborations for daclizumab, which terminations were effective in August 2006 and April 2007, respectively, (2) a $5.0 million milestone that we earned in the fourth quarter of 2006 related to the asthma collaboration and (3) a $2.8 million increase in revenues from our collaboration with Biogen Idec, which we entered into in September 2005. In accordance with EITF 07-1, as more fully described in Critical Accounting Policies and the Use of Estimates, when we incur a higher level of reimbursable R&D expenses than Biogen Idec does under our collaboration agreement, it results in revenue to us. In addition, assuming our expense levels remain flat, our revenues are higher in a particular period when Biogen Idec incurs lower costs and our revenues are lower when Biogen Idec incurs higher costs, since we recognize the "net" receivable due to us under the collaboration as revenue. During 2005, Biogen Idec incurred a low level of reimbursable R&D expenses under this collaboration agreement, which resulted in revenue to us equal to nearly half of our expenses. During 2006, we incurred more than double the reimbursable R&D expenses than we did in 2005, which resulted in increased revenues. However, since Biogen Idec also incurred an increased amount of reimbursable R&D expenses during 2006, this increase in our collaborator's R&D activity slightly offset the increase in our revenue period over period. Such increases in revenues under our collaboration agreements were partially offset by a $7.3 million decrease in revenues over this period as a result of the absence of royalties from product sales of the Zenapax (daclizumab) antibody product beginning in the second quarter of 2006 under the terms of the Second Amended and Restated Worldwide Agreement with Roche executed in the fourth quarter of 2005 (see Note 5 to the Combined Financial Statements for further details about our arrangements with Roche).

        Revenues decreased 49% for the year ended December 31, 2007 from 2006 due to (1) the accelerated recognition in 2006 of $20.5 million in previously deferred revenue as a result of the discontinuation of our collaborations with Roche and (2) a $13.4 million decrease in revenues in 2007 related to reimbursement for R&D services as a result of the termination of our Roche collaborations and lower R&D reimbursable expenses incurred by us under our collaboration agreement with Biogen Idec. These decreases in total revenues were partially offset by the acceleration of $5.2 million in previously deferred revenue that we recognized during the first four months of 2007 resulting from the April 2007 termination of our collaboration with Roche for the co-development of daclizumab in the transplant maintenance indication.

        Revenues decreased 58% for the three months ended March 31, 2008 as compared to the same period in 2007 due to (1) the recognition of $4.9 million in the first quarter of 2007 related to our agreement with Roche to co-develop daclizumab for transplant maintenance, which was terminated effective April 2007 and (2) $1.3 million revenue recognized under our collaboration agreement with Biogen Idec due to higher reimbursable R&D expenses incurred by Biogen Idec in the first quarter of 2008 period as compared to the first quarter of 2007.

        Future revenue will vary from period to period and will substantially depend on whether (1) we are successful in our existing collaboration and receive milestone payments thereunder, (2) we are

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successful in entering into new collaboration agreements and (3) we receive the contingent consideration milestone payments and any royalties under the asset purchase agreement with EKR, and the amount and timing of all these potential payments. Revenues will also vary depending on which party in any collaboration is incurring the majority of development costs in any period.

Costs and Expenses

		Years Ended December 31,						Three Months Ended March 31,
(In thousands)		2007		2006		2005		2008			2007
Research and development		$	195,130	$	200,720	$	155,816	$	45,239		$	47,580
General and administrative			45,045		36,590		25,833		12,765			8,647
Gain on sale of assets			—		—		—		(49,671	)		—
Restructuring charges			6,668		—		—		5,547			—
Asset impairment charges			5,513		900		15,769		3,521			—
	Total costs and expenses	$	252,356	$	238,210	$	197,418	$	17,401		$	56,227

	Annual Percent Change						Interim Percent Change
	2007/2006			2006/2005			2008/2007
Research and development		(3	)%		29	%		(5	)%
General and administrative		23	%		42	%		48	%
Total costs and expenses		6	%		21	%		(69	)%

Research and Development Expenses

        Our R&D activities include (1) research and discovery, (2) product operations and (3) clinical and preclinical operations. Our research and discovery activities include research, drug discovery and target validation. Our product operations activities include process development, purification, formulation, stability and internal and contract manufacturing. Clinical and preclinical operations include preclinical development, toxicology, pharmacokinetics, bioanalytics and clinical development, which includes regulatory, safety, medical writing, biometry, U.S. and European clinical operations, compliance, quality and program management. R&D expenses consist primarily of costs of personnel to support these R&D activities, as well as outbound milestone payments and technology licensing fees, costs of preclinical studies, costs of conducting our clinical trials, such as fees to CROs and clinical investigators, monitoring costs, data management and drug supply costs, R&D funding provided to third parties and an allocation of facility and overhead costs, principally information technology.

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        The table below reflects the development for each of our products in clinical development and the R&D expenses recognized in connection with each product. See the "Our Business-Our Product Pipeline" section of this Information Statement for further details of each of our development programs.

				Research and Development Expenses
										Three Months Ended March 31,
				Years Ended December 31,
	Description/ Indication	Phase of Development
Product Candidate			Collaborator	2007		2006		2005		2008		2007
				(in thousands)
										(unaudited)
Daclizumab				$	25,634	$	50,356	$	37,482	$	7,545	$	6,911
	Asthma	Phase 2b program being evaluated	—
	Multiple sclerosis	Phase 2	Biogen Idec
	Transplant maintenance	Phase 2 program being evaluated	—
Volociximab (M200)	Solid tumors	Phase 2	Biogen Idec		14,933		16,234		27,465		4,140		3,576
Elotuzumab (HuLuc63)	Multiple myeloma	Phase 1	—		27,058		16,322		10,300		11,555		3,817
PDL192	Solid tumors	Phase 1	—		26,141		5,650		—		3,082		5,451
Nuvion (visilizumab)	IV steroid-refractory ulcerative colitis	Terminated in August 2007	—		40,350		57,511		28,209		4,385		12,196
Other Program-Related Costs(1)	Multiple programs and products	—	—		1,218		3,901		4,034		2,619		1,539
Non-Program-Related Costs(2)	—	—	—		59,796		50,746		48,326		11,913		14,090
Total Research and Development Expenses				$	195,130	$	200,720	$	155,816	$	45,239	$	47,580

(1)

Other Program-Related Costs consist of the aggregate research and development costs for those distinct programs or products that do not individually constitute more than 5% of the total research and development expenses for the periods presented.

(2)

Non-Program-Related Costs consist of the aggregate research and development costs that are not associated with any particular program or product, but rather, support our broad research and development efforts. Such costs primarily include those related to discovery of new antibody candidates and manufacturing and quality activities in support of product development activities.

        The $44.9 million increase in R&D expenses in 2006 compared to 2005 was primarily due to increases in our Nuvion and daclizumab program costs, partially offset by decreases in the program costs for volociximab. The $12.9 million increase in our daclizumab program costs primarily related to increased activities associated with our Roche collaboration in 2006, and the $29.3 million increase in Nuvion program costs was due to the increased activity associated with the late stage clinical trials underway in 2006. The decrease in our volociximab program costs in 2006 was primarily due to our entering into the collaboration on this program with Biogen Idec in the second half of 2005, at which point we and Biogen Idec began sharing the program costs. Also in 2006, we adopted SFAS No. 123(R), and as a result, our stock compensation expense included in R&D expenses for 2006 increased by approximately $12.0 million as compared to 2005.

        The $5.6 million decrease in R&D expenses in 2007 compared to 2006 was due primarily to decreases in our daclizumab and Nuvion program costs, partially offset by increases in development costs for PDL192 and elotuzumab. The $24.7 million decrease in our daclizumab expenses was the result of the slowing of our clinical development programs in asthma and transplant maintenance in late 2006 and early 2007 due to the termination of our collaborations with Roche. The $17.2 million reduction in Nuvion spend in 2007 was the result of the termination of this phase 3 program in the third quarter of 2007. The $10.7 million increase in elotuzumab costs in 2007 was due to the

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commencement of the phase 1 trials in multiple myeloma, including related manufacturing costs, and the $20.5 million increase in PDL192 expenses was due to manufacturing efforts and preclinical work in preparation for an IND filing. In addition, non-program specific research and development costs increased due to increased costs associated with the lab facilities in our new headquarters in Redwood City.

        The $2.3 million decrease in our R&D expenses during the first quarter of 2008 in comparison to the first quarter of 2007 was attributable to decreases in our Nuvion and PDL192 program costs, partially offset by increases in development costs for elotuzumab and daclizumab. The $7.8 million decrease in Nuvion costs was due to the decision to terminate the Nuvion phase 3 development programs during the third quarter of 2007, and the $2.4 million reduction in development expenses for PDL192 was primarily the result of a decrease in PDL192 manufacturing activity in the first quarter of 2008 in comparison to 2007. The $7.7 million increase in program costs for elotuzumab was due to manufacturing campaigns that occurred in the first quarter of 2008, whereas there were no such manufacturing campaigns in the first quarter of 2007 for this product.

        We currently do not have reliable estimates of total costs for a particular drug candidate to reach the market. Our potential antibody products are subject to a lengthy and uncertain regulatory process that may involve unanticipated additional clinical trials and may not result in receipt of the necessary regulatory approvals. Failure to receive the necessary regulatory approvals would prevent us from commercializing the product candidates affected. In addition, clinical trials of our potential products may fail to demonstrate safety and efficacy, which could prevent or significantly delay regulatory approval.

        The length of time that a development program is in a given phase varies substantially according to factors relating to the development program, such as the type and intended use of the potential product, the clinical trial design, and the ability to enroll patients. For partnered programs, advancement from one phase to the next and the related costs to do so is also dependent upon certain factors that are controlled by our partners. According to industry statistics, it generally takes 10 to 15 years to research, develop and bring to market a new prescription medicine in the United States. In light of the steps and complexities involved, the successful development of our potential products is highly uncertain. Actual timelines and costs to develop and commercialize a product are subject to enormous variability and are very difficult to predict. In addition, various statutes and regulations also govern or influence the manufacturing, safety reporting, labeling, storage, record keeping and marketing of each product.

        For a discussion of the risks and uncertainties associated with the timing of completing a product development phase, see the "If our research and development efforts are not successful, we may not be able to effectively develop new products," "The clinical development of drug products is inherently uncertain and expensive and subject to extensive government regulation," "We must comply with extensive government regulations and laws," "We may be unable to enroll a sufficient number of patients in a timely manner in order to complete our clinical trials," "We face significant competition," "Changes in the U.S. and international health care industry, including regarding reimbursement rates, could adversely affect the commercial value of our development product candidates," "We must protect our patent and other intellectual property rights to succeed," "If our collaborations are not successful or are terminated by our collaborators, we may not effectively develop and market some of our product candidates," "The failure to gain market acceptance of our product candidates among the medical community would adversely affect our revenue," "We may be unable to obtain or maintain regulatory approval for our products," "Manufacturing changes may result in delay in obtaining regulatory approval or marketing for our products" sections of our Risk Factors within this Information Statement.

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General and Administrative Expenses

        General and administrative expenses generally consist of costs of personnel, professional services, consulting and other expenses related to our administrative and marketing functions, and an allocation of facility and overhead costs.

        General and administrative expenses for the year ended December 31, 2006 increased $10.8 million from 2005. This increase was primarily due to an increase in stock-based compensation expenses of $5.4 million resulting from the adoption of SFAS No. 123R in 2006 and increases in other personnel-related expenses, consulting services and facility-related expenses.

        General and administrative expenses for the year ended December 31, 2007 increased $8.5 million from 2006. This increase was due to $2.1 million in executive severance payments that were accrued for during the fourth quarter of 2007 (see Note 7 to the Combined Financial Statements for more details) and $5.3 million in depreciation reflected as general and administrative in 2007 related to idle capacity in our former Minnesota manufacturing facility. These increases were partially offset by a decrease in stock-based compensation expense of $1.9 million.

        General and administrative expenses increased by $4.1 million during the first quarter of 2008 in comparison to the same quarter in 2007. In the first quarter of 2008, (1) we classified $0.9 million of facilities costs related to idle R&D capacity in our Redwood City facilities as general and administrative expenses, (2) we accrued $0.8 million in retention bonuses that were provided to our employees and (3) depreciation allocated to general and administrative expenses increased by $0.5 million as we placed into service in late 2007 leasehold improvements associated with our Redwood City facilities.

Gain on Sale of Assets

        In March 2008, we sold our Manufacturing Assets to an affiliate of Genmab A/S ("Genmab"), for total cash proceeds of $240 million. We recognized a pre-tax gain of $49.7 million upon the close of the sale in March 2008. Such gain represents the $240 million in gross proceeds, less the net book value of the underlying assets transferred of $185.4 million and $4.9 million in transaction costs and other charges.

        In connection with the sale of the Manufacturing Assets, we entered into an agreement with Genmab under which we and Genmab will each provide transition services to the other through March 2009. In addition, to fulfill our clinical manufacturing needs in the near-term, we entered into a clinical supply agreement with Genmab that became effective upon the close of the transaction. Under the terms of the clinical supply agreement, Genmab agreed to produce clinical trial material for certain of our pipeline products until March 2010.

Restructuring Charges

Manufacturing Restructuring

        In August 2007, in connection with a months-long evaluation of strategic alternatives that PDL's management and Board conducted, PDL announced a strategic change to focus its business on the discovery and development of novel antibodies in oncology and select immunologic diseases. As a result of this new strategic focus, PDL communicated its intent to sell certain of its assets that were not aligned with this new strategic direction. In addition, PDL announced its plans to conduct a thorough review of its organization, where it anticipated a sizeable workforce reduction, to ensure that its structure and scope of operations were appropriately aligned with its new strategy.

        In late September 2007, PDL's Board formally approved a workforce reduction related to our former manufacturing operations. During the third quarter of 2007, we informed employees that any

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employees terminated in a reduction would be eligible for a severance package generally consisting of 12 weeks of salary and medical benefits and up to three months of outplacement services. In early October 2007, we notified the 104 individuals affected by this workforce reduction, and all impacted employees were provided 60 days' advance notice of the date their employment would terminate. In 2007, we recognized restructuring charges related to this workforce reduction of $3.6 million, consisting of $2.4 million in post-termination severance costs, $0.3 million of 401(k) matching payments and $0.9 million of salary and bonus accruals relating to the portion of the 60-day notice period over which the terminated employees would not be providing services related to the Biotechnology Business. In 2007, all actions under this restructuring plan were completed and substantially all payments were made.

Facilities-related Restructuring

        During the third quarter of 2007, we initiated our move from our prior corporate headquarters in Fremont, California to our new location in Redwood City, California. In connection with this move, we ceased use of a portion of the leased property in Fremont, California and, as a result, we recognized a restructuring charge of approximately $1.3 million. We paid all obligations relating to these leases by the end of the first quarter of 2008, when the leases on these facilities terminated.

        In addition, during 2007, we ceased use of two of our leased facilities in Plymouth, Minnesota. During 2007, we recognized restructuring charges of $1.8 million related to these leased facilities. In connection with the sale of our Manufacturing Assets in March 2008, Genmab assumed our obligations for one of these two facilities. We expect to pay all obligations accrued relating to the remaining lease by the end of the first quarter of 2009.

Company-wide Restructuring

        In an effort to reduce our operating costs to a level more consistent with a biotechnology company focused on antibody discovery and development, in March 2008, we commenced a restructuring plan pursuant to which we eliminated approximately 120 employment positions and will eliminate approximately 130 additional employment positions over the subsequent 12 months. All impacted employees were notified in March 2008. Subsequent to the completion of the restructuring, we expect to have approximately 300 employees.

        Employees terminated in connection with the restructuring are eligible for a package consisting of severance payments of generally 12 weeks of salary and medical benefits along with up to three months of outplacement services. During the first quarter of 2008, we recognized restructuring charges of $5.5 million consisting of post-termination severance costs as well as salary accruals relating to the portion of the 60-day notice period over which the terminated employees would not be providing services to the Company.

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        The following table summarizes the restructuring activity discussed above, as well as the remaining reserve balance at March 31, 2008:

(In thousands)		Personnel Costs			Facilities Related			Total
Balance at December 31, 2006		$	—		$	—		$	—
	Restructuring charges		3,616			3,052			6,668
	Payments		(3,205	)		(1,195	)		(4,400	)
	Other		—			55			55
Balance at December 31, 2007			411			1,912			2,323
	Restructuring charges		5,465			82			5,547
	Payments		(377	)		(1,266	)		(1,643	)
Balance at March 31, 2008		$	5,499		$	728		$	6,227

Asset Impairment Charges

        In October 2003, we entered into the Amended and Restated Worldwide Agreement with Roche regarding the outlicense of certain rights to daclizumab, including the right to market and sell Zenapax (daclizumab) for the prevention of acute organ rejection in patients receiving kidney transplants. Under the Amended and Restated Worldwide Agreement, we had the right to terminate our license to Roche in consideration of a fee payable to Roche (the "reversion right"). In October 2005, pursuant to the terms of the Second Amended and Restated Worldwide Agreement with Roche, we agreed to relinquish our reversion right we had held under the Amended and Restated Worldwide Agreement. As a result, during the fourth quarter of 2005, we wrote off the carrying value of the reversion right of $15.8 million. (See Note 5 to the Combined Financial Statements for details about our arrangements with Roche.)

        In June 2006, we concluded that the carrying amount of certain of our licensed research technology was impaired because we abandoned the related technology associated with certain research projects we originally acquired in the third quarter of 2004. Accordingly, we recorded an impairment charge of $0.9 million, representing the unamortized balance prior to the impairment assessment, during the second quarter of 2006.

        In June 2007, management committed to a plan to sell real estate that comprised part of our prior corporate headquarters in Fremont, California. Based on market value information we had at the time, we concluded that the net carrying value of the assets was impaired as of June 30, 2007, and during the second quarter of 2007, we recognized an impairment charge of $5.0 million to reduce the net carrying value of the assets to $20.6 million, which was our estimate of fair value, less costs to sell. The sale of these two buildings closed in October 2007 on terms generally consistent with those expected and, as a result, no significant gain or loss on the sale was recognized at the time of the sale.

        Total asset impairment charges for the quarters ended March 31, 2008 and 2007 were $3.5 million and none, respectively. During the first quarter of 2008, such charges primarily represented the costs of certain research equipment that was expected to have no future useful life, and certain information technology projects that were terminated and had no future benefit to us as a result of our restructuring activities.

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Other Income and Expense, Net and Interest Expense

		Years Ended December 31,									Three Months Ended March 31,
(In thousands)		2007			2006			2005			2008			2007
											(unaudited)
Other income (expense)		$	(871	)	$	737		$	1,982		$	3		$	1
Interest expense			(639	)		(552	)		(595	)		(434	)		(128	)
	Total other income and expense, net and interest expense	$	(1,510	)	$	185		$	1,387		$	(431	)	$	(127	)

		Annual Percent Change						Percent Change
		2007/2006			2006/2005			2008/2007
Other income (expense)			(218	)%		(63	)%		200	%
Interest expense			16	%		(7	)%		239	%
	Total other income and expense, net and interest expense		(916	)%		(87	)%		239	%

        Other income, net, in 2005 and 2006 primarily consisted of interest income on a $30 million note receivable bearing interest at a rate of 5.75% from Exelixis, Inc. Interest income from the note receivable decreased from $1.7 million in 2005 to $0.7 million in 2006, since the note matured and was paid to us in May 2006. Other expense, net, in 2007 was primarily comprised of loan defeasance costs of $0.9 million recognized in connection with the early extinguishment of debt associated with the sale of our Fremont property (see Note 16 to the Combined Financial Statements).

        Interest expense in 2005, 2006 and 2007, net of amounts capitalized, included amounts related to a 7.64% term loan associated with the purchase of two of the buildings that made up our Fremont, California facilities, which was extinguished in connection with the sale of this property in October 2007. Interest expense in 2006 and 2005 also included amounts incurred related to certain notes payable assumed in connection with our acquisition of Eos Biotechnology, Inc. ("Eos"), which PDL acquired in the second quarter of 2003. In addition, beginning in the fourth quarter of 2007, interest expense includes a portion of our lease payments on our Lab Building (as defined below in Liquidity and Capital Resources) in Redwood City, California. For accounting purposes, we are considered to be the owner of the leased property and we have recorded the fair value of the building and a corresponding long-term financing liability on our Combined Balance Sheet. See the Liquidity and Capital Resources section of this Information Statement for further details of this lease and the related accounting treatment.

Income Taxes

        The operations of BioCo were historically included in PDL's consolidated U.S. federal and state income tax returns and in tax returns of certain PDL foreign subsidiaries. The provision for income taxes and the deferred tax assets and liabilities for BioCo has been determined as if BioCo had filed tax returns separate and apart from PDL. Accordingly, the tax expense for BioCo in future years could vary from the historical tax expense depending on the future legal structure of BioCo and related tax elections. Income tax expense in 2007, 2006 and 2005 and during the three months ended March 31, 2008 and 2007 related to foreign taxes on income earned by our foreign operations.

Liquidity and Capital Resources

        At the closing of the spin-off, PDL will provide BioCo cash and cash equivalents of $375 million, which amount will be increased by any milestones or similar payments received by PDL on or prior to the distribution date related to the Biotechnology Business. We expect this initial cash contribution as

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well as future payments from our collaboration agreement with Biogen Idec, the asset purchase agreement with EKR and certain other agreements, each of which is being assigned to BioCo, would fund BioCo's operations and working capital requirements for approximately the next three years after the closing of the spin-off, based on current operating plans. Prior to the spin-off, the Biotechnology Business of PDL is being funded entirely by PDL.

        Net cash used in our operating activities in 2007, 2006 and 2005 was $182.3 million, $123.2 million and $93.3 million, respectively. The $59.2 million increase in net cash used in our operating activities in 2007 as compared to 2006 was primarily attributable to lower cash receipts due to lower revenue in 2007 as well as changes in our working capital due to the timing of payments for accounts payable and accrued liabilities. The $29.9 million increase in cash used in operating activities in 2006 as compared to 2005 was primarily attributable to changes in our working capital due to the timing of payments relating to cash receipts from receivables and cash payments for prepaid assets and our liabilities and the increase in spending for advancing clinical programs.

        Net cash used in our operating activities for the three months ended March 31, 2008 was $58.1 million, compared to $51.5 million in the corresponding period in 2007. The $6.6 million increase in net cash used in operating activities between these two periods was primarily attributable to lower cash receipts due to lower revenue between these two periods as well as payments made related to restructuring activities and retention bonuses paid during the first quarter of 2008.

        Net cash used in investing activities in 2007, 2006 and 2005 was $81.4 million, $19.9 million and $40.6 million, respectively. The net cash used in investing activities in 2007 was primarily attributable to $92.3 million in capital expenditures, which included the development and construction of our new headquarters in Redwood City, California, and $10.0 million relating to the establishment of letters of credit related to the construction at our Redwood City, California facilities, partially offset by $20.9 million in proceeds from the sale of our property in Fremont, California. The $19.9 million net cash used in investing activities in 2006 was primarily attributable to $31.9 million in capital expenditures and $18.3 million relating to the establishment of letters of credit related to the lease of and construction at our Redwood City, California facilities, partially offset by the repayment to us by Exelixis, Inc. of a $30.0 million note receivable. The $40.6 million net cash used in investing activities in 2005 was attributable to capital expenditures.

        Net cash provided by investing activities was $245.9 million for the three months ended March 31, 2008, compared to net cash used in investing activities of $26.6 million in the comparable period in 2007. The net cash provided by investing activities in the first three months of 2008 was attributable primarily to net proceeds of $236.6 million received in connection with the sale of the Manufacturing Assets and the release of $10.0 million of restricted cash relating to our Redwood City, California, facility. Net cash used in investing activities in the first three months of 2007 was attributable to capital expenditures of $16.6 million, principally related to the construction at our Redwood City, California facilities, and the establishment of letters of credit related to our Redwood City leases totaling $10 million.

        Net cash provided by financing activities in 2007, 2006 and 2005 was $263.8 million, $143.1 million and $133.9 million, respectively. Net cash used in financing activities for the three months ended March 31, 2008 was $187.8 million, compared to net cash provided by financing activities of $78.1 million in the comparable period in 2007. The net cash provided by and used in financing activities for all periods was primarily due to net funding from and to our parent company. During the three months ended March 31, 2008, we had a net transfer to PDL as a result of the sale of the Manufacturing Assets in March 2008, which proceeds exceeded our other operating, investing and financing net cash outflows.

        In July 2006, PDL entered into agreements to lease two buildings in Redwood City, California, to serve as its corporate headquarters, which leases we expect will be assigned to BioCo upon the

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separation. The larger of the two buildings (the "Administration Building") primarily serves as general office space while the other serves as our principal laboratory space (the "Lab Building"). We took possession of the buildings during the fourth quarter of 2006 and completed our move into the buildings by the end of 2007. Significant leasehold improvements were performed for the Lab Building, which had not previously been occupied or improved for occupancy. Due to our involvement in and assumed risk during the construction period, as well as the nature of the leasehold improvements for the Lab Building, we were required under EITF No. 97-10, "The Effect of Lessee Involvement in Asset Construction," to reflect the lease of the Lab Building in our financial statements as if we had purchased the building. Therefore, we recorded the fair value of the building and a corresponding financing liability, which was approximately $25.4 million, at the time when we took possession of the building. We incurred approximately $64 million in leasehold improvements in the Lab Building. We completed construction during the fourth quarter of 2007 and the Lab Building was placed into service in December 2007. Our underlying lease term is approximately 15 years, or through December 31, 2021. At March 31, 2008, our financing liability related to the Lab Building was approximately $26.7 million. We are actively seeking to sublease our excess capacity in our corporate headquarters.

        In November 2006, we established an irrevocable letter of credit in the amount of $15.0 million with a financial institution in connection with the building leases in Redwood City, California. We expect this letter of credit to be released in the fourth quarter of 2008.

        Our future capital requirements will depend on numerous factors, including, among others, our ability to enter into additional collaborative agreements; progress of product candidates in clinical trials; the ability of our licensees to obtain regulatory approval and successfully manufacture and market products licensed under our patents; the continued or additional support by our collaborators or other third parties of R&D efforts and clinical trials; investment in existing and new R&D programs; time required to gain regulatory approvals; our ability to obtain and retain funding from third parties under collaborative arrangements; the demand for our potential products, if and when approved; potential acquisitions of technology, product candidates or businesses by us; and the costs of defending or prosecuting any patent opposition or litigation necessary to protect our proprietary technology. In order to develop and obtain regulatory approval for our potential products we will need to raise substantial additional funds through equity or debt financings, collaborative arrangements, the use of sponsored research efforts or other means. We cannot assure that such additional financing will be available on acceptable terms, if at all, and such financing may only be available on terms dilutive to our stockholders.

        As of March 31, 2008, our material contractual obligations under lease, contract manufacturing and other agreements for the next five years and thereafter are as follows:

		Payments Due by Period
(In thousands)		Less Than 1 Year		1-3 Years		4-5 Years		More than 5 Years		Total
CONTRACTUAL OBLIGATIONS
Operating leases		$	3,926	$	7,351	$	6,963	$	62,461	$	80,701
Long-term liabilities(1)			4,976		7,318		7,824		44,271		64,389
Contract manufacturing			9,684		16,000		—		—		25,684
	Total contractual obligations	$	18,586	$	30,669	$	14,787	$	106,732	$	170,774

(1)

Includes lease payments related to our Lab Building in Redwood City, California, a milestone payment due to one of our licensors and post-retirement benefit obligations.

        In addition to the amounts disclosed in the table above, we have committed to make payments for certain retention related benefits totaling approximately $16.2 million as of March 31, 2008. Further, we

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have committed to make potential future "milestone" payments to third parties as part of in-licensing and product development programs. Payments under these agreements generally become due and payable only upon achievement of certain clinical development, regulatory and/or commercial milestones. Because the achievement of these milestones has not yet occurred, such contingencies have not been recorded in our Combined Balance Sheet as of March 31, 2008. We estimate that such milestones that could be due and payable over the next year approximate $2 million and milestones that could be due and payable over the next three years approximate $4.5 million.

Off-Balance Sheet Arrangements

        None.

Interest Rate Risk

        We expect to invest the cash and cash equivalents contributed to us by PDL consistent with PDL's current investment policies. Therefore, we expect to maintain a non-trading investment portfolio of investment grade, highly liquid debt securities, which is designed to limit the amount of credit exposure to any one issue, issuer or type of instrument. We do not plan to use derivative financial instruments for speculative or trading purposes. We expect to carry our investments in debt securities at fair value, estimated as the amount at which an asset or liability could be bought or sold in a current transaction between willing parties. We expect to diversify our credit risk and invest in debt securities with high credit quality. We will continue to monitor our credit risks and evaluate the potential need for impairment charges related to credit risks in future periods.

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Our Relationship with PDL after the Spin-Off

General

        Immediately prior to the spin-off, we will be a wholly owned subsidiary of PDL. After the spin-off, PDL will not have any ownership interest in our common stock, and we will be an independent, publicly traded company.

        We will enter into agreements with PDL prior to and concurrently with the spin-off to govern the terms of the spin-off and to define our ongoing relationship following the spin-off, allocating responsibility for obligations arising before and after the spin-off, including obligations with respect to liabilities relating to PDL's business and to BioCo's business and obligations with respect to our employees, certain transition services and taxes. We will enter into these agreements with PDL while we are still a wholly owned subsidiary of PDL, and certain terms of these agreements are not necessarily the same as could have been negotiated between independent parties.

        The following descriptions are summaries of the terms of the agreements. Any of these agreements that are material will be filed as exhibits to the registration statement into which this Information Statement is incorporated and the summaries of such agreements are qualified in their entirety by reference to the full text of such agreements. We encourage you to read, in their entirety, each of the material agreements when they become available. The terms of these agreements have not yet been finalized; changes, some of which may be material, may be made prior to the spin-off.

Separation and Distribution Agreement

        The Separation and Distribution Agreement will set forth our agreements with PDL regarding the principal transactions necessary to separate us from PDL. It will also set forth other agreements that govern certain aspects of our relationship with PDL after the completion of the separation. Concurrently with our separation from PDL, we will enter into the Separation and Distribution Agreement with PDL.

         Transfer of Assets and Assumption of Liabilities.    The Separation and Distribution Agreement will identify assets to be transferred, liabilities to be assumed and contracts to be assigned to us as part of the separation of PDL into two independent companies, and will describe when and how these transfers, assumptions and assignments will occur. In particular, the Separation and Distribution Agreement will provide that, subject to the terms and conditions contained in the Separation and Distribution Agreement:

•

All of the assets and liabilities associated or primarily used in connection with the Biotechnology Business of PDL will be transferred to us, including all of PDL's intellectual property assets (excluding the Queen et al. patents), and other assets and liabilities of PDL, but excluding the assets and liabilities of the Royalty Business and the 2.00% Convertible Senior Notes due February 14, 2012 with a principal amount of $250.0 million and the 2.75% Convertible Subordinated Notes due August 16, 2023 with a principal amount of $250.0 million (the "Convertible Notes");



•

The Royalty Business including the Queen et al. patents and related assets and liabilities will be retained by PDL;



•

PDL will retain the Convertible Notes;



•

Assets and liabilities relating to the ongoing obligations under transition services agreements with EKR, Genmab and Otsuka related to the prior Commercial and Cardiovascular Business of PDL, as well as rights to potential future milestone and royalty payments under the asset purchase agreement with EKR, will be transferred to us; and

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•

We expect PDL's leases for the facilities located in Redwood City, California and Paris, France to be transferred to us.

        Except as may be expressly set forth in the Separation and Distribution Agreement or any ancillary agreement, all assets will be transferred to us on an "as is," "where is" basis and so long as PDL is in compliance with the terms of the Separation and Distribution Agreement relating to the transfer, BioCo will bear the economic and legal risks that any conveyance will prove to be insufficient to vest in us good title, free and clear of any security interest, that any necessary consents or government approvals are not obtained and that any requirements of laws or judgments are not complied with.

        Information in this Information Statement with respect to the assets and liabilities of the parties following the separation is presented based on the allocation of such assets and liabilities pursuant to the Separation and Distribution Agreement, unless the context otherwise requires.

         Further Assurances.    To the extent that any transfers contemplated by the Separation and Distribution Agreement have not been consummated on or prior to the date of the separation, the parties will agree to cooperate to affect such transfers as promptly as practicable following the date of the separation. In addition, each of the parties will agree to cooperate with each other and use reasonable best efforts to take or to cause to be taken all actions, and to do, or to cause to be done, all things reasonably necessary under applicable law or contractual obligations to consummate and make effective the transactions contemplated by the Separation and Distribution Agreement and the ancillary agreements.

         The Distribution.    The Separation and Distribution Agreement will also govern the rights and obligations of the parties regarding the proposed distribution. Prior to the distribution, we will distribute to PDL as a stock dividend the number of shares of our common stock distributable in the distribution. PDL will cause the distribution agent to distribute to PDL stockholders that hold shares of PDL common stock as of the applicable record date all the issued and outstanding shares of our common stock. PDL will have the sole and absolute discretion to determine the terms of, and whether to proceed with, the distribution.

         Releases and Indemnification.    Except as otherwise provided in the Separation and Distribution Agreement or any ancillary agreement, each party will release and forever discharge the other party from all liabilities existing or arising from any acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed on or before the separation. The releases will not extend to obligations or liabilities under any agreements between the parties that remain in effect following the separation pursuant to the Separation and Distribution Agreement or any ancillary agreement.

         Legal Matters.    Except as otherwise set forth in the Separation and Distribution Agreement, we will assume the liability for, and control of, all pending and threatened legal matters related to our business or assumed liabilities and we will indemnify PDL for any liability arising out of or resulting from such assumed legal matters. Each party to a claim will agree to cooperate in defending any claims against the other party for events that took place prior to, on or after the date of separation. PDL will retain liability for pending and threatened legal matters related to the Royalty Business.

         Insurance.    The Separation and Distribution Agreement will provide for the rights of the parties to report claims under existing insurance policies for occurrences prior to the separation and set forth procedures for the administration of insured claims. In addition, the Separation and Distribution Agreement will allocate among the parties the right to insurance policy proceeds based on reported claims and the obligations to incur deductibles under certain insurance policies.

         Other Matters.    Other matters governed by the Separation and Distribution Agreement include, among others, access to financial and other records and information, legal privilege, confidentiality and

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resolution of disputes between the parties relating to the Separation and Distribution Agreement and the ancillary agreements and the agreements and transactions contemplated thereby.

Transition Services Agreement

        Concurrently with our separation from PDL, we will enter into a Transition Services Agreement with PDL pursuant to which PDL and BioCo will provide each other with a variety of administrative services for a period of time following the spin-off. Among the principal services we will provide to PDL are:

•

information technology support for a defined timeframe, including SAP access setup, all other data access such as email and other business systems, help desk support and information technology setup;



•

record-keeping support;



•

finance, tax and accounting support to assist PDL in a secondary capacity to PDL personnel through the completion of the 2008 PDL audit;



•

legal support;



•

human resources support; and



•

facilities support to the extent PDL occupies space at current Redwood City, California facilities.

        Among the principal services PDL will provide to us are:

•

financial and administrative support for audits and inquiries related to BioCo's historical combined financial statements; and



•

access to both the historical financial systems for PDL and the supporting documentation, as well as general financial support for the purposes of compilation and audit of carve-out financial statements for the Cardiovascular Business as allowed for under the Asset Purchase Agreement with EKR.

        PDL and BioCo will agree to make each service available to the other for periods of time following the date the spin-off is completed as are provided in the Transition Services Agreement.

Non-Exclusive Cross License Agreement

        Concurrently with our separation from PDL, we will enter into a Non-Exclusive Cross License Agreement relating to Queen et al. patents and certain related intellectual property we acquired from PDL as a result of the separation. Under the Non-Exclusive Cross License Agreement, PDL will grant to us a royalty-free, development license to the Queen et al. patents and a royalty-bearing, commercialization license to the Queen et al. patents and we will grant to PDL a royalty-free license under certain intellectual property we own solely for the purposes of allowing PDL to perform and fulfill existing obligations that PDL has under certain agreements between PDL and third parties. We will have the right to sublicense the Queen et al. patents subject to restrictions to ensure that we cannot grant sublicenses except in connection with a collaboration or similar arrangement in which, we also are granting rights to our own intellectual property.

Employee Matters Agreement

        Concurrently with our separation from PDL, we will enter into an Employee Matters Agreement, which will govern the employee benefit obligations of PDL and us as they relate to current and former employees. The Employee Matters Agreement allocates liabilities and responsibilities relating to employee benefit matters that are subject to ERISA (other than severance plans) in connection with

73

the separation, including the assignment and transfer of employees, and the establishment of a savings plan and a welfare plan.

Tax Sharing and Indemnification Agreement

        Concurrently with our separation from PDL, we will enter into a Tax Sharing and Indemnification Agreement that generally will govern PDL's and our respective rights, responsibilities and obligations after the separation with respect to taxes. Under the Tax Sharing and Indemnification Agreement, all tax liabilities (including tax refunds and credits) (1) attributable to PDL's Biotechnology Business for any and all periods or portions thereof ending prior to or on, the distribution date, (2) resulting or arising from the contribution of PDL's Biotechnology Business to us, the distribution of our shares of common stock and the other separation transactions and (3) otherwise attributable to PDL, will be borne solely by PDL. As a result, we generally expect to be liable only for tax liabilities attributable to, or incurred with respect to, the biotechnology business after the distribution date.

Unaudited Pro Forma Condensed Combined Balance Sheet

        The unaudited pro forma balance sheet information presented below has been prepared from the historical audited balance sheet of the Biotechnology Business of PDL as of March 31, 2008. The pro forma adjustments and notes to the pro forma financial information give effect to the legal formation and capitalization of BioCo and the contribution of the assets of BioCo by PDL as described below. The unaudited pro forma balance sheet should be read together with the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and BioCo's historical financial statements and notes related to those financial statements included elsewhere in the Information Statement.

        The unaudited pro forma balance sheet as of March 31, 2008 has been prepared as if the spin-off had occurred on March 31, 2008. The pro forma adjustments are based on the best information available and assumptions that management believes are reasonable given the information available; however, such adjustments are subject to change based upon the finalization of the terms of the separation and the underlying separation agreements. The historical financial statements of BioCo include allocations of expenses from PDL, and such costs may not be representative of our future costs to be incurred as a separate public company. At this time, management cannot make any estimates of the costs that BioCo would expect to incur as a separate public company that are reasonably estimable and factually supportable. As a result, a pro forma income statement has not been presented.

        The unaudited pro forma balance sheet is for illustrative and information purposes only and is not intended to represent, or be indicative of, what BioCo's financial position would have been had the spin-off occurred on the date indicated.

        A significant amount of non-recurring charges to effect the strategic separation will be incurred by PDL, such as financial, legal, tax, accounting and other advisory fees and regulatory fees. BioCo may also incur costs in connection with the strategic separation such as, among other things, facility and information technology system reconfiguration costs. The total non-recurring separation charges to be incurred by BioCo is not estimable at this time. There are expected to be certain incremental costs that BioCo will experience as a stand-alone public entity.

        As an independent, publicly traded company, BioCo's total costs related to overhead functions, including accounting, legal, human resources, investor relations, information technology systems and other administrative functions, are expected to differ from the costs for such functions that were historically allocated to BioCo from PDL. The annual costs associated with these functions as a stand-alone entity have not been reflected for the reasons described above.

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Biotech Spinco, Inc.
(Biotechnology Business of PDL Biopharma)

Unaudited Pro Forma Condensed Combined Balance Sheet
(In thousands)

		March 31, 2008
		Historical			Pro Forma Adjustments			Pro Forma
Assets
Current assets:
	Cash and cash equivalents	$	—		$	375,000	(1)	$	375,000
	Restricted cash		15,005						15,005
	Prepaid and other current assets		6,712						6,712
Total current assets			21,717			375,000			396,717
Long-term restricted cash			3,269						3,269
Land, property and equipment, net			130,322						130,322
Intangible assets, net			8,644						8,644
Other assets			2,139						2,139
	Total assets	$	166,091		$	375,000		$	541,091
Liabilities and parent company equity
Current liabilities:
	Accounts payable	$	1,901		$	—		$	1,901
	Accrued compensation		13,507						13,507
	Other accrued liabilities		18,767						18,767
	Deferred revenue		8,197						8,197
	Current portion of lease financing liability		735						735
Total current liabilities			43,107			—			43,107
Long-term deferred revenue			26,313						26,313
Long-term lease financing liability			25,968						25,968
Other long-term liabilities			5,879						5,879
	Total liabilities		101,267			—			101,267
Commitments and contingencies (Note 15 to Combined Financial Statements)
Parent company equity:
	Parent company investment		65,345			(65,345	)(2)		—
Accumulated other comprehensive loss			(521	)					(521	)
	Common stock		—			236	(2)		236
	Additional paid-in capital		—			440,109	(2)		440,109
Total parent company equity			64,824			375,000			439,824
Total liabilities and parent company equity		$	166,091		$	375,000		$	541,091

(1)

Represents cash funding by PDL of $375 million for a capital contribution based on the anticipated post-separation capital structure.

(2)

Represents the capitalization of BioCo, including the assumed issuance of approximately 23.6 million BioCo common shares at $0.01 par value, which is based on the number of outstanding shares of PDL's common stock as of March 31, 2008 and the distribution ratio.

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Management

        The following table sets forth information as of August 11, 2008 regarding individuals who are expected to serve as BioCo's executive officers after the spin-off, including their anticipated position.

Name	Age		Expected Position
Andrew Guggenhime		40	Senior Vice President and Chief Financial Officer
Maninder Hora, Ph.D.		55	Vice President, Product and Quality Operations
Mark McCamish, M.D., Ph.D.		56	Senior Vice President and Chief Medical Officer
Jaisim Shah		48	Senior Vice President and Chief Business Officer
Francis Sarena		37	Vice President, General Counsel and Secretary
Herb Cross		37	Corporate Controller

         Andrew Guggenhime    is expected to serve as our Senior Vice President and Chief Financial Officer. Mr. Guggenhime currently serves as the Senior Vice President and Chief Financial Officer of PDL, having joined PDL in April 2006. Between January 2000 and March 2006, Mr. Guggenhime served at Neoforma, Inc., most recently as Chief Financial Officer. Neoforma was a provider of supply chain management solutions for the healthcare industry before it was acquired by Global Healthcare Exchange, LLC in March 2006. From 1996 until 2000, Mr. Guggenhime was a part of the Healthcare Investment Banking group of Merrill Lynch & Co., most recently as a Vice President, where he specialized in working with healthcare services firms and healthcare Internet companies on a variety of transactions, including mergers and acquisitions, initial public offerings, add-on equity offerings and debt offerings. Prior to joining Merrill Lynch & Co., Mr. Guggenhime worked at Wells Fargo & Company in a number of capacities, most recently as Assistant Vice President in Wells Fargo's Real Estate Capital Markets group. Mr. Guggenhime received his B.A. in International Politics and Economics from Middlebury College and his M.M. from the J.L. Kellogg Graduate School of Management at Northwestern University.

         Maninder Hora, Ph.D.    is expected to serve as our Vice President, Product and Quality Operations. Dr. Hora has 25 years of drug development experience in the biopharmaceutical and pharmaceutical industry. Dr. Hora has served as Vice President, Product Operations, at PDL since March 2008 when he assumed responsibilities for process development, product supply and quality functions after the divestiture of PDL's manufacturing facility. He joined PDL as Vice President, Process Development, in July 2006. Before PDL, Dr. Hora was Vice President of Process and Product Development at Chiron Corporation (now Novartis) in Emeryville, California from 2001 to 2006, and held positions of increasing responsibility within Chiron from 1986 to 2001. Since 2001, Dr. Hora has led a large group of scientists and engineers in the design, development and implementation of process, analytics, formulation and device technologies for antibody, protein and small molecule drugs from early preclinical and clinical development to licensure and post-marketing stages. His groups have been instrumental in scaling up dozens of biopharmaceutical processes for phase 3 clinical production, commercial introduction and post-licensure changes. Dr. Hora served as a key member of various teams that successfully registered eight drug or vaccines in the U.S. and Europe during his 20-year tenure at Chiron. Dr. Hora has also held positions at Wyeth Pharmaceuticals and GlaxoSmithKline PLC prior to joining Chiron. Dr. Hora completed his Ph.D. in Bioengineering from the Indian Institute of Technology, Delhi, India and was a Fulbright Scholar at the University of Washington, Seattle prior to joining the industry.

         Mark McCamish, M.D., Ph.D.    is expected to serve as our Senior Vice President and Chief Medical Officer. Dr. McCamish currently serves as the Senior Vice President and Chief Medical Officer of PDL, having joined PDL in February 2007. From 2003 to February 2007, Dr. McCamish served as Chief Medical Officer and Vice President of Clinical Development for Perlegen Sciences, Inc., a company that analyzes unique genetic variations in clinical trial participants to develop genetically targeted, late-stage therapeutics and diagnostics. Between January 1998 and September 2003,

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Dr. McCamish served at Amgen, Inc., most recently as Global Development Leader responsible for the clinical development of Amgen's Aranesp® product in new indications. From 1990 to 1997, he worked as a director at Abbott Laboratories with broad responsibilities that included national and international clinical research, design and development of new products in various therapeutic areas. Dr. McCamish received his Ph.D. at Penn State University, his M.D. from the University of California, Los Angeles, and bachelor's and master's degrees from the University of California, Santa Barbara. Dr. McCamish is Board Certified in Internal Medicine and Nutrition & Metabolism.

         Jaisim Shah    is expected to serve as our Senior Vice President and Chief Business Officer. Mr. Shah currently serves as the Senior Vice President and Chief Business Officer of PDL, having joined PDL in 2000. Between 1997 and 2000, he served in various marketing management positions at Bristol-Myers Squibb Company, most recently as Vice President, Global Marketing, Bristol-Myers Squibb's Neuroscience and GU franchise. Between 1991 and 1997, Mr. Shah served at Roche, most recently as Global Business Leader for oncology and virology based in Basel, Switzerland. Mr. Shah received his M.A. in International Economics from the University of Akron and his M.B.A. in Marketing from Oklahoma University.

         Francis Sarena    is expected to serve as our Vice President, General Counsel and Secretary. Mr. Sarena currently serves as Vice President, General Counsel and Secretary of PDL, having joined PDL in April 2006. Mr. Sarena served as a Corporate Associate at Bingham McCutchen LLP from September 2000 to April 2006 and primarily focused on representing clients in merger and acquisition transactions, corporate and securities law matters and equity financing transactions. Mr. Sarena received his J.D. from University of California, Berkeley, Boalt Hall School of Law, and his B.S. in Finance from San Francisco State University.

         Herb Cross    is expected to serve as our Corporate Controller and principal accounting officer. Mr. Cross currently serves as the Corporate Controller and principal accounting officer of PDL, having joined PDL in November 2006. Between November 1999 and June 2006, Mr. Cross held several positions of increasing responsibility at Neoforma, Inc., most recently as Vice President of Finance, a position he held since February 2001. Neoforma was a provider of supply chain management solutions for the healthcare industry before it was acquired by Global Healthcare Exchange, LLC in March 2006. Between August 1994 and November 1999, Mr. Cross was employed by Arthur Andersen LLP, an independent public accounting firm, most recently as a Manager in the Assurance and Business Advisory Services group, during which time Mr. Cross managed the audits of both public and private corporations in the software, technology, retail and manufacturing industries. Mr. Cross is a Certified Public Accountant and received his B.S. in Business Administration, with a dual emphasis in Finance and Accounting, from the Haas School of Business at the University of California at Berkeley.

Board of Directors

Members of the Board of Directors

        Our Board currently is expected to be comprised of between five to seven members in the near term after the spin-off. Currently, Andrew Guggenhime is the sole director of BioCo and has been appointed to serve in such capacity solely for administrative purposes to effect the intentions of the Board of PDL until such time as the continuing directors of BioCo are formally appointed. We do not have a classified Board. The terms of each director would expire upon the election and qualification of the directors to be elected at the next annual meeting of stockholders.

Independence of Directors

        We expect a majority of our Board will qualify as independent directors as defined in Rule 4200 of the Nasdaq Marketplace rules for listed companies.

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        Each expected member of each of our Compensation, Nominating and Governance and Audit Committees is also expected to qualify as independent under Nasdaq's Marketplace rules for listed companies.

Board Committees

        Before the distribution, our Board plans to establish the following five standing committees: Audit Committee, Compensation Committee, Nominating and Governance Committee, Equity Grant Committee and Scientific Review Committee.

Audit Committee

        The primary purpose of our Audit Committee will be to oversee our accounting and financial reporting process and the audits of our combined financial statements, assist our Board in fulfilling its oversight responsibilities by reviewing and reporting to our Board on the integrity of the financial reports and other financial information we provide to any governmental body or to the public, and on our compliance with these legal and regulatory requirements.

        The functions of our Audit Committee will include:

•

Monitoring the independence and performance of our independent registered public accounting firm and recommending an independent registered public accounting firm to our Board;



•

Reviewing and approving the planned scope of the annual audit and the results of the annual audit;



•

Pre-approving all audit services and permissible non-audit services provided by our independent registered public accounting firm;



•

Reviewing the accounting and reporting principles we apply in preparing our combined financial statements;



•

Reviewing our internal financial, operating and accounting controls and finance and accounting personnel with management and our independent registered public accounting firm;



•

Overseeing compliance with the Foreign Corrupt Practices Act;



•

Reviewing with management and our independent registered public accounting firm, as appropriate, our financial reports and other financial information we provide to any governmental body or the public, and our compliance with legal and regulatory requirements; and



•

Reviewing and approving any transaction that may present potential for conflict of interest, such as with our officers, directors or significant stockholders.

Review and Approval of Transactions with Related Persons

        Our Audit Committee will be responsible for reviewing and approving all related person transactions, including transactions with executive officers and directors, for potential conflicts of interests or other improprieties. Under SEC rules, related person transactions are those transactions to which we are or may be a party in which the amount involved exceeds $120,000, and in which any of our directors or executive officers or any other related person had or will have a direct or indirect material interest, excluding, among other things, compensation arrangements with respect to employment and Board membership. Our Audit Committee would approve a related person transaction if it determined that the transaction is in our best interests.

        Our directors will be required to disclose in an executive session of our Board any potential conflict of interest, or personal interest in a transaction that our Board is considering. Our executive

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officers will be required to disclose any related person transaction to our Compliance Officer who would notify the Audit Committee of the transaction. We also plan to poll our directors on a quarterly basis with respect to related person transactions and their service as an officer or director of other entities.

        Any director involved in a related person transaction that is being reviewed or approved must recuse himself or herself from participation in any related deliberation or decision. Whenever possible, the transaction should be approved in advance and if not approved in advance, must be submitted for ratification as promptly as practical.

Compensation Committee

        The primary purpose of our Compensation Committee will be to discharge our Board's responsibilities relating to compensation and benefits of our officers and directors. In carrying out these responsibilities, our Compensation Committee will review all components of officer and director compensation for consistency with our Compensation Committee's compensation philosophy, as in effect from time to time.

        The functions of our Compensation Committee will include:

•

Designing and implementing competitive compensation policies to attract and retain key personnel;



•

Reviewing and formulating policy and determining or making recommendations to our Board regarding compensation of our officers and directors;



•

Administering our equity incentive plans and granting or recommending grants of equity awards to our officers and directors under these plans and overseeing the Equity Grant Committee's exercise of authority to grant awards to non-officer employees of BioCo; and



•

Reviewing and establishing Company policies in the area of officer perquisites.

        Our CEO will not participate in the determination of his own compensation or the compensation of directors. However, it is intended that he would make recommendations to our Compensation Committee regarding the amount and composition of the compensation of our other officers and that he would participate in the Compensation Committee's deliberations about these other officers' compensation.

        PDL's Compensation Committee retained an independent compensation consultant to advise on various matters related to compensation of officers and directors and general compensation programs and matters, including in connection with planning for the spin-off, having engaged Towers, Perrin, Forster & Crosby, Inc. ("Towers Perrin") as its independent compensation consultant in 2007. We expect to continue the engagement of Towers Perrin to advise on these matters for us after the spin-off.

        Our Compensation Committee would generally engage independent compensation consultants to provide:

•

Assistance in selecting a peer group of companies for executive compensation comparison purposes;



•

Comparative market data on officer and board director compensation practices and programs of peer companies and competitors;



•

Guidance on industry best practices and emerging trends and developments in officer and board director compensation;



•

Preparation of tally sheets for each officer; and

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•

Advice on determining the total compensation of each of our officers and the material elements of total compensation, including (1) annual base salaries, (2) target cash bonus amounts, (3) stock option awards and (4) restricted stock awards.

        Our management may separately retain its own compensation consultants to advise on various matters related to evaluating and designing compensation programs. Our Compensation Committee may discuss these retention matters with management's compensation consultants and invite them to attend certain of the committee's meetings from time to time.

Nominating and Governance Committee

        The primary purpose of our Nominating and Governance Committee will be to:

•

Identify individuals qualified to become Board members;



•

Select, and recommend to our Board, director nominees for each election of directors;



•

Develop and recommend to our Board criteria for selecting qualified director candidates;



•

Consider committee member qualifications, appointment and removal;



•

Recommend corporate governance principles, codes of conduct and compliance mechanisms applicable to us; and



•

Provide oversight in the evaluation of our Board and each committee of our Board.

        Our Nominating and Governance Committee will regularly assess the optimum size of our Board and its committees and the needs of our Board for various skills, background and business experience in determining whether it is advisable to consider additional candidates for nomination.

Evaluation of Director Nominations

        In fulfilling its responsibilities to select, and recommend to our Board, director nominees for each election of directors, our Nominating and Governance Committee will consider the following factors:

•

the appropriate size of our Board and its committees;



•

the perceived needs of our Board for particular skills, background and business experience;



•

the skills, background, reputation, and business experience of nominees compared to the skills, background, reputation, and business experience already possessed by other Board members;



•

nominees' independence from management;



•

applicable regulatory and listing requirements, including independence requirements and legal considerations, such as antitrust compliance;



•

the benefits of a constructive working relationship among directors; and



•

the desire to balance the considerable benefit of continuity with the periodic injection of the fresh perspective provided by new members.

        The goal of our Nominating and Governance Committee's will be to assemble a Board that brings to BioCo a variety of perspectives and skills derived from high quality business and professional experience. Directors should possess the highest personal and professional ethics, integrity and values, and be committed to representing the best interests of our stockholders. They must also have an inquisitive and objective perspective and mature judgment. Director candidates, in the judgment of our Nominating and Governance Committee, must also have sufficient time available to perform all Board and committee responsibilities. Board members are expected to prepare for, attend and participate in all Board and applicable committee meetings.

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        Other than the foregoing, there are no stated minimum criteria for director nominees, although our Nominating and Governance Committee may also consider such other factors as it may deem, from time to time, to be in the best interests of the Company and our stockholders.

        Our Nominating and Governance Committee will annually evaluate our Board members who are willing to continue in service against the criteria set forth above in determining whether to recommend these directors for re-election.

Candidates for Nomination

        Candidates for nomination as director may come to the attention of our Nominating and Governance Committee from time to time through incumbent directors, management, stockholders or third parties. These candidates may be considered at meetings of our Nominating and Governance Committee at any point during the year. Such candidates will be evaluated against the criteria set forth above. If our Nominating and Governance Committee believes at any time that it is desirable that our Board consider additional candidates for nomination, the Committee may poll directors and management for suggestions or conduct research to identify possible candidates and may, if our Nominating and Governance Committee believes it is appropriate, engage a third-party search firm to assist in identifying qualified candidates.

        Our Nominating and Governance Committee's policy will be to evaluate any recommendation for director nominee proposed by a stockholder and our bylaws also permit stockholders to nominate directors for consideration at an annual meeting, subject to certain conditions. Any recommendation for director nominee must be submitted in writing to:

Biotech Spinco, Inc.
Attention: Corporate Secretary
1400 Seaport Boulevard
Redwood City, CA 94063

        Our bylaws will require that any director nomination made by a stockholder for consideration at an annual meeting must be received in writing at least 120 days prior to the anniversary of the date when definitive proxy materials were mailed to stockholders in connection with the prior year's annual meeting of stockholders.

        Each written notice containing a stockholder nomination of a director at an annual meeting must include:

•

the name and address of the stockholder who intends to make the nomination, of the beneficial owner, if any, on whose behalf the nomination is being made and of the person or persons to be nominated;



•

a representation that the stockholder (1) is a holder of record of our common stock entitled to vote for the election of directors on the date of such notice and (2) intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice;



•

a description of all arrangements or understandings between the nominating stockholder or beneficial owner and each nominee and any other person or persons (naming such person or persons) pursuant to which the stockholder is making the nomination or nominations;



•

such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the SEC, had the nominee been nominated, or intended to be nominated, by our Board;



•

the consent of each nominee to serve as a director, if elected; and



•

the class and number of shares of BioCo that are owned beneficially and of record by such stockholder and such beneficial owner and any derivative positions held or beneficially held by

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the stockholder and such other beneficial owner and whether and the extent to which any hedging or other transaction or series of transactions has been entered into by or on behalf of, or any other agreement, arrangement or understanding has been made, the effect or intent of which is to increase or decrease the voting power of, such stockholder or other beneficial owner with respect to the corporation's securities.

        Any other recommendation of a director nominee must include:

•

the candidate's name, age, contact information and present principal occupation or employment; and



•

a description of the candidate's qualifications, skills, background, and business experience during, at a minimum, the last five years, including the candidate's principal occupation and employment and the name and principal business of any corporation or other organization in which the candidate was employed or served as a director.

        All director nominees must also complete a customary form of directors' questionnaire as part of the nomination process. The evaluation process may also include interviews and additional background and reference checks for non-incumbent nominees, at the discretion of our Nominating and Governance Committee.

Equity Grant Committee

        The primary purpose of our Equity Grant Committee will be to approve and grant stock option and other equity grants to our employees. However, the Equity Grant Committee will not be authorized to grant equity awards to those officers that would be deemed "officers" under Rule 16a-1(f) under the Securities Exchange Act of 1934, which will be made only by our Compensation Committee. Grants to other officers also will be in most cases made by our Compensation Committee and not by our Equity Grant Committee, even though our Equity Grant Committee will have the authority to grant equity awards to these other officers.

Scientific Review Committee

        The primary purpose of our Scientific Review Committee will be to:

•

Review and evaluate our research and development programs and the quality, prioritization and direction of such programs;



•

Review and evaluate the performance of our research and development organization and its ability to achieve our strategic goals and objectives and discuss with our CEO such performance;



•

Identify and discuss significant emerging science and technology issues and trends;



•

Review our approaches to acquiring new product candidates and technologies necessary to achieve our business objectives;



•

Evaluate the soundness and risks associated with the technology in which we are investing our research and development efforts;



•

Periodically review our overall patent strategies; and



•

Review and evaluate issues affecting our business relating to process development and manufacturing.

Compensation of Directors

        The cash and equity compensation payable to non-employee directors ("Outside Directors") is described below. Members of our Board who are also employees of BioCo are not entitled to any compensation with respect to their service as Board members.

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Cash Compensation

        We intend for each Outside Director who is not the Chairperson of the Board to receive a retainer of $[                ] per year. If the Chairperson is an Outside Director, we anticipate providing the Chairperson a retainer of $ [                ] per year.

        We intend for each member of the Audit Committee, other than the Chairperson of the Audit Committee, to receive a retainer of $[                ] per year and the Chairperson of the Audit Committee to receive a retainer of $[                ] per year for his or her service as an Audit Committee member. We intend that each Outside Director member of each other Board committee, other than the Chairperson of these committees, will receive a retainer of $[                ] per year and each Outside Director Chairperson of the foregoing committees, other than the Compensation Committee, will receive a retainer of $[                ] per year, for his or her respective service as a member of these committees. We anticipate the Chairperson of the Compensation Committee will receive a retainer of $[                ] per year.

        We intend for each Outside Director to also receive cash compensation for attendance at meetings of our Board and committees of our Board as set forth below:

	Attendance in Person	Attendance by Telephone
Board Meetings	$[                        ]	$[                        ]
Committee Meetings	$[                        ]	$[                        ]

        All cash compensation payable to Outside Directors for their service on our Board and its committees and attendance on meetings will be paid on a quarterly basis in arrears.

        We also intend to reimburse our directors for their travel expenses for Board and committee meetings. Our Board may have an annual multi-day off-site meeting to which each Board members may bring a significant other. We would intend to reimburse our directors for their significant others' travel expenses for these off-site meetings and, because these reimbursements would be reported as income to the directors, we would intend to pay our directors a tax gross-up payment to make these reimbursements effectively tax neutral to the directors.

Equity Compensation

        For Outside Directors elected or appointed after the spin-off, each Outside Director will receive (1) options to purchase [                ] shares of common stock effective upon election or appointment to our Board and (2) annual grants of options to purchase [                ] shares of common stock, except that any initial annual grant to a new director is pro-rated if the new director was elected or appointed in between annual stockholder meetings. If the Chairperson of the Board is an Outside Director, we anticipate that the Chairperson of the Board also will receive an additional annual grant of an option to purchase [                ] shares of common stock. Each grant will be made out of the 2008 Equity Incentive Plan.

        Options granted to our Board members would vest monthly over 12 months, subject to the Board member's continued service, except that the initial [                ]-share option grant upon appointment to the Board may vest monthly over two years.

        Our initial Outside Directors appointed in connection with the spin-off will receive initial and annual option grants as noted above, except that the initial grants will be made approximately 20 trading days after the distribution date.

        We expect to enter into indemnification agreements with our directors in accordance with the provisions of our certificate of incorporation, bylaws and Delaware law.

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Compensation Discussion and Analysis

        We have separated our discussion of executive compensation into the following sections:

•

the guiding philosophy and objectives for the executive compensation program we intend to implement after the spin-off;



•

treatment of outstanding equity awards in connection with the spin-off; and



•

historical compensation of our named executive officers prior to the spin-off under PDL executive compensation programs.

Compensation Program Objectives

        The goal of our executive compensation program will be to effectively motivate our executive leadership to perform in a manner that maximizes stockholder value. To that end, we will seek to maintain an executive compensation program that ensures that we can successfully recruit high quality candidates for senior leadership positions and retain these executives through appropriate awards and incentives tied to their individual performance and their contribution to our overall performance as measured against the achievement of company-wide goals and objectives.

        Our Compensation Committee will annually review and evaluate the components and effectiveness of our executive compensation program to ensure our programs are consistent with our goals and that our executive compensation program is aligned with the marketplace in which we compete for executive talent. In conducting its annual review and evaluation, our Compensation Committee may use the services of independent compensation consultants to provide advice regarding executive compensation, including with respect to the composition of our peer group, gathering peer group and other relevant executive compensation information and analysis of this information and preparing "tally sheets" of each officer's compensation for our Compensation Committee's review. PDL's Compensation Committee retained Towers Perrin in May 2007 to advise on various matters related to compensation of its officers and directors and general compensation programs and matters, including in connection with planning for the spin-off. We expect to continue the engagement of Towers Perrin to advise on these matters for us after the spin-off.

        Our Compensation Committee also will solicit and receive input from our Human Resources, Finance and Legal departments and CEO and will take into account this input in determining the structure and amount of compensation for our individual officers. Our Compensation Committee also will solicit input from other Outside Directors in evaluating the performance of our CEO. Members of management of our human resources, legal and finance departments, and our CEO, are anticipated to attend portions of our Compensation Committee's meetings; however, our CEO will not be present during voting or deliberations regarding his or her compensation. We expect that members of management of our human resources, legal and finance departments, customarily will not be present during voting regarding our CEO's compensation, but may be asked to participate in certain of the deliberations regarding our CEO's compensation.

Compensation Program Elements

        We expect that compensation payable to our officers primarily will be comprised of five elements, designed together to motivate our officers to perform in a manner that will enable us to meet our strategic goals and annual business objectives and increase stockholder value. The five elements that will comprise our total compensation program are (1) base salary, (2) employee benefits, (3) annual cash incentives, (4) equity incentives and (5) change in control and severance benefits. Each of these elements is discussed in more detail below.

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        Our officers and other employees have experienced substantial organizational and operational changes over the prior 18 months as a result of changes in PDL's business and operations, including reductions-in-force and changes in management, and the spin-off represents further change and uncertainty. In addition, we do not currently have a CEO. Because of these factors, PDL implemented and we plan to continue, certain retention programs designed to mitigate the number of voluntary terminations. The retention compensation that may be earned under these programs is in addition to what we would otherwise pay our officers and employees with respect to their service to the company. We do not expect to extend these retention programs beyond the current life of these programs. The retention compensation payable to our named executive officers is discussed in more detail below.

Peer Group Selection and Benchmarking

        PDL's Compensation Committee, with the advice and input of Towers Perrin, has identified the companies listed in the table below as including most of the likely prospective peers of BioCo:

Company	Employees(1)		Market Capitalization (millions)(2)		Total R&D Expense (millions)(3)
Affymax, Inc.		151	$	213.5	$	69.4
Alexza Pharmaceuticals, Inc.		144	$	214.4	$	45.6
Arena Pharmaceuticals, Inc.		491	$	504.5	$	149.5
Cell Genesys, Inc.		302	$	185.1	$	106.1
Dendreon Corporation		194	$	410.7	$	76.5
Exelixis, Inc.		735	$	730.3	$	225.4
Geron Corporation		140	$	373.2	$	54.6
Incyte Corporation		196	$	889.3	$	104.9
InterMune, Inc.		132	$	569.1	$	105.9
Kosan Biosciences, Inc.		91	$	66.9	$	47.3
Ligand Pharmaceuticals, Inc.		59	$	379.9	$	44.6
Maxygen, Inc.		96	$	239.4	$	59.9
Nektar Therapeutics		575	$	640.7	$	153.6
Neurocrine Biosciences, Inc.		135	$	206.7	$	82.0
Rigel Pharmaceuticals, Inc.		159	$	680.6	$	70.4
Seattle Genetics, Inc.		189	$	720.9	$	64.8
Theravance, Inc.		311	$	544.4	$	155.3
XOMA Limited		311	$	342.5	$	66.2
ZymoGenetics, Inc.		570	$	672.5	$	142.3

(1)

The number of employees listed for each entity was obtained from the annual report on Form 10-K last filed by the entity.

(2)

The market capitalization of each entity was obtained by taking the number of shares outstanding as disclosed by the entity in the periodic report (Form 10-Q or Form 10-K) last filed by the entity before March 31, 2008 and multiplying that number by the closing price of the entity's common stock on March 31, 2008.

(3)

Total research and development expenses for each entity was obtained from the entity's annual report on Form 10-K last filed by the entity. Each entity has a December 31 fiscal year end, except for Exelixis, Inc., which has a December 28 fiscal year end.

        We expect to periodically purchase third-party compensation benchmark surveys, including the Global Life Sciences Survey produced by Radford Surveys+Consulting, and provide these surveys to

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our Compensation Committee and prepare and provide additional analyses to assist our Compensation Committee's evaluation and comparison of each element of executive compensation.

We expect that our Compensation Committee will review peer group compensation and survey information prepared by our outside compensation consultant and our human resources group to ensure that our total compensation program for executive officers is competitive and that we retain and properly motivate our executive officers.

Base Salary

        Base salary will be the fundamental, fixed element of our officers' compensation and the foundation for each officer's total compensation.

        The initial amount of base salary our Compensation Committee will determine to pay each of our officers who were formerly officers of PDL is expected to be the same as the amount of base salary paid to such officer by PDL immediately prior to the spin-off. On a going-forward basis, the initial amount of base salary our Compensation Committee determines to pay each of our officers primarily will be driven by two factors: (1) the amount the market would pay for similar positions with like responsibilities and (2) the officer's experience, knowledge, skills and education. In assessing what the market would pay for a given position, our Compensation Committee may rely on peer group executive compensation information prepared by outside compensation consultants, and compensation benchmark surveys we may purchase. Our Compensation Committee is expected to target the 50th percentile of the market for an officer's total cash compensation, including base salary, which is lower than the 60^th percentile of the market that PDL had targeted during the time that it had commercial operations and before the spin-off. However, the officer's overall experience and education would then determine where within the market salary range the officer's base salary initially would be set.

        Our Compensation Committee will annually review each officer's base salary and adjust it based on three elements: (1) performance of the officer's respective functional responsibilities against defined objectives, (2) individual performance, using the performance areas identified below, and (3) changes in the competitive marketplace using benchmarks of comparable positions in the biotechnology industry. To evaluate functional performance, our Compensation Committee will receive a performance assessment from our CEO, rating each officer against annually agreed upon objectives. Each officer's individual and functional area performance will be measured through our annual focal review process by assessing a variety of performance areas and evaluating whether and to what extent the officer's performance exceeds expectations and how consistently or often performance exceeds expectations. The areas for individual performance review include, first and foremost, the meeting of stated objectives and are expected to include:

•

Decision-making ability and exercise of judgment;



•

Technical expertise and skills;



•

Demonstration of initiative and results achieved;



•

Ability to collaborate cross-functionally and teamwork;



•

Communication skills;



•

Working habits and quality of work;



•

Leadership and management skills;



•

Coaching, mentoring and development skills; and



•

Ability to manage change.

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        To ensure that each of our officers is compensated commensurate with market parameters, our Compensation Committee may review peer group and benchmark survey information, using outside compensation surveys, to assess the reasonableness and competitiveness of annual base salaries and any proposed salary increase for our officers. This benchmarked data would help to ensure that our overall annual adjustments to salary are designed to appropriately reward, incentivize and retain our officers.

        Our named executive officers' current annual base salaries are set forth in the table below.

	2008 Base Salary
Andrew Guggenhime	$	362,050
Mark McCamish, M.D., Ph.D.	$	383,100
Jaisim Shah	$	325,000
Maninder Hora, Ph.D.	$	294,150

Employee Benefits

        We plan to provide our employees, including our officers, with customary benefits, including medical, dental, vision and life insurance coverage, short-term and long-term disability coverage and the ability to participate in our 401(k) plan, and our tax-qualified employee stock purchase plan. The costs of our insurance coverage benefits will be largely borne by us, however, employees will be expected to pay portions of the premiums for some of these benefits. We believe these benefits are of the type customarily offered to employees by our peer group and in our industry.

        This element of compensation is intended to provide assurance of financial support in the event of illness or injury, encourage retirement savings through a 401(k) plan and encourage equity ownership by our employees through our employee stock purchase plan.

Annual Cash Incentives

        Another component of our officers' total compensation will be an annual cash bonus. The annual cash bonus is intended to reward our officers for their individual contributions and for our overall performance during the year.

        Each employee's baseline target bonus, including each officer's target bonus, will be determined based on the salary grade or level of the employee and will equal a percentage of the employee's annual base salary. We expect our Compensation Committee to set the target bonus levels by salary grade level for all officers and employees, based on review of peer and benchmarking data and taking into consideration the targeted levels of other elements of compensation. The targeted bonus levels are intended to put a higher amount of total compensation and cash compensation at risk based on our performance and individual performance for officers and employees with relatively higher responsibilities. Our Compensation Committee will review the target bonuses for officers each year with this goal in mind.

        The actual amount of bonus to be received by each officer will be adjusted from the target bonus level based on our performance during the year, as determined by our Board, and individual performance of the officer during the year. As noted above, our CEO will conduct the annual assessment of the performance of officers other than our CEO, and our Compensation Committee will review our CEO's assessment of the other officers. Our Compensation Committee will be solely responsible for evaluating our CEO's performance and will assess his or her performance annually. The individual performance of each officer will be reviewed by our Compensation Committee, which will determine the amount of target bonus adjustment.

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2008 Performance Bonus Program

        We will have a performance-based bonus program for calendar year 2008 (the "2008 Performance Program") pursuant to which eligible employees, including our officers, would receive cash bonuses for the successful achievement of certain goals of the Biotechnology Business during 2008. The 2008 Performance Program is largely a continuation of the 2008 performance-based bonus program adopted by PDL on June 6, 2008 as most of the goals of PDL's bonus program related to the Biotechnology Business and nearly all of PDL's employees will join BioCo. The primary goal categories under the 2008 Performance Program and their respective weighting are:

Category		Weighting
Goals related to restructuring, financial objectives and strategic transactions			30	%
Clinical development goals			30	%
Research and discovery goals			20	%
Collaboration related goals			20	%
	Total:		100	%

        The extent to which we successfully achieve our goals, as determined by our Board, will determine the amount of the bonus pool under the 2008 Performance Program, subject to the exercise of the discretion of our Board to increase, decrease or eliminate the bonus pool under the 2008 Performance Program.

        The bonus pool will be allocated among eligible employees based on each eligible employee's target bonus, which is equal to a percentage of the employee's annual base salary and depends on the salary grade of the employee, and the eligible employee's individual performance.

        All of our employees, other than interns and employees hired after September 30, 2008, are eligible to participate in the 2008 Performance Program, provided that they work 20 hours or more per week. Eligible employees who are assigned to regularly work a schedule of less than 40 hours per week but more than 20 hours per week would be entitled to a pro rated portion, based on their work schedule but excluding overtime hours, of the amount of bonus to which they would otherwise receive. Eligible employees that started their employment with the Biotechnology Business after January 31, 2008 and before October 1, 2008 would be entitled to a pro rated portion of the amount of bonus which they would otherwise receive. In order to receive any bonus that may be paid out under the 2008 Performance Program, eligible employees must also continue to be employed by the Company at the time we pay bonuses, if any, which we expect would occur in early 2009. Notwithstanding the foregoing, transition employees whose employment with the Biotechnology Business who PDL terminated or that we terminate on or after July 1, 2008 will be eligible to receive bonuses under the 2008 Performance Program even if they are not employed by us at the time we pay bonuses under the 2008 Performance Program. These transition employees would be eligible to receive a pro-rated portion of the bonus they would have otherwise been eligible for had we not terminated them prior to the time we pay bonuses. The pro-ration would be based on the number of whole months of the transition employee's service to the Biotechnology Business in 2008, rounded up to the nearest whole month.

        Our Board reserves the right, exercisable at its discretion, to increase, decrease or eliminate the bonuses that could be paid under the 2008 Performance Program and to amend or terminate the 2008 Performance Program at any time.

        The amounts payable to the named executive officers under the 2008 Performance Program are not yet determinable.

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Equity Incentives

        We believe that equity awards encourage the perspective necessary to meet longer-term financial and strategic goals and more closely align the interests of our employees with those of our stockholders by causing our employees to think like owners because the value of equity awards, especially stock options, increases only if the value of our common stock increases. The long-term incentive of equity awards provides balance to the shorter-term and medium-term focus that base salary and annual bonuses may foster in isolation, thereby promoting thoughtful, balanced decision-making by our employees. We also believe that equity incentives are a key part of our ability to attract and retain employees, especially officers, in a highly competitive labor market.

2008 Equity Incentive Plan

        Our 2008 Equity Incentive Plan, or the Equity Plan, was approved by our Board and our sole stockholder, PDL BioPharma, Inc., in [                                    ] 2008. The types of equity awards that may be granted include stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, and other stock-based or cash-based awards.

        A total of 3,500,000 shares of our common stock will be initially authorized and reserved for issuance under the Equity Plan. This reserve will automatically increase on January 1, 2009 and each subsequent anniversary through 2013, by an amount equal to the smaller of (1) 4% of the number of shares of common stock issued and outstanding on the immediately preceding December 31 or (2) a number determined by the Board. The Equity Plan's available share reserve is reduced by one share for each share issued upon exercise of a stock option or stock appreciation right, or pursuant to a "full value award" (e.g., restricted stock, restricted stock units, performance shares and performance units). Shares subject to awards which expire or are cancelled or forfeited will again become available for issuance under the Equity Plan. The shares available will not be reduced by awards settled in cash or by shares withheld to satisfy tax withholding obligations. Only the net number of shares issued upon the exercise of stock appreciation rights or options exercised by means of a net exercise or by tender of previously owned shares will be deducted from the shares available under the Equity Plan.

        Awards may be granted under the Equity Plan to our employees, officers and directors or those of any present or future parent or subsidiary corporation or other affiliated entity. While we may grant incentive stock options only to employees, we may grant nonstatutory stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units and other stock-based or cash-based awards to any eligible participant.

        Only members of our Board who are not employees at the time of grant are eligible to participate in the nonemployee director awards component of the Equity Plan. The Board or the Compensation Committee will set the amount and type of nonemployee director awards to be awarded on a periodic, non-discriminatory basis. Nonemployee director awards may be granted in the form of nonstatutory stock options, stock appreciation rights, restricted stock awards and restricted stock unit awards. The maximum aggregate number of shares for which such awards may be granted to any nonemployee director in any fiscal year will equal [                        ], increased by up to an additional [                        ] shares upon the director's initial appointment or election to the Board, [                                    ] shares for service as chair or lead director of the Board, [                                    ] shares for service as a Board committee chair and [                        ] shares for service as a Board committee member (other than as chair).

        The Equity Plan includes a number of additional limitations on awards. No more than 50% of the shares may be issued pursuant to full value awards granted under the Equity Plan. To enable compensation in connection with certain types of awards to qualify as "performance-based" within the meaning of Section 162(m) of the Internal Revenue Code, the Equity Plan limits the number of shares or dollar value for which any award intended to qualify as performance-based may be granted to any

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employee in any fiscal year, as follows: (1) 1 million shares or (2) $2.5 million for each year contained in a performance period. All of the shares under the Equity Plan may be issued pursuant to incentive stock options. Appropriate adjustments will be made in the number of authorized shares and other numerical limits in the Equity Plan and in outstanding awards to prevent dilution or enlargement of participants' rights in the event of a stock split or other change in our capital structure.

        In the event of a change in control as described in the Equity Plan, the acquiring or successor entity may assume or continue all or any awards outstanding under the Equity Plan or substitute substantially equivalent awards. Any awards which are not assumed or continued in connection with a change in control or are not exercised or settled prior to the change in control will terminate effective as of the time of the change in control. The Compensation Committee may provide for the acceleration of vesting of any or all outstanding awards upon such terms and to such extent as it determines, except that the vesting of all nonemployee director awards will automatically be accelerated in full. In addition, our current forms of Equity Plan agreements provide for all other awards, to the extent not assumed or continued in connection with any change of control, will automatically be accelerated in full. The Equity Plan also authorizes the Compensation Committee, in its discretion and without the consent of any participant, to cancel each or any outstanding award denominated in shares upon a change in control in exchange for a payment to the participant with respect to each share subject to the cancelled award of an amount equal to the excess of the consideration to be paid per share of common stock in the change in control transaction over the exercise price per share, if any, under the award.

2008 Employee Stock Purchase Plan

        Our 2008 Employee Stock Purchase Plan, or the Purchase Plan, was adopted by our Board and our sole stockholder in [                                    ] 2008. The Purchase Plan enables eligible employees to purchase shares of our common stock at a formula-based discounted price, generally through payroll deductions.

        A total of 600,000 shares of our common stock are initially authorized and reserved for sale under the Purchase Plan. Appropriate adjustments will be made in the number of authorized shares and in outstanding purchase rights to prevent dilution or enlargement of participants' rights in the event of a stock split or other change in our capital structure. Shares subject to purchase rights which expire or are canceled will again become available for issuance under the Purchase Plan.

        Our employees and employees of any parent or subsidiary corporation designated by the Compensation Committee are eligible to participate in the Purchase Plan if they are employed by us for more than 20 hours per week and more than five months in any calendar year. However, an employee may not be granted a right to purchase stock under the Purchase Plan if: (1) the employee immediately after such grant would own stock possessing 5% or more of the total combined voting power or value of all classes of our capital stock or of any parent or subsidiary corporation or (2) the employee's rights to purchase stock under all of our employee stock purchase plans would accrue at a rate that exceeds $25,000 in value for each calendar year of participation in such plans.

        The Purchase Plan is implemented through a series of sequential offering periods, generally six months in duration beginning on the first trading days of March and September each year. However, the Compensation Committee will establish the commencement date of the initial offering period. The Compensation Committee is authorized to establish additional or alternative sequential or overlapping offering periods and offering periods having a different duration or different starting or ending dates, provided that no offering period may have a duration exceeding 27 months.

        Amounts accumulated for each participant, generally through payroll deductions, are credited toward the purchase of shares of our common stock at the end of each offering period at a price established by the Compensation Committee. The purchase price may not be less than 85% of the

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lower of the fair market value of our common stock at the beginning of the offering period or at the end of the offering period.

        The maximum number of shares a participant may purchase in any six-month offering period is the lesser of (1) that number of shares determined by multiplying (A) 250 shares by (B) the number of months (rounded to the nearest whole month) in the offering period and rounding to the nearest whole share or (2) that number of whole shares determined by dividing (A) the product of $2,083.33 and the number of months (rounded to the nearest whole month) in the offering period and rounding to the nearest whole dollar by (B) the fair market value of a share of our common stock at the beginning of the offering period. Prior to the beginning of any offering period, the administrator may alter the maximum number of shares that may be purchased by any participant during the offering period or specify a maximum aggregate number of shares that may be purchased by all participants in the offering period. If insufficient shares remain available under the plan to permit all participants to purchase the number of shares to which they would otherwise be entitled, the administrator will make a pro rata allocation of the available shares. Any amounts withheld from participants' compensation in excess of the amounts used to purchase shares will be refunded, without interest.

        In the event of a change in control, an acquiring or successor corporation may assume our rights and obligations under the Purchase Plan. However, if the acquiring or successor corporation does not assume such rights and obligations, then the purchase date of the offering periods then in progress will be accelerated to a date prior to the change in control.

Re-Engagement Grants

        We plan to hire nearly all of PDL's employees because all of these employees support the Biotechnology Business. Upon termination of employment from PDL, which will occur on the distribution date, the unvested PDL stock options held by these employees will terminate, the vested portion of their PDL stock options will remain exercisable for three months following employment termination and any unvested PDL restricted stock held by these employees will be cancelled. Substantially all of PDL's outstanding stock options are "out of the money", that is, they have exercise prices higher than the current trading price of a share of PDL common stock. As a result, we expect that substantially all options held by PDL's former employees will expire unexercised. Because the PDL stock options held by these employees will terminate and not be assumed by BioCo, our employees will not have any equity interest in BioCo other than shares of BioCo they may receive in the distribution with respect to PDL stock they held prior to the ex-dividend date for the spin-off.

        In order to provide initial equity incentives to our employees and better align the interest of our employees with those of our stockholders, the PDL Compensation Committee adopted the following arrangements, which our Board has approved and which we expect to implement after the spin-off.

        In an attempt to properly reflect the prior contributions of our continuing employees to the Biotechnology Business, we expect to grant new fully-vested BioCo options to our employees after the spin-off. The value of these BioCo options will be based on the value of vested PDL options that our employees held after the spin-off that expire without being exercised. The value of the expired vested PDL options will be determined using the Black-Scholes valuation methodology, however, with respect to those PDL options granted prior to May 6, 2008, the ex-dividend date for PDL's $4.25 special cash dividend, we will reduce the exercise price of these options by $4.25 per share, unless the terms of the plan under which the options were granted already provided for such a reduction, to reflect the impact of the special cash dividend on the value of these options. These new BioCo options will have an exercise price equal to the market price of BioCo common stock on the date of grant, approximately three months after the spin-off (i.e. after the vested PDL options expire). As part of this program, we also expect to grant new shares of BioCo restricted stock after the spin-off to our employees who held unvested shares of PDL restricted stock that were cancelled upon termination of employment with

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PDL. The value of these new shares of restricted stock will be based on the value of unvested PDL restricted stock held by such employees upon the spin-off and will have vesting schedules that match the vesting schedules of the unvested PDL restricted stock which terminated upon the employee's termination from PDL in connection with the spin-off. These restricted stock grants will be made effective approximately 20 trading days after the distribution date.

        In addition to the previously described awards to reflect our employees' prior contributions to the Biotechnology Business, in order to provide appropriate incentive to our employees to contribute to our future performance, we plan to grant to our employees, including our officers, unvested stock options and restricted stock approximately 20 trading days after the distribution date. We intend to grant awards that provide our employees with equity incentives that are market competitive for their positions. (See "Annual Incentive Grants" below for more information on our expectations regarding annual incentive grants.)

New Hire Grants

        In addition, on a going forward basis after the spin-off and initial engagement of continuing employees from PDL, we anticipate granting to all new employees stock option awards in connection with the start of their employment. The number of option shares granted to a new employee is expected to be based on the salary grade of the new employee and subject to grant size guidelines established by our Compensation Committee. Because compensation packages for officers tend to be more highly negotiated than are compensation packages for other employees, equity awards to officers may vary from the guidelines customarily followed to a greater degree than awards to other employees and may include a mix of stock options and restricted stock. For retention purposes, we plan to target the size of our equity grants to be competitive with our peers and roughly at the 60th percentile based on compensation survey data we obtain, which is higher than the 50^th percentile of the market that PDL had targeted during the time that it had commercial operations and before the spin-off.

        Stock option grants to new employees, other than officers, are anticipated to be approved and granted by the Equity Grant Committee of our Board on the first business day of the week following the new employee's start date and would have an exercise price equal to the closing price of our common stock on the date of grant. We believe that the process of granting new hire option grants on a weekly basis provides an even-handed, fair approach for our employees generally, because the new hire stock option grant to each new employee is granted closer in time to the employee's decision to accept an employment offer than if grants were made on a monthly, quarterly or less-frequent basis. Stock option grants to promoted employees, other than officers, are also anticipated to be approved and granted by the Equity Grant Committee on the first business day of the first week after the date of the promotion. Most promotions are expected to occur in connection with the annual performance review process, however, promotions may also occur from time to time throughout the year. Our new hire and promotion stock option grants will vest over four years with 25% of the shares subject to the option vesting on the first anniversary of the grant date and ¹/48 of the shares subject to the option vesting monthly after the first anniversary.

        The Equity Grant Committee is not authorized to grant equity awards to those officers that would be deemed "officers" ("Section 16 Officers") under Rule 16a-1(f) under the Securities Exchange Act of 1934 (the "Exchange Act"). Grants to Section 16 Officers are expected to be made only by our Compensation Committee. Grants to other officers are also anticipated to be made by our Compensation Committee and not by our Equity Grant Committee, even though our Equity Grant Committee has the authority to grant equity awards to these other officers. Our Compensation Committee will be expected to approve the general terms of employment offers to prospective new officers, subject to limitations to allow our management to negotiate final terms with the candidate. The equity award grant negotiated with the prospective new officer is then approved by our Compensation Committee after the officer candidate accepts our employment offer but before the start

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of employment. Our Compensation Committee also will approve equity awards to officers in connection with promotions. These grants are expected to become effective on the date of the promotions.

Annual Incentive Grants

        In addition to new hire equity grants, we may grant employees, including our officers, annual equity awards, which we expect to grant mid-year. Our annual stock option and restricted stock grants are expected to be on average approximately half the size of the grants that would otherwise be made to a new hire of the same salary grade, although an employee's individual performance will affect the actual size of the grant with higher performers receiving larger awards and lower performers receiving smaller or no awards. The goal of our annual equity incentive grant will be to provide officers and employees with continued incentives to improve corporate performance and continuing retention benefits.

        We will allocate between stock options and restricted stock to our employees and officers on a case-by-case basis with awards weighted to either stock options or restricted stock for individual officers or employees based on our Compensation Committee's assessment in individual cases of the relative motivational impact of the respective types of equity and consistent with our Compensation Committee's goal to minimize dilution of stockholders. Our Compensation Committee will determine the number of option shares or shares of restricted stock to be granted to each individual employee or officer based on a review of:

•

The employee's or officer's position at the Company,



•

His or her individual performance,



•

The number of unvested stock options and restricted shares held by the officer or employee,



•

The amount that the employee's or officer's stock options are "in the money," that is the extent to which the current market price exceeds the exercise price of such stock options, and



•

Other factors, including independent equity compensation survey data.

        Our annual stock option grants are expected to have an exercise price equal to the closing price of our common stock on the date of grant and vest with respect to ¹/48 of the shares subject to the option on a monthly basis after the grant date. Annual restricted stock grants are expected to vest annually with respect to 25% of the shares subject to the grant.

Policy on Timing of Equity Grants

        We do not have any plan or practice to time equity grants in coordination with our public release or disclosure of material nonpublic information. We also do not time our release of material nonpublic information for purposes of affecting the value of compensation to employees, including our officers. Our equity grant policies provide that:

•

Equity grants approved by our Board or Compensation Committee will be granted effective as of the date of the meeting (the "Grant Date"), unless another later date is specified by the Board or Compensation Committee, at its discretion, including because the public announcement of material information is anticipated.



•

Equity grants approved by our Board or Compensation Committee pursuant to a unanimous written consent will be effective as of the first business day of the week following the receipt by the Company of the last signature required for such consent, unless another effective date is specified by the terms of such consent, which date shall be no earlier than the date the written consent shall become effective.

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Change in Control and Severance Benefits

        Our change in control benefits are intended to retain our officers during the pendency of a proposed change of control transaction and to align the interests of our officers with our stockholders in the event of a change in control. We believe that proposed or actual change in control transactions can adversely impact the morale of officers and create uncertainty regarding their continued employment. We believe that offering change in control benefits will better ensure the retention of our officers during the pendency of a potential change in control transaction. Without these benefits, officers may be tempted to leave us prior to the closing of the change in control, especially if they do not wish to remain with the entity after the transaction closes, and any such departures could jeopardize the consummation of the transaction or our interests if the transaction does not close and we remain independent. We believe that these benefits therefore serve to enhance stockholder value in any such transaction, and align our officers' interests with those of our stockholders in change in control transactions. We also believe that to recruit executives to the Company and encourage retention of employees, it is appropriate and necessary to provide assurance of certain severance payments if the Company terminates the individual's employment without cause.

        While the arrangements for providing potential payments to our named executive officers in connection with a change in control of or upon termination of employment with BioCo will not become effective until after the spin-off, the potential payments that each of our named executive officers would have received under PDL's Executive Retention and Severance Plan if a change in control of or termination of employment with PDL would have occurred on December 31, 2007 are set forth under the section titled "Potential Payments Upon Termination or Change in Control" in this Information Statement.

Retention and Severance Plan

        In                        2008, we adopted our Retention and Severance Plan, or the Retention Plan, which provides for the acceleration of vesting of equity awards and severance benefits in connection with a participant's involuntary termination of employment, whether following a "change in control" or otherwise. Each of our officers, including our named executive officers, will be eligible to receive benefits under the Retention Plan after the spin-off. The extent of vesting acceleration and amount of severance payable to an officer is based on whether an officer is a "vice president", "senior vice president" or the "chief executive officer".

        A change in control under our Retention Plan is deemed to occur if:

•

any person becomes the "beneficial owner", directly or indirectly, of our securities representing more than 50% of the total fair market value or total combined voting power of our then-outstanding securities entitled to vote generally in the election of our directors, subject to certain exceptions;



•

we are party to a merger, consolidation or similar corporate transaction, or series of related transactions, which results in the holders of our voting securities outstanding immediately prior to such transaction(s) failing to retain immediately after such transaction(s) direct or indirect beneficial ownership of more than 50% of the total combined voting power of the securities entitled to vote generally in the election of our directors or the surviving entity outstanding immediately after such transaction(s), subject to certain exceptions;



•

the sale, exchange or transfer of all or substantially all of our assets or consummation of any transaction, or series of related transactions, having similar effect (other than a sale or disposition to one or more of our subsidiaries); or

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•

a change in the composition of the Board within any consecutive 12-month period as a result of which fewer than a majority of the directors are "incumbent directors" (as defined in the Retention Plan).

        If the surviving or acquiring entity in a change in control does not assume or otherwise issue substitutes for equity awards whose vesting is based on continued service alone ("service-based equity awards"), then, immediately prior to the change in control, 100% of the unvested portion of awards held by each participant would become vested in full. In addition, all equity awards whose vesting is based on achievement of performance goals ("performance-based equity awards") would vest in full immediately prior to the change in control in an amount that would vest had the target level of performance been achieved. In either case, continued employment to the time of the change in control is a condition to acceleration of vesting of a participant's equity awards, except as otherwise provided by the Retention Plan in the event of involuntary termination.

        Without the above-described acceleration of equity awards, officers may be tempted to leave us prior to the closing of the change in control, especially if they do not wish to remain with the acquiring or surviving entity, and any such departures could jeopardize the consummation of the transaction or our interests if the transaction does not close and we remain independent.

        The Retention Plan also provides for severance, health and life insurance continuation benefits, outplacement benefits and certain acceleration of vesting of equity awards in the event the participating officer's employment is involuntarily terminated. For the purposes of the Retention Plan, involuntary termination means termination of employment by the company other than for "cause" or the participant's death or permanent disability, or the participant's resignation for "good reason" (each, a "triggering termination"). The specific benefits provided vary depending on whether involuntary termination occurs within 18 months after the change in control or at other times not in connection with a change in control. In any case, the severance benefits provided and equity award vesting acceleration that occurs in connection with a triggering termination are conditioned on the officer's execution of a general release of all claims against us in a form prescribed by the Retention Plan.

        If a participant's employment is involuntarily terminated within 18 months after a change in control, then the participant is entitled to certain payments based on the participant's monthly base salary and annual incentive bonus rates, together with certain additional benefits, as follows:

•

The participant would receive a lump sum payment equal to the sum of the participant's monthly base salary rate and monthly annual incentive bonus rate for a specified number of months based on the participant's position: (i) 24 months if the participant is the chief executive officer, (ii) 18 months if the participant is a senior vice president, (iii) 12 months if the participant is a vice president and (iv) nine months if the participant is a key employee.



•

The participant would continue to receive health and life insurance benefits for (i) 24 months, if the participant is the chief executive officer, (ii) 18 months if the participant is a senior vice president, (iii) 12 months if the participant is a vice president and (iv) nine months if a participant is a key employee.



•

100% of the unvested portion of the equity awards held by the participant, including awards granted by the surviving or acquiring entity after the change in control, would become vested.



•

Stock options held by the participant would remain exercisable for one year after termination of employment.



•

The participant would receive outplacement services for a period of six months.

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        If a participant's employment is involuntarily terminated at any time other than within 18 months after a change in control, then the participant is entitled to certain payments based on the participant's monthly base salary rate alone, together with certain additional benefits, as follows:

•

The participant would receive a lump sum payment equal to the participant's monthly base salary rate for a number of months based on the participant's position: (i) 18 months if the participant is the chief executive officer, (ii) 12 months if the participant is a senior vice president, (iii) nine months if the participant is a vice president and (iv) six months if the participant is a key employee.



•

The participant would continue to receive health and life insurance benefits for (i) 18 months, if the participant is the chief executive officer, (ii) 12 months if the participant is a senior vice president, (iii) nine months if the participant is a vice president and (iv) six months if the participant is a key employee.



•

Any unvested service-based equity awards held by the participant, which would otherwise vest during the one year following termination, would become vested. Except for awards intended to qualify for exemption under Section 162(m) of the Code, the vesting of performance-based equity awards would accelerate to the extent that the award would vest had the target level of performance been achieved, subject to proration if the performance period would have continued for more than 12 months beyond the date of the participant's termination of employment. In the case of performance-based equity awards intended to qualify for exemption under Section 162(m) of the Code, the extent of accelerated vesting would be determined by the actual achievement of the applicable performance goals at the end of the performance period, subject to proration if the performance period extends more than 12 months beyond the participant's termination of employment.



•

Stock options held by the participant would remain exercisable for one year after termination of employment.



•

The participant would receive outplacement services for a period of six months.

        For purposes of the Retention Plan, the term "monthly base salary rate" means an amount equal to the officer's monthly base salary immediately prior to the triggering termination (without giving effect to any reduction constituting "good reason" for resignation), or if greater in connection with an involuntary termination occurring within 18 months following a change in control, the officer's monthly base salary immediately prior to the change in control. The term "monthly annual incentive bonus rate" means a quotient determined by dividing 12 by whichever of the following amounts is the greatest: (1) the aggregate amount of all annual incentive bonuses earned by the officer during the fiscal year immediately prior to the year of the change in control, (2) the aggregate amount of all annual incentive bonuses earned by the officer during the fiscal year immediately prior to the year of the triggering termination, or (3) the aggregate of all annual incentive bonuses that would be earned by the officer at the targeted annual rate assuming attainment of 100% of all applicable performance goals in the year which the triggering termination occurs. For this purpose, annual incentive bonuses do not include signing bonuses, retention bonuses or other nonrecurring cash awards that are not part of an annual incentive bonus program.

        For purposes of the Retention Plan, the term "cause" means the occurrence of any of the following:

•

Such participant's theft, dishonesty, willful misconduct, breach of fiduciary duty for personal profit, or falsification of any our documents or records;



•

Such participant's material failure to abide by our code of conduct or other policies (including, without limitation, policies relating to confidentiality and reasonable workplace conduct);

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•

Such participant's unauthorized use, misappropriation, destruction or diversion of any tangible or intangible asset or corporate opportunity of ours (including, without limitation, such participant's improper use or disclosure of our confidential or proprietary information);



•

Such participant's intentional act which has a material detrimental effect on our reputation or business;



•

Such participant's repeated failure or inability to perform any reasonable assigned duties after written notice of, and a reasonable opportunity to cure, such failure or inability;



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Such participant's material breach of any employment, service, non-disclosure, non-competition, non-solicitation or other similar agreement of ours, which breach is not cured pursuant to the terms of such agreement; or



•

Such participant's conviction (including any plea of guilty or nolo contendere) of any criminal act involving fraud, dishonesty, misappropriation or moral turpitude, or which impairs such participant's ability to perform his or her duties to us.

        For purposes of the Retention Plan, the term "good reason" means the occurrence of any of the following conditions without such participant's informed written consent:

•

A material diminution in such participant's authority, duties or responsibilities, causing such participant's position to be of materially lesser rank or responsibility;



•

A material diminution in the authority, duties or responsibilities of the supervisor to whom such participant is required to report, causing such supervisor's position to be of materially lesser rank or responsibility; or, if such participant reports to the Board, a requirement that such participant report to a corporate officer or employee rather than directly to our Board or the board of any parent company of ours;



•

A material reduction in such participant's base salary rate or annual incentive bonus target rate, unless reductions comparable in amount and duration are concurrently made for all other officers and key employees of ours;



•

A change in such participant's work location that increases the regular one-way commute distance between such participant's residence and work location by more than 30 miles; or



•

Any action or inaction by us or our successor that constitutes a material breach with respect to such participant of the Retention Plan or an employment agreement under which such participant provides services to us.

        The PDL Compensation Committee approved, and we have assumed the obligations for, retention bonuses payable to each of our named executive officers in the amounts and on the dates set forth in the table below, provided that such individual remains employed in good standing through such date. In addition, in the event Dr. McCamish's, Mr. Guggenhime's or Mr. Shah's employment with us is terminated other than for "cause" or such individual terminates his employment for "good reason" on or prior to December 31, 2009, each stock option held by such individual would vest with respect to 25% of the shares originally subject such stock option, which would be in addition to any additional vesting under the Retention Plan, and each stock option held by the individual would remain exercisable for one year after termination. In the event Dr. Hora's employment with us is terminated other than for "cause" or he terminates his employment for "good reason" on or prior to September 4, 2009, each stock option held by him would vest with respect to 25% of the shares originally subject

97

such stock option, which would be in addition to any additional vesting under the Retention Plan, and each stock option held by him would remain exercisable for one year after termination.

	September 30, 2008		December 4, 2008		June 30, 2009		September 4, 2009		December 31, 2009
Andrew Guggenhime Senior Vice President and Chief Financial Officer	$	66,000	$	—	$	66,000	$	—	$	88,000
Mark McCamish Senior Vice President and Chief Medical Officer	$	69,000	$	—	$	69,000	$	—	$	92,000
Jaisim Shah Senior Vice President and Chief Business Officer	$	60,000	$	—	$	60,000	$	—	$	80,000
Maninder Hora, Ph.D. Vice President, Process Development	$	—	$	67,500	$	—	$	67,500	$	—

        In the event a named executive officer's employment with us is terminated without cause prior to one of the retention bonus payment dates set forth above, such individual would be eligible to receive a prorated amount of the next retention bonus that such individual would otherwise have earned.

        In addition to the retention bonuses identified in the above table, the PDL Compensation Committee approved, and we have assumed the obligations for, retention bonuses payable to each of our named executive officers in the amounts and on the dates set forth below, provided that such individual remains employed in good standing through such date.

	September 30, 2008		October 31, 2008		January 31, 2009		May 31, 2009
Andrew Guggenhime Senior Vice President and Chief Financial Officer	$	—	$	25,000	$	25,000	$	—
Mark McCamish Senior Vice President and Chief Medical Officer	$	—	$	25,000	$	25,000	$	—
Jaisim Shah Senior Vice President and Chief Business Officer	$	—	$	25,000	$	25,000	$	—
Maninder Hora Vice President, Process Development	$	30,000	$	—	$	—	$	45,000

        In the event a named executive officer's employment with us is terminated without cause prior to one of the retention bonus payment dates set forth above, such individual would be eligible to receive a prorated amount of the next retention bonus that such individual would otherwise have earned.

        In the event Dr. McCamish's, Mr. Guggenhime's or Mr. Shah's employment with us is terminated without cause following a change in control and prior to January 31, 2009, such individual would be eligible to receive the full unearned amount of the retention bonuses set forth in the two tables above provided such individual signs and does not revoke a general release of all claims.

        In the event Dr. McCamish's, Mr. Guggenhime's, Mr. Shah's or Dr. Hora's employment with us is terminated for cause or such officer voluntarily terminates employment with us, such individual would not receive any unearned portion of the retention bonuses set forth in the two tables above.

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Tax Considerations

        Our Compensation Committee has considered the provisions of Section 162(m) of the Internal Revenue Code and related Treasury Department regulations which restrict deductibility for federal income tax purposes of executive compensation paid to our CEO and each of the four other most highly compensated executive officers holding office at the end of any year to the extent such compensation exceeds $1,000,000 for any of such officers in any year and does not qualify for an exception under the statute or regulations. The members of our Compensation Committee will qualify as outside directors for purposes of exempting executive compensation from the limits on deductibility under Section 162(m). Our Compensation Committee will be solely responsible for granting stock options to officers. In the future, our Compensation Committee will continue to evaluate the advisability of exempting executive compensation from the deductibility limits of Section 162(m). Our Compensation Committee's policy will be to qualify our executives' compensation for deductibility under applicable tax laws to the maximum extent possible, consistent with our compensation objectives.

Prohibition Against Certain Equity Transactions

        Our Trading Compliance Policy prohibits our officers and directors from engaging in "short" sales and hedging or monetization transactions which could reasonably cause our officers and directors to have interests adverse to our stockholders. "Short" sales, which are sales of shares of common stock by a person that does not own the shares at the time of the sale, evidence an expectation that the value of the shares will decline in value. We prohibit our officers and directors from entering into "short" sales because such transactions signal to the market that the officer and director has no confidence in us or our short-term prospects and may reduce the officer's or director's incentive to improve our performance. In addition, Section 16(c) of the Exchange Act expressly prohibits officers and directors from engaging in short sales. Our officers and directors are also prohibited under our Trading Compliance Policy from entering into hedging or monetization transactions, such as zero-cost collars and forward sale contracts, which allow a party to lock in much of the value of their stock holdings, often in exchange for all or part of the potential for upside appreciation in the stock. These transactions would allow someone to continue to own the covered securities, but without the full risks and rewards of ownership. If an officer or director were to enter into such a transaction, the officer or director would no longer have the same objectives as our other stockholders.

Treatment of Outstanding PDL Equity Awards in Connection with the Spin-Off

        While equity awards held by PDL employees who remain with PDL after the spin-off will continue to vest and be governed by the respective PDL plan under which they were granted, we expect that nearly all of PDL's employees will become BioCo employees at the time of the spin-off and their employment with PDL will terminate at such time.

        The PDL stock options held by these former PDL employees will terminate three months after the termination of employment with PDL. Substantially all of those PDL options are "out-of-the-money", that is, they have exercise prices higher than the current trading price of a share of PDL common stock. As a result, we expect that substantially all such options will expire unexercised. While vested portions of any restricted stock awards granted to the employee will continue to be retained by such employee, any unvested shares will automatically be reacquired by PDL without any payment therefor.

        We plan to issue equity awards shortly after the spin-off to our employees who were PDL employees immediately prior to the spin-off. Our plans regarding these equity award grants are described in more detail in the section titled "Re-Engagement Grants" above.

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Equity Compensation Plan Information

        Upon the spin-off, we will maintain two equity compensation plans—our 2008 Equity Incentive Plan and our 2008 Employee Stock Purchase Plan—that provide for the issuance of common stock-based awards, including restricted stock, restricted stock units, stock options, stock appreciation rights and other equity-based awards, to our directors, officers and other employees, advisors and consultants.

        The following table sets forth information regarding outstanding options and shares reserved for future issuance under the foregoing plans as of the distribution date.

Plan Category	Number of shares to be issued upon exercise of outstanding options, warrants and rights (a)		Weighted-average exercise price of outstanding options, warrants and rights (b)		Number of shares remaining available for future issuance under equity compensation plans (excluding shares reflected in column (a)) (c)
Equity compensation plans approved by stockholders		0	$	—		4,100,000
Equity compensation plans not approved by stockholders		—	$	—		—
Total		0	$	—		4,100,000

Historical PDL Compensation of Our Executive Officers Prior to the Spin-Off

        The following table sets forth information concerning the compensation earned by officers of PDL who are expected to join us upon the spin-off and would be our named executive officers based on the compensation they received from PDL. These officers are Andrew Guggenhime, who is expected to be our Senior Vice President and Chief Financial Officer, Mark McCamish, who is expected to be our Senior Vice President and Chief Medical Office, Jaisim Shah, who is expected to be our Senior Vice President and Chief Business Officer, and Maninder Hora, who is expected to be our Vice President, Product and Quality Operations. All of the information included in these tables reflects compensation earned by these individuals (the "named executive officers") for services with PDL. All references in the following tables to stock options, restricted stock, restricted stock units, and other stock awards relate to awards granted by PDL in regard to PDL common stock. The amounts and forms of compensation reported below do not necessarily reflect the compensation these persons will receive following the spin-off, which could be higher or lower, because historical compensation was determined by PDL and future compensation levels will be determined based on the compensation policies, programs and procedures to be established by our Compensation Committee.

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Summary Compensation Table

Name and Principal Position	Year		Salary ($)			Bonus ($)			Non-Equity Incentive Plan Compensation(1) ($)		Stock Awards(2) ($)		Option Awards(3) ($)		All Other Compensation ($)			Total($)
Andrew Guggenhime Senior Vice President and Chief Financial Officer		2007 2006		348,081 228,750	(5)		17,755 74,900	(6),(7)		97,245 —		59,340 44,307		301,569 168,410		3,668 3,365	(4) (4)		827,658 519,732
Mark McCamish Senior Vice President and Chief Medical Officer		2007 2006		308,308 —	(8)		187,471 —	(9)		92,529 —		29,898 —		143,896 —		5,032 —	(12)		767,134 —
Jaisim Shah Senior Vice President and Chief Business Officer		2007 2006		297,045 287,000			17,013 66,010	(6)		82,987 —		52,695 23,475		161,002 218,942		7,648 6,810	(4) (4)		618,390 602,237
Maninder Hora, Ph.D. Vice President, Product and Quality Operations		2007 2006		280,125 118,731	(10)		4,622 49,700	(6)(11)		62,608 —		10,569 4,496		121,016 39,044		4,371 569	(4) (4)		483,311 212,540

(1)

Amounts listed in this column reflect the amount of cash bonus earned under PDL's 2007 Performance Program to the extent attributable to the performance against goals PDL had set at the beginning of 2007. Based on PDL's performance against stated goals, PDL's Compensation Committee funded PDL's bonus pool at 74.5%. PDL's Compensation Committee, in the exercise of its discretion, increased the funding of the bonus pool by an additional 5.5% for the reasons described above under the heading "2007 Performance Bonus Program" in the "Compensation Discussion and Analysis" section of the PDL proxy statement filed with the SEC on April 29, 2008. The amount of each officer's 2007 bonus attributable to this additional 5.5% bonus funding is listed in the "Bonus" column.

(2)

Amounts listed in this column reflect the compensation cost recognized for financial statement purposes during 2007 for the shares of restricted stock held by PDL's named executive officers calculated in accordance with Statement of Financial Accounting Standards (SFAS) No. 123, "Share-Based Payment (Revised 2004)" ("SFAS 123(R)"). See note 3 of PDL's "Notes to combined consolidated financial statements" in PDL's annual report on Form 10-K filed with the SEC on March 13, 2008 for a discussion of assumptions PDL made in determining the compensation costs included in this column.

(3)

Amounts listed in this column reflect the compensation cost recognized for financial statement purposes during 2007 for the stock awards held by the named executive officer calculated in accordance with SFAS 123(R) and using a Black-Scholes valuation model. See note 3 of PDL's "Notes to consolidated financial statements" in PDL's annual report on Form 10-K filed with the SEC on March 13, 2008 for a discussion of assumptions PDL made in determining the compensation costs included in this column.

(4)

Consists of (A) matching contributions PDL made to the officer's 401(k) plan with respect to his 2007 and 2006 contributions, respectively, and (B) insurance premiums PDL paid during 2007 and 2006, respectively, with respect to life insurance for the benefit of the officer.

(5)

Mr. Guggenhime's annual base salary in 2006 was $305,000. The amount of salary earned is lower than his base salary, however, because Mr. Guggenhime joined us in April 2006.

(6)

Although the target bonuses (not including hiring, retention or sales bonuses that were earned by some of PDL's named executive officers) of each of PDL's executive officers earned in 2006 were adjusted based on PDL's performance during 2006, PDL had not established or communicated to PDL's executive officers a formal connection between the amount of the target bonus the executive officer would receive and the extent to which PDL achieved PDL's company-wide objectives until November 2006. Because of this, the bonuses that PDL's named executive officers received with respect to 2006 bonuses that were impacted by PDL's performance are disclosed in this "Bonus" column and not classified and disclosed as awards under a non-equity incentive plan.

(7)

Includes a hiring bonus of $20,000 PDL paid to Mr. Guggenhime at the start of his employment with us in April 2006.

(8)

Dr. McCamish's annual base salary in 2007 was $360,000. The amount of salary earned is lower than his base salary, however, because Dr. McCamish joined us in February 2007.

(9)

Includes a hiring bonus of $100,000 and a relocation bonus of $55,000 PDL paid to Dr. McCamish at the start of his employment with us in February 2007.

(10)

Dr. Hora's annual base salary in 2006 was $270,000. The amount of salary earned is lower than his base salary, however, because Dr. Hora joined us in July 2006.

(11)

Includes a hiring bonus of $20,000 paid to Dr. Hora at the start of his employment with us in July 2006.

(12)

Consists of (A) matching contributions PDL made to Dr. McCamish's 401(k) plan with respect to his 2007 contributions and (B) insurance premiums PDL paid during 2007 with respect to life insurance for the benefit of Dr. McCamish.

101

Grants of Plan-Based Awards During 2007

        The following table lists each equity award granted by PDL during 2007 to our named executive officers.

Name	Grant Date		Date of Compensation Committee Action			All Other Stock Awards: Number of Shares of Stock or Units (#)			All Other Option Awards: Number of Securities Underlying Options(#)			Exercise or Base Price of Option Awards ($/Share)		Grant Date Fair Value of Stock and Option Awards($)
Andrew Guggenhime		02-14-07		02-14-07			—			20,000	(1)		19.00		144,674
		08-15-07		08-15-07			—			30,000	(1)		22.10		237,813
Mark McCamish		02-21-07 08-15-07		02-20-07 08-15-07	(2)		7,500 —	(3)		85,000 20,000	(1) (1)		19.14 22.10		762,945 158,542
Jaisim Shah		08-15-07		08-15-07			—			30,000	(1)		22.10		237,813
Maninder Hora		08-15-07		08-15-07			—			30,000	(1)		22.10		237,813

(1)

This award was made under PDL's 1999 Stock Option Plan.

(2)

PDL's Compensation Committee approved this award on February 20, 2007 but determined at that time to make the grant effective as of the date Dr. McCamish commenced employment with us. Dr. McCamish commenced his position as PDL's Senior Vice President and Chief Medical Officer on February 21, 2007.

(3)

This award was made under PDL's 2005 Equity Incentive Plan.

Option Exercises and Stock Vested in 2007

        The following table lists the number of shares of PDL's common stock acquired upon exercise of options by each of PDL's named executive officers during 2007 and the number of shares of restricted common stock that vested during 2007 held by each of our named executive officers .

	Option Awards				Stock Awards
Name	Number of Shares Acquired on Exercise (#)		Value Realized on Exercise(1) ($)		Number of Shares Acquired on Vesting (#)			Value Realized on Vesting(2) ($)
Andrew Guggenhime		—		—		1,875	(3)		40,875
Mark McCamish		—		—		—			—
Jaisim Shah		51,520		630,641		3,125			81,125
Maninder Hora		—		—		625	(4)		15,544

(1)

Value realized on exercise equals the aggregate differences between the market price and the exercise price at the time of each option exercise.

(2)

Value realized on vesting equals the market value of the shares that vested on the vesting date.

(3)

Of the 1,875 restricted shares that vested in 2007, 670 were cancelled to satisfy withholding tax obligations that arose on the vesting date.

(4)

Of the 625 restricted shares that vested in 2007, 223 were cancelled to satisfy withholding tax obligations that arose on the vesting date.

102

Outstanding Equity Awards at December 31, 2007

        The following table sets forth information regarding each unexercised option to purchase shares of PDL's common stock and shares of unvested restricted common stock of PDL held as of December 31, 2007 by each of our named executive officers. Upon termination of employment resulting from completion of the spin-off, any unvested options would be cancelled immediately and any vested options would remain exercisable for three months following employment termination.

	Option Awards										Stock Awards
Name	Number of Securities Underlying Unexercised Options(#) Exercisable		Number of Securities Underlying Unexercised Options(#) Unexercisable			Option Exercise Price($)			Option Expiration Date		Number of Shares or Units of Stock That Have Not Vested (#)			Market Value of Shares or Units of Stock That Have Not Vested($)
Andrew Guggenhime		27,083 7,083 2,500 —		37,917 12,917 27,500 20,000	(1) (2) (3) (4)		28.24 17.13 22.10 19.00	(13)		4/3/2013 7/20/2013 8/15/2014 2/14/2014		— — — — 5,625	(14)		— — — — 98,555
Mark McCamish		1,666 —		18,334 85,000	(5) (6)		22.10 19.14			8/15/2014 2/21/2014		— — 7,500	(15)		— — 131,400
Jaisim Shah		160,000 30,000 469 469 313 313 4,500 22,354 4,243 2,500		— — — — — — 563 14,646 12,110 27,500	(7) (8) (9) (10)		35.81 18.90 8.55 9.00 7.83 13.96 15.25 21.73 17.13 22.10			8/16/2010 4/24/2012 10/1/2012 1/2/2013 4/11/2013 7/1/2013 7/23/2014 7/13/2012 7/20/2013 8/15/2014		— — — — — — — — — — 9,375	(16)		— — — — — — — — — — 164,250
Maninder Hora		17,708 2,500		32,292 27,500	(11) (12)		13.50 22.10	(13)		7/24/2013 8/15/2014		— 1,875	(17)		— 32,850

(1)

This option vested with respect to 16,250 shares on April 3, 2007 and continues to vest with respect to approximately 1,354 shares monthly thereafter.

(2)

This option vests with respect to approximately 417 shares each month. This option began vesting on July 20, 2006.

(3)

This option vests with respect to approximately 625 shares each month. This option began vesting on August 15, 2007.

(4)

This option will vest with respect to 5,000 shares on February 14, 2008 and continue to vest with respect to approximately 417 shares monthly thereafter.

(5)

This option vests with respect to approximately 417 shares each month. This option began vesting on August 15, 2007.

(6)

This option will vest with respect to 21,250 shares on February 21, 2008 and continue to vest with respect to approximately 1,771 shares monthly thereafter.

103

(7)

This option vests with respect to approximately 563 shares each month. This option began vesting on January 1, 2004.

(8)

This option vests with respect to approximately 771 shares each month. This option began vesting on July 13, 2005.

(9)

This option vests with respect to approximately 391 shares each month. This option began vesting on July 20, 2006.

(10)

This option vests with respect to approximately 625 shares each month. This option began vesting on August 15, 2007.

(11)

This option vested with respect to 12,500 shares on July 24, 2007 and continues to vest with respect to approximately 1,042 shares monthly thereafter.

(12)

This option vests with respect to 625 shares each month. This option began vesting on August 15, 2007.

(13)

In accordance with the 2005 Equity Incentive Plan, this option exercise price was decreased by $4.25 to adjust for the special one-time dividend of $4.25 per share for stockholders of record on May 5, 2008.

(14)

This restricted stock award vested with respect to 1,875 shares on April 3, 2007 and will vest with respect to 1,875 shares on April 3 of each year thereafter.

(15)

This restricted stock award will vest with respect to 1,875 shares on February 21, 2008 and will vest with respect to 1,875 shares on February 21 of each year thereafter.

(16)

This restricted stock award will vest with respect to 3,125 shares on July 20, 2008 and will vest with respect to 3,125 shares on July 20 of each year thereafter.

(17)

This restricted stock award vested with respect to 625 shares on July 24, 2007 and will vest with respect to 625 shares on July 24 of each year thereafter.

104

Potential Payments Upon Termination or Change in Control

        The table below identifies the potential payments that each of our named executive officers would have received in the event of a change in control of PDL or termination of employment with PDL assuming that the transaction or termination occurred on December 31, 2007. Except as noted below, all of the potential payments listed in the table below are payments that would have been made pursuant to the terms of PDL's Retention Plan and are not representative of the benefits and payments that would be receivable in the event of such a transaction or termination under our retention and severance plan. The terms of our retention and severance are described under the heading "Retention and Severance Plan" in the "Compensation Discussion and Analysis" section of this Information Statement.

	Acceleration of Vesting(1)
	Stock Options		Restricted Stock		Severance Payment(2)		Continuation of Benefits(3)		Tax Gross-Up Payments			Total
Andrew Guggenhime
•  Change in control transaction (options assumed)(4)	$	2,519	$	49,278	$	—	$	—	$	—		$	51,797
•  Change in control transaction (options not assumed)(5)	$	3,900	$	49,278	$	—	$	—	$	—		$	53,178
•  Change in control employment termination(6)	$	5,038	$	98,555	$	957,223	$	29,787	$	402,799	(7)	$	1,493,402
Mark McCamish
•  Change in control transaction (options assumed)(4)	$	—	$	65,700	$	—	$	—	$	—		$	65,700
•  Change in control transaction (options not assumed)(5)	$	—	$	65,700	$	—	$	—	$	—		$	65,700
•  Change in control employment termination(6)	$	—	$	131,400	$	990,000	$	29,787	$	—		$	1,151,187
Jaisim Shah
•  Change in control transaction (options assumed)(4)	$	3,000	$	82,125	$	—	$	—	$	—		$	85,125
•  Change in control transaction (options not assumed)(5)	$	4,934	$	82,125	$	—	$	—	$	—		$	87,059
•  Change in control employment termination(6)	$	6,001	$	164,250	$	816,674	$	29,787	$	—		$	1,016,712
Maninder Hora
•  Change in control transaction (options assumed)(4)	$	—	$	—	$	—	$	—	$	—		$	—
•  Change in control transaction (options not assumed)(5)	$	100,500	$	—	$	—	$	—	$	—		$	100,500
•  Change in control employment termination(6)	$	129,814	$	32,850	$	364,163	$	29,787	$	—		$	556,614

(1)

The amounts listed in these columns represent the value of the acceleration of vesting of equity awards under PDL's Retention Plan and are based on the closing price of PDL's common stock on December 31, 2007, which was $17.52. The value of the acceleration of vesting of stock options equals the product of the number of option shares which become vested in the respective events multiplied by the difference between $17.52 and the exercise price of the stock option, except that stock options with an exercise price greater than $17.52 were determined to have zero value.

(2)

The amounts listed in this column do not include the payment of accrued salary and vacation that would be due upon termination of employment.

105

(3)

Represents the present value of the continuation of PDL's current employee benefits, including medical, dental, disability and life insurance. Under PDL's Retention Plan, benefits continue for three years after a triggering termination for PDL's CEO and for two years after a triggering termination for PDL's non-CEO Executive Committee Members.

(4)

The amounts in this row were determined on the assumption that a "change in control" under PDL's Retention Plan occurred and the surviving or acquiring entity in the change in control transaction assumed the officer's equity awards or issued substitute awards and that a triggering termination did not occur within two years of the change in control.

(5)

The amounts in this row were determined on the assumption that a "change in control" under PDL's Retention Plan occurred and the surviving or acquiring entity in the change in control transaction neither assumed the officer's equity awards nor issued substitute awards and that a triggering termination did not occur within two years of the change in control.

(6)

The amounts in this row were determined on the assumption that a "change in control" under PDL's Retention Plan occurred and a triggering termination occurred with respect to the officer's employment. This severance payment is based on the officer's 2007 annual salary and an "Annual Bonus" equal to the officer's 2007 target bonus, without any adjustment for PDL's performance or individual performance.

(7)

This amount represents the tax "gross-up" payment under PDL's Retention Plan, which is described under the heading "Change in Control and Severance Benefits" in this proxy statement, that would have been payable because the other payments payable to Mr. Guggenhime under PDL's Retention Plan would be subject to the excise tax imposed by Section 280G and Section 4999 of the Internal Revenue Code. However, it should be noted that our retention and severance plan does not provide for any tax "gross-up" payments.

106

Security Ownership of Certain Beneficial Owners and Management

        As of the date of this Information Statement, all of the outstanding shares of our common stock are owned by PDL. In connection with the spin-off, PDL will distribute to its stockholders all of the outstanding shares of our common stock and will immediately thereafter own none of our common stock. The following table provides information with respect to the expected beneficial ownership of our common stock immediately upon the spin-off by (1) each of our stockholders who we believe would be a beneficial owner of more than 5% of our outstanding common stock based on currently available information, (2) each member of our Board, (3) each named executive officer and (4) all of our executive officers and directors as a group. The following table does not include the equity grants we expect to make shortly after the spin-off, which are described under the heading "Re-Engagement Grants" above. We based the share amounts on each person's beneficial ownership of PDL common stock as of June 30, 2008, unless we indicate some other basis for the share amounts, and assuming a distribution ratio of one share of our common stock for every five shares of PDL common stock. To the extent our directors and officers own PDL common stock at the time of the separation, they will participate in the distribution on the same terms as other holders of PDL common stock. Except as otherwise noted in the footnotes below, each person or entity identified below has sole voting and investment power with respect to such securities. As used in this Information Statement, "beneficial ownership" means that a person has, or may have within 60 days, the sole or shared power to vote or direct the voting of a security and/or the sole or shared investment power with respect to a security (i.e., the power to dispose or direct the disposition of a security. Unless otherwise specified, the address of each named individual in the table below is the address of BioCo.

Name of Beneficial Owner or Identity of Group(1)	Shares Beneficially Owned		Percent of Outstanding
The Baupost Group, L.L.C.(2) 10 St. James Avenue, Suite 1700 Boston, Massachusetts 02116		2,820,000		11.8	%
Morgan Stanley(3) 1585 Broadway New York, NY 10036		1,550,996		6.5	%
Visium Asset Management, LP(4) 950 Third Avenue New York, NY 10022		1,523,188		6.4	%
FMR LLC(5) 82 Devonshire Street Boston, MA 02109		1,401,590		5.9	%
Highbridge Capital Management, LLC(6) 9 West 57th Street, 27th Floor New York, New York 10019		1,447,934		5.7	%
Highland Capital Management LP(7) 13455 Noel Road Ste 1300 Dallas, TX 75240		1,268,233		5.3	%
Andrew Guggenhime(8)		16,032		*
Mark McCamish(9)		11,074		*
Jaisim Shah(10)		51,123		*
Maninder Hora(11)		7,684		*
All directors and executive officers as a group (6 persons)(12)		93,180		*

*

Less than 1%

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(1)

Except as indicated in the footnotes to this table, the persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to community property laws where applicable.

(2)

All information included in this table and this footnote regarding the beneficial ownership of The Baupost Group, L.L.C. ("Baupost"), SAK Corporation ("SAK"), and Seth A. Klarman ("Mr. Klarman") based on our review of Schedule 13G filed with the SEC by Baupost, SAK and Mr. Klarman on April 30, 2008 regarding the beneficial ownership of our common stock of Baupost (the "Baupost 13G"). According to the Baupost 13G, Baupost beneficially owns 2,820,000 shares, or 11.98%, of our common stock. SAK is the Manager of Baupost and Mr. Klarman is the sole director of SAK. The Baupost 13G states that each of the reporting persons on the Baupost 13G may be deemed to be a member of a group for the purpose of Section 13(d) of the Exchange Act. The tables below reflects the number of shares of our common stock to which Baupost, SAK and Mr. Klarman have sole voting power, shared voting power, sole dispositive power and shared dispositive power according to the Baupost 13G.

	Baupost		SAK		Mr. Klarman
Sole voting power (shares)		2,820,000		0		0
Shared voting power (shares)		0		0		0
Sole dispositive power (shares)		2,820,000		0		0
Shared dispositive power (shares)		0		0		0

(3)

All information included in this table and this footnote regarding the beneficial ownership of Morgan Stanley ("MS") is based on our review of Schedule 13G filed with the SEC by MS on April 11, 2008 regarding the beneficial ownership of our common stock of MS (the "MS 13G"). According to the MS 13G, MS beneficially owns 1,550,996 shares of our common stock. The table below reflects the number of shares of our common stock to which MS has sole voting power, shared voting power, sole dispositive power and shared dispositive power according to the MS 13G.

	MS
Sole voting power (shares)		1,550,996
Shared voting power (shares)		0
Sole dispositive power (shares)		1,550,996
Shared dispositive power (shares)		0

(4)

All information included in this table and this footnote regarding the beneficial ownership of Visium Asset Management, L.P. ("Visium"), JG Asset, LLC ("JG") and Jacob Gottlieb is based on our review of Schedule 13G filed with the SEC by Visium, JG and Mr. Gottlieb on February 13, 2008 regarding the beneficial ownership of our common stock of Visium, JG and Mr. Gottlieb (the "Visium 13G"). According to the Visium 13G, Visium, JG and Mr. Gottlieb each beneficially own 1,523,188 shares of our common stock. The table below reflects the number of shares of our common stock to which Visium, JG and Mr. Gottlieb have sole voting power, shared voting power, sole dispositive power and shared dispositive power according to the Visium 13G.

	Visium		JG		Mr. Gottlieb
Sole voting power (shares)		1,523,188		0		1,523,188
Shared voting power (shares)		0		1,523,188		0
Sole dispositive power (shares)		0		0		1,523,188
Shared dispositive power (shares)		0		1,523,188		0

(5)

All information included in this table and this footnote regarding the beneficial ownership of FMR LLC ("FMR") and Edward C. Johnson 3d is based on our review of Amendment No. 6 to Schedule 13G filed with the SEC by FMR and Mr. Johnson on February 13, 2008 regarding the beneficial ownership of our common stock of FMR, Mr. Johnson and certain other persons (the "FMR 13G"). According to the FMR 13G, FMR and Mr. Johnson each beneficially own 1,401,590

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shares of our common stock. The FMR 13G identifies certain other persons which beneficially own some of these shares, however, none of these other persons beneficially owns 5% or more of our outstanding common stock. The table below reflects the number of shares of our common stock to which FMR and Mr. Johnson have sole voting power, shared voting power, sole dispositive power and shared dispositive power according to the FMR 13G.

	FMR		Mr. Johnson
Sole voting power (shares)		17,200		0
Shared voting power (shares)		0		0
Sole dispositive power (shares)		1,401,590		1,401,590
Shared dispositive power (shares)		0		0

(6)

All information included in this table and this footnote regarding the beneficial ownership of Highbridge International LLC ("HI"), Highbridge Convertible Arbitrage Master Fund, L.P. ("HCAMF"), STAR L.P. ("Star"), Highbridge Statistical Market Neutral Fund ("HSMNF"), Highbridge Statistical Enhanced Equity Master Fund—U.S., L.P. ("HSEEMF"), SGAM AI Equity Fund ("SAEF"), Highbridge Capital Management, LLC ("Highbridge"), Glenn Dubin ("Mr. Dubin") and Henry Swieca ("Mr. Swieca") based on our review of Schedule 13G filed with the SEC by HI, HCAMF, Star, HSMNF, HSEEMF, SAEF, Highbridge, Mr. Dubin and Mr. Swieca on May 6, 2008 regarding the beneficial ownership of our common stock of HI, HCAMF, Star, HSMNF, HSEEMF, SAEF, Highbridge, Mr. Dubin and Mr. Swieca (the "Highbridge 13G"). According to the Highbridge 13G, HI beneficially owns the $30,100,000 aggregate principal amount of 2.00% Convertible Senior Notes due February 15, 2012 (the "2012 Notes"), convertible into 369,784 shares of our common stock (not counting any accrued and unpaid interest on the 2012 Notes) and the $60,400,000 aggregate principal amount of 2.75% Convertible Subordinated Notes due April 16, 2023 (the "2023 Notes" and together with the 2012 Notes, the "Notes"), convertible into 876,838 shares of our common stock (not counting any accrued and unpaid interest on the 2023 Notes), (ii) HCAMF beneficially owns the $7,400,000 aggregate principal amount of the 2012 Notes, convertible into 90,910 shares of our common stock (not counting any accrued and unpaid interest on the 2012 Notes) and the $4,100,000 aggregate principal amount of the 2023 Notes, convertible into 59,520 shares of our common stock (not counting any accrued and unpaid interest on the 2023 Notes), (iii) Star (a statistical arbitrage strategy) beneficially owns 50,866 shares of our common stock, (iv) HSMNF beneficially owns 6 shares of our common stock, (v) HSEEMF beneficially owns 6 shares of our common stock, and (vi) Highbridge, Mr. Dubin and Mr. Swieca each beneficially own the $37,500,000 aggregate principal amount of the 2012 Notes, convertible into 460,695 shares of our common stock (not counting any accrued and unpaid interest on the 2012 Notes) beneficially owned by HI and HCAMF, the $64,500,000 aggregate principal amount of the 2023 Notes, convertible into 936,359 shares of our common stock (not counting any accrued and unpaid interest on the 2023 Notes) beneficially owned by HI and HCAMF and 50,880 shares of our common stock beneficially owned by Star (a statistical arbitrage strategy), HSMNF, HSEEMF and SAEF. The tables below reflects the number of shares of our common stock to which HI, HCAMF, Star, HSMNF, HSEEMF, SAEF, Highbridge, Mr. Dubin and Mr. Swieca have sole voting power, shared voting power, sole dispositive power and shared dispositive power according to the Highbridge 13G.

	HI		HCAMF		Star		HSMNF		HSEEMF
Sole voting power (shares)		0		0		0		0		0
Shared voting power (shares)		1,246,623		150,424		50,866		6		6
Sole dispositive power (shares)		0		0		0		0		0
Shared dispositive power (shares)		1,246,623		150,424		50,866		6		6

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	SAEF		Highbridge		Mr. Dubin		Mr. Swieca
Sole voting power (shares)		0		0		0		0
Shared voting power (shares)		0		1,447,934		1,447,934		1,447,934
Sole dispositive power (shares)		0		0		0		0
Shared dispositive power (shares)		0		1,447,934		1,447,934		1,447,934

(7)

All information included in this table and this footnote regarding the beneficial ownership of Highland Capital Management, L.P. ("Highland"), Strand Advisors, Inc. ("Strand"), James D. Dondero, , Highland Funds I, on behalf of its Highland Equity Opportunities Fund Series ("HF1"), Highland Multi-Strategy Onshore Master SubFund, L.L.C. ("HMOMS"), Highland Multi-Strategy Master Fund, L.P. ("HMMF") is based on our review of a Schedule 13D filed with the SEC by Highland, Strand, Mr. Dondero, HF1, HMOMS and HMMF and amendments thereto, including Amendment No. 4 filed on August 6, 2008 regarding the beneficial ownership of our common stock of Highland, Strand, Mr. Dondero, HF1, HMOMS and HMMF (the "Highland 13D"). According to the Highland 13D, Highland, Strand, and Mr. Dondero each beneficially own 1,268,233 shares, or 5.3%, of our common stock; HF1 beneficially owns 1,278 shares, or 0.01%, of our common stock; and HMOMS and HMMF each beneficially own 5,752 shares, or 0.02%, of our common stock. The Highland 13D also states that each of the reporting persons on the Highland 13D may be deemed to be a member of a group for the purpose of Section 13(d) or 13(g) of the Exchange Act. The tables below reflects the number of shares of our common stock to which Highland, Strand, Mr. Dondero, HF1, HMOMS and HMMF have sole voting power, shared voting power, sole dispositive power and shared dispositive power according to the Highland 13D.

	Highland		Strand		Mr. Dondero
Sole voting power (shares)		1,261,202		1,261,202		1,261,202
Shared voting power (shares)		7,031		7,031		7,031
Sole dispositive power (shares)		1,261,202		1,261,202		1,261,202
Shared dispositive power (shares)		7,031		7,031		7,031

	HF1		HMOMS		HMMF
Sole voting power (shares)		0		0		0
Shared voting power (shares)		1,278		5,752		5,752
Sole dispositive power (shares)		0		0		0
Shared dispositive power (shares)		1,278		5,752		5,752

(8)

Includes 12,666 shares issuable upon the exercise of options which are currently exercisable or will become exercisable by August 29, 2008, the date 60 days after June 30, 2008.

(9)

Includes 7,375 shares issuable upon the exercise of options which are currently exercisable or will become exercisable by August 29, 2008, the date 60 days after June 30, 2008.

(10)

Includes 47,752 shares issuable upon the exercise of options which are currently exercisable or will become exercisable by August 29, 2008, the date 60 days after June 30, 2008.

(11)

Includes 6,708 shares issuable upon the exercise of options which are currently exercisable or will become exercisable by August 29, 2008, the date 60 days after June 30, 2008.

(12)

Consists of all shares beneficially owned by our directors and the persons we expect to serve as our executive officers as of June 30, 2008. Includes 79,378 shares issuable upon the exercise of options which are currently exercisable or will become exercisable by August 29, 2008, the date 60 days after June 30, 2008.

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Related Person Transactions

        Following PDL's distribution of our common stock to PDL's stockholders, we will have a continuing relationship with PDL as a result of the agreements we are entering into in connection with the distribution, including the Separation and Distribution Agreement, the Transition Services Agreement, the Non-Exclusive Cross License Agreement, the Employee Matters Agreement, and the Tax Sharing and Indemnification Agreement. For a detailed discussion of each of these agreements, please see "Our Relationship with PDL after the Spin-Off."

        Some of our officers and directors own shares of PDL common stock or options to acquire additional shares of PDL common stock because of their prior employment relationship with PDL or their service on the Board of PDL. The total amount of such shares is less than [            ]% of PDL stock outstanding as of [            ]. The options to acquire PDL common stock will terminate on or around [            ]. Ownership of PDL common stock and options to acquire PDL common stock could create or appear to create conflicts of interest for such officers and directors when faced with decisions that could have disparate implications for PDL and us.

Description of Capital Stock

General

        The following is a summary of information concerning our capital stock. The summary below does not purport to be complete statements of the relevant provisions of our amended and restated certificate of incorporation or of our bylaws. The summary is qualified in its entirety by reference to these documents, which you must read for complete information on our capital stock. Our amended and restated certificate of incorporation and bylaws are included as exhibits to our registration statement on Form 10.

Authorized Capital Stock

        Immediately following the distribution, our authorized capital stock will consist of up to 140,000,000 million shares of common stock, par value $0.01 per share, and 10,000,000 million shares of preferred stock, par value $0.01 per share.

Common Stock

        As of [            ], 2008, PDL had approximately [            ] stockholders of record each of which would become a stockholder of BioCo upon the distribution if such stockholder continued to hold its PDL shares of common stock through the ex-dividenddate for the spin-off distribution. As of [            ], 2008, PDL had issued and outstanding [            ] shares of common stock, which would result in our having [            ] shares of common stock outstanding based on a distribution ratio of one share of our common stock for every [five] shares of PDL common stock held on the Record Date. Holders of common stock are entitled to one vote for per share for the election of directors and all other matters submitted to a vote of our stockholders. Subject to the rights of any holders of preferred stock that may be issued in the future, the holders of common stock are entitled to share ratably in such dividends as may be declared by our Board out of funds legally available therefore. In the event of our dissolution, liquidation or winding up, holders of common stock are entitled to share ratably in all assets remaining after payment of all liabilities and liquidation preferences of any preferred stock. Holders of common stock have no preemptive, subscription, redemption, conversion rights or similar rights. Our certificate of incorporation does not provide for cumulative voting rights with respect to the election of directors. All outstanding common stock is fully paid and nonassessable.

111

Preferred Stock

        Under the terms of our amended and restated certificate of incorporation, our Board will be authorized, subject to limitations prescribed by the Delaware General Corporation Law ("DGCL") and by our amended and restated certificate of incorporation, to issue preferred stock in one or more series without stockholder approval. Our Board will have the discretion, subject to limitations prescribed by the DGCL and by our amended and restated certificate of incorporation, to determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, of each series of preferred stock.

Anti-takeover Effects of our Amended and Restated Certificate of Incorporation and Bylaws and Delaware Law

        Provisions of our amended and restated certificate of incorporation and bylaws and of Delaware law could make the following more difficult:

•

acquisition of us by means of a tender offer;



•

acquisition of us by means of a proxy contest or otherwise; or



•

removal of our incumbent officers and directors.

        These provisions, which are summarized below, are expected to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our Board. We believe that the benefits of increased protection give us the potential ability to negotiate with the proponent of an unsolicited proposal to acquire or restructure us and outweigh the disadvantages of discouraging those proposals because negotiation of the proposals could result in an improvement of their terms.

Exclusive Right to Fix Size of Board of Directors and to Fill Vacancies

        Our amended and restated certificate of incorporation and bylaws provide that the number of directors in our Board shall initially be (1) one and, thereafter, shall be exclusively fixed by our Board. Newly created directorships resulting from any increase in our authorized number of directors and any vacancies in our Board resulting from death, resignation, retirement, disqualification or other cause (including removal from office by a vote of the stockholders) will be filled by a majority of our Board then in office.

Elimination of Stockholder Action by Written Consent

        Our amended and restated certificate of incorporation and bylaws expressly eliminate the right of our stockholders to act by written consent. Stockholder action must take place at the annual or special meeting of our stockholders.

Special Stockholder Meetings

        Our amended and restated certificate of incorporation and bylaws provide that only two or more of our directors, the Chairperson of our Board or our President may call special meetings of our stockholders.

Requirements for Advance Notification of Stockholder Nominations and Proposals

        Our bylaws have advance notice procedures with respect to stockholder proposals and nominations of candidates for election as directors, other than nominations made by or at the direction of our Board or a committee of our Board. The business to be conducted at an annual meeting will be limited to business properly brought before the annual meeting by or at the direction of our Board or a duly

112

authorized committee thereof or by a stockholder of record who has given timely written notice to our secretary of that stockholder's intention to bring such business before such meeting.

Delaware Anti-takeover Law

        Upon the distribution, we will be governed by Section 203 of the DGCL. Section 203, subject to certain exceptions, prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the time that such stockholder became an interested stockholder, unless:

•

prior to such time, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; or



•

upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85.0% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding specified shares; or



•

at or subsequent to such time, the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, by the affirmative vote of at least 66²/3% of the outstanding voting stock that is not owned by the interested stockholder. The stockholders cannot authorize the business combination by written consent.

        The application of Section 203 may limit the ability of stockholders to approve a transaction that they may deem to be in their best interests.

        In general, Section 203 defines "business combination" to include:

•

any merger or consolidation involving the corporation and the interested stockholder; or



•

any sale, lease, exchange, mortgage, pledge, transfer or other disposition of 10.0% or more of the assets of the corporation to or with the interested stockholder; or



•

subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any of its stock to the interested stockholder; or



•

any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; or



•

the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation.

        In general, Section 203 defines an "interested stockholder" as any person that is:

•

the owner of 15% or more of the outstanding voting stock of the corporation; or



•

an affiliate or associate of the corporation who was the owner of 15% or more of the outstanding voting stock of the corporation at any time within three years immediately prior to the relevant date; or



•

the affiliates and associates of the above.

        Under specific circumstances, Section 203 makes it more difficult for an "interested stockholder" to effect various business combinations with a corporation for a three-year period, although the stockholders may, by adopting an amendment to the corporation's certificate of incorporation or bylaws, elect not to be governed by this section, effective twelve months after adoption.

113

        Our amended and restated certificate of incorporation and bylaws do not exclude us from the restrictions imposed under Section 203. We anticipate that the provisions of Section 203 may encourage companies interested in acquiring us to negotiate in advance with our Board since the stockholder approval requirement would be avoided if a majority of the directors then in office approve either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder.

Supermajority Vote Required for Certain Amendments

        Our amended and restated certificate of incorporation provides that amendments to provisions in the amended and restated certificate of incorporation relating to the limitation on action of stockholders by written consent, the calling of special meetings of stockholder, the number of directors, filling vacancies on the board, removal of directors, any of our bylaws adopted by our Board and the liability of directors, shall require the affirmative vote of the holders of at least two-thirds of the voting power of the shares entitled to vote generally in the election of directors.

No Cumulative Voting

        Our amended and restated certificate of incorporation and bylaws do not provide for cumulative voting in the election of directors.

Undesignated Preferred Stock

        The authorization in our amended and restated certificate of incorporation of undesignated preferred stock makes it possible for our Board to issue our preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of us. The provisions in our amended and restated certificate of incorporation authorizing such preferred stock may have the effect of deferring hostile takeovers or delaying changes of control of our management.

Transfer Agent and Registrar

        The transfer agent for our common stock is BNY Mellon Shareowner Services. Their address 525 Market Street, Suite 3500, San Francisco, California 94105. Their telephone number is (877) 424-4271.

No Dissenters' Rights

        Stockholders of the Company are not entitled to appraisal or dissenters' rights with respect to the spin-off under Delaware law or our certificate of incorporation or bylaws.

Indemnification of Officers and Directors

        Section 145 of the DGCL authorizes a court to award, or a corporation's Board to grant, indemnity to directors and officers in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities (including reimbursement for expenses incurred) arising under the Securities Act of 1933. Our certificate of incorporation and bylaws provide for indemnification of our officers and directors to the maximum extent permitted by Delaware law.

        We also expect to enter into indemnification agreements with our directors and officers providing for indemnification to the fullest extent permitted by Delaware law and, in certain respects, the indemnification agreements may provide greater protection than that specifically provided for by Delaware law. The indemnification agreements will not provide indemnification for, among other things, conduct which is found to be knowingly fraudulent or deliberately dishonest, or for willful misconduct. We also intend to obtain policies that insure our directors and officers against certain

114

liabilities they may incur in their capacity as directors and officers. Under these policies, the insurer, on our behalf, may pay amounts for which we have granted indemnification to the directors or officers.

Distribution of Information Statement

        We will pay the costs of distributing this Information Statement. The distribution will be made by mail.

Where to Obtain More Information

        We have filed with the Securities and Exchange Commission, or SEC, a registration statement on Form 10 under the Securities Exchange Act of 1934 for the common stock being issued to you in the distribution of our common stock. This Information Statement, filed as an exhibit to the registration statement and incorporated therein by reference, omits certain information contained in the registration statement and the other exhibits and schedules thereto, to which reference is hereby made. Statements contained herein concerning the provisions of any documents filed as exhibits to the registration statement are not necessarily complete, and are qualified by reference to the copy of such document. The registration statement, including exhibits and schedules filed therewith, may be inspected and copied at the public reference facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such materials may be obtained at prescribed rates by writing to the SEC. The SEC also maintains a website (http://www.sec.gov) that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC.

        We are not currently subject to the informational requirements of the Exchange Act. Following the distribution, we will be subject to such informational requirements, and in accordance therewith, we will file reports, proxy and Information Statements and other information with the SEC. Such reports, proxy and Information Statements and other information can be inspected and copied at the address set forth above. We intend to furnish our stockholders with annual reports containing financial statements audited by our independent accountants and quarterly reports for the first three quarters of each fiscal year containing unaudited summary financial information.

        We will maintain an Internet site at [                                    ], which we expect to be operational on or before the date that the Form 10 is declared effective. Our website and the information contained on that site, or connected to that site, are not incorporated into this Information Statement or the registration statement on Form 10.

115

Index to Combined Financial Statements

	Page
Report of Independent Registered Public Accounting Firm	F-2
Combined Balance Sheets as of March 31, 2008, December 31, 2007 and December 31, 2006	F-3
Combined Statements of Operations for the years ended December 31, 2007, 2006, and 2005 and for the three months ended March 31, 2008 and 2007	F-4
Combined Statements of Cash Flows for the years ended December 31, 2007, 2006, and 2005 and for the three months ended March 31, 2008 and 2007	F-5
Combined Statements of Changes in Parent Company Equity for the years ended December 31, 2007, 2006 and 2005 and for the three months ended March 31, 2008	F-6
Notes to Combined Financial Statements	F-7

F-1

Report of Independent Registered Public Accounting Firm

        The Board of Directors and Stockholders of PDL BioPharma, Inc.:

        We have audited the accompanying combined balance sheets of Biotech Spinco, Inc. (the Biotechnology Business of PDL BioPharma, Inc.) as of December 31, 2007 and 2006, and the related combined statements of operations, cash flows, and changes in parent company equity for each of the three years in the period ended December 31, 2007. 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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 Biotech Spinco, Inc. at December 31, 2007 and 2006, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2007, in conformity with U.S. generally accepted accounting principles.

        As discussed in Notes 3 and 13 to the combined financial statements, in 2006 Biotech Spinco, Inc. changed its method of accounting for stock-based compensation and for its postretirement benefit plan.

/s/ ERNST & YOUNG LLP

Palo Alto, California
August 11, 2008

F-2

Biotech Spinco, Inc.
(Biotechnology Business of PDL BioPharma, Inc.)

Combined Balance Sheets
(In thousands)

		December 31,
								March 31, 2008
		2007			2006
								(unaudited)
Assets
Current assets:
	Restricted cash	$	25,005		$	—		$	15,005
	Prepaid and other current assets		4,779			8,258			6,712
Total current assets			29,784			8,258			21,717
Long-term restricted cash			3,269			18,269			3,269
Land, property and equipment, net			325,969			289,332			130,322
Intangible assets, net			9,056			10,702			8,644
Other assets			878			596			2,139
	Total assets	$	368,956		$	327,157		$	166,091
Liabilities and parent company equity
Current liabilities:
	Accounts payable	$	2,239		$	6,372		$	1,901
	Accrued compensation		20,562			16,817			13,507
	Other accrued liabilities		18,240			21,909			18,767
	Deferred revenue		7,171			13,443			8,197
	Current portion of other long-term debt		—			635			—
	Current portion of lease financing liability		678			604			735
Total current liabilities			48,890			59,780			43,107
Long-term deferred revenue			26,147			29,866			26,313
Long-term lease financing liability			26,194			24,752			25,968
Other long-term liabilities			5,155			8,673			5,879
	Total liabilities		106,386			123,071			101,267
Commitments and contingencies (Note 15)
Parent company equity:
	Parent company investment		263,109			204,944			65,345
	Accumulated other comprehensive loss		(539	)		(858	)		(521	)
Total parent company equity			262,570			204,086			64,824
Total liabilities and parent company equity		$	368,956		$	327,157		$	166,091

See accompanying notes.

F-3

Biotech Spinco, Inc.
(Biotechnology Business of PDL BioPharma, Inc.)

Combined Statements of Operations
(In thousands)

				Years Ended December 31,									Three Months Ended March 31,
				2007			2006			2005			2008			2007
													(unaudited)
Revenues
	Collaboration			$	24,632		$	48,548		$	19,433		$	2,682		$	8,811
	Other				1,660			2,869			9,424			1,000			—
Total revenues					26,292			51,417			28,857			3,682			8,811
Costs and expenses
	Research and development				195,130			200,720			155,816			45,239			47,580
	General and administrative				45,045			36,590			25,833			12,765			8,647
	Gain on sale of assets				—			—			—			(49,671	)		—
	Restructuring charges				6,668			—			—			5,547			—
	Asset impairment charges				5,513			900			15,769			3,521			—
		Total operating expenses			252,356			238,210			197,418			17,401			56,227
			Operating loss		(226,064	)		(186,793	)		(168,561	)		(13,719	)		(47,416	)
	Other income (expense)				(871	)		737			1,982			3			1
	Interest expense				(639	)		(552	)		(595	)		(434	)		(128	)
	Loss before income taxes				(227,574	)		(186,608	)		(167,174	)		(14,150	)		(47,543	)
	Income tax expense				123			81			47			28			30
			Net loss	$	(227,697	)	$	(186,689	)	$	(167,221	)	$	(14,178	)	$	(47,573	)

See accompanying notes.

F-4

Biotech Spinco, Inc.
(Biotechnology Business of PDL BioPharma, Inc.)

Combined Statements of Cash Flows
(In thousands)

					Years Ended December 31,									Three Months Ended March 31,
					2007			2006			2005			2008			2007
														(unaudited)
Cash flows from operating activities
	Net loss				$	(227,697	)	$	(186,689	)	$	(167,221	)	$	(14,178	)	$	(47,573	)
	Adjustments to reconcile net loss to net cash used in operating activities:
		Asset impairment charges				5,513			900			15,769			3,521			—
		Depreciation				28,511			28,187			14,167			7,176			6,463
		Expense allocation from parent				2,503			1,626			712			609			647
		Amortization of intangible assets				1,646			1,797			2,123			412			411
		Allocation of stock-based compensation expense from parent				14,324			18,286			947			3,460			3,555
		Gain on sale of assets				—			—			—			(49,671	)		—
		Loss on disposal of equipment				763			74			7			127			31
	Changes in assets and liabilities:
			Accounts receivable			—			11,832			(11,832	)		—			—
			Other current assets			3,479			3,277			(2,086	)		(2,670	)		(2,194	)
			Other assets			(282	)		105			135			574			(306	)
			Accounts payable			(4,133	)		5,387			(3,940	)		(338	)		(2,771	)
			Accrued liabilities			77			14,380			7,815			(7,245	)		(10,821	)
			Other long-term liabilities			2,957			1,393			—			742			995
			Deferred revenue			(9,991	)		(23,725	)		50,145			(643	)		44
				Total adjustments		45,367			63,519			73,962			(43,946	)		(3,946	)
	Net cash used in operating activities					(182,330	)		(123,170	)		(93,259	)		(58,124	)		(51,519	)
Cash flows from investing activities
	Maturities of note receivable					—			30,000			—			—			—
	Purchase of property and equipment					(92,327	)		(31,898	)		(40,600	)		(612	)		(16,562	)
	Proceeds from the sale of property and equipment					20,903			269			—			236,560			—
	Transfer (to) from restricted cash					(10,005	)		(18,269	)		—			10,000			(10,005	)
	Net cash provided by (used in) investing activities					(81,429	)		(19,898	)		(40,600	)		245,948			(26,567	)
Cash flows from financing activities
	Transfers from (to) parent, net					269,035			143,743			134,579			(187,655	)		78,405
	Proceeds from financing of tenant improvements					2,118			—			—			—			—
	Payments on long-term debt and lease financing					(7,394	)		(675	)		(720	)		(169	)		(319	)
	Net cash provided by (used in) financing activities					263,759			143,068			133,859			(187,824	)		78,086
Net change in cash and cash equivalents						—			—			—			—			—
Cash and cash equivalents at beginning of the year						—			—			—			—			—
Cash and cash equivalents at end the year					$	—		$	—		$	—		$	—		$	—

			Years Ended December 31,
			2007		2006		2005
Supplemental Disclosure of Non-Cash Information
	Cash paid during the year for interest		$	574	$	553	$	619
	Cash paid during the year for income taxes		$	87	$	52	$	45
	Non-cash investing and financing activities:
		Capitalization of facilities under financing lease transactions, including accrued interest, and corresponding long-term financing	$	—	$	25,117	$	—

See accompanying notes.

F-5

Biotech Spinco, Inc.
(Biotechnology Business of PDL BioPharma, Inc.)

Combined Statements of Changes in Parent Company Equity
(In thousands)

		Parent Company Investment			Accumulated Other Comprehensive Income (loss)			Total Parent Company Equity
Balance at December 31, 2004		$	258,961		$	—		$	258,961
Parent cost allocations			1,659			—			1,659
Net transfers from parent			134,579			—			134,579
Net loss and comprehensive loss			(167,221	)		—			(167,221	)
Balance at December 31, 2005			227,978			—			227,978
Parent cost allocations			19,912			—			19,912
Net transfers from parent			143,743			—			143,743
Comprehensive loss:
	Net loss		(186,689	)		—			(186,689	)
	Adjustments to initially apply SFAS 158, net of tax		—			(858	)		(858	)
Total comprehensive loss									(187,547	)
Balance at December 31, 2006			204,944			(858	)		204,086
Parent cost allocations			16,827			—			16,827
Net transfers from parent			269,035			—			269,035
Comprehensive loss:
	Net loss		(227,697	)		—			(227,697	)
	Change in postretirement liability not yet recognized as net period expense		—			319			319
Total comprehensive loss									(227,378	)
Balance at December 31, 2007			263,109			(539	)		262,570
Parent cost allocations (unaudited)			4,069			—			4,069
Net transfers to parent (unaudited)			(187,655	)		—			(187,655	)
Comprehensive loss (unaudited):
	Net loss (unaudited)		(14,178	)		—			(14,178	)
	Change in postretirement liability not yet recognized as net period expense (unaudited)		—			18			18
Total comprehensive loss (unaudited)									(14,160	)
Balance at March 31, 2008 (unaudited)		$	65,345		$	(521	)	$	64,824

See accompanying notes.

F-6

Biotech Spinco, Inc.
(Biotechnology Business of PDL BioPharma, Inc.)

Notes to Combined Financial Statements

1. Organization and Business

Basis of Presentation

        In April 2008, PDL BioPharma, Inc. (PDL) announced its intent to spin off its biotechnology assets into a separate publicly traded entity apart from its antibody humanization royalty assets (the Spin-off). In connection with the Spin-off, PDL plans to distribute as a dividend to its stockholders, one share of Biotech Spinco, Inc. (BioCo or we, us, our and the Company) common stock for every five shares of PDL common stock outstanding (the Distribution). The Distribution is designed to separate two distinct businesses with significant differences in their markets, research and development needs, capital needs, employee needs, risk profiles and plans for growth. PDL's Board believes the separation into two independent companies will enhance the ability of each to focus on strategic initiatives and new business opportunities. As a consequence, PDL believes that investors will be able to evaluate better the merits of the two groups of businesses and their future prospects.

        BioCo was organized as a Delaware corporation and a wholly owned subsidiary of PDL in July 2008. Prior to July 2008, the Biotechnology Business was not organized in a separate legal entity and a direct ownership relationship did not exist among all the components comprising the Biotechnology Business. PDL's investment in the Biotechnology Business is shown in lieu of stockholders' equity in the combined financial statements.

        BioCo is a biotechnology company that designs and develops antibody therapeutics for the treatment of oncology and immunologic diseases. Antibodies have become an accepted and proven therapeutic modality and numerous antibody therapeutics for a wide range of indications are currently on the market. Despite these advances, there remain many opportunities to create new and improved antibodies. Building on our years of experience in antibody engineering and design, we are focused on discovering and developing antibodies that improve upon or offer advantages over current treatment options.

        In July 2008, the Board of PDL approved the Separation and Distribution Agreement between BioCo and PDL which (1) provided for the transfer, effective as of the Spin-off, of certain assets and liabilities relating to the businesses previously conducted by PDL to BioCo and (2) established contractual arrangements between PDL and BioCo described below under Note 4. PDL will continue to own the antibody humanization royalty patents and the related business (Royalty Business).

        The accompanying combined financial statements have been prepared using PDL's historical cost basis of the assets and liabilities of the various activities that comprise the Biotechnology Business of PDL and reflect the combined results of operations, financial condition and cash flows of BioCo as a component of PDL. The various assets, liabilities, revenues and expenses associated with PDL have been allocated to the historical combined financial statements of BioCo in a manner expected to be consistent with the Separation and Distribution Agreement, discussed in Note 4. In some cases, BioCo has been allocated certain expenses from PDL but has not been allocated the underlying productive assets, for example, certain information systems equipment that will not be assigned to BioCo but for which BioCo has benefited from the assets. Such expenses have been reflected in the Statements of Cash Flows and the Statements of Changes in Parent Company Equity as expense allocations from parent company. Changes in parent company equity represent PDL's net investment in BioCo, after giving effect to BioCo's net income (loss), parent company expense allocations, net cash transfers to and from PDL and accumulated other comprehensive income (loss).

F-7

Biotech Spinco, Inc.
(Biotechnology Business of PDL BioPharma, Inc.)

Notes to Combined Financial Statements (Continued)

1. Organization and Business (Continued)

        For purposes of preparing financial statements, the Biotechnology Business derived from PDL's historical consolidated financial statements, allocations of revenues, research and development expenses, asset impairment charges, restructuring charges, gains on sales of assets and non-operating income and expenses to BioCo were made on a specific identification basis. BioCo's operating expenses also include allocations of information technology expenses based on an estimated number of full-time employees (FTEs) that worked with the Biotechnology Business and facilities expenses based on the estimated square footage utilized by the Biotechnology Business. For purposes of allocating general and administrative expenses from PDL's historical consolidated financial statements, costs directly related to the Biotechnology Business were allocated to BioCo on a specific identification basis or based on the substance of the underlying effort. BioCo's general and administrative expenses also include allocations of PDL's general corporate overhead expenses, including finance, legal, human resources, investor relations and other administrative functions. These allocations of general corporate overhead expenses were primarily based on the substance of the underlying effort or an estimated number of FTEs that worked with the Biotechnology Business. For certain costs that benefited the consolidated PDL entity as a whole, we allocated 50% of the costs to BioCo. The combined balance sheets of BioCo include assets and liabilities that were allocated to BioCo principally on a specific identification basis.

        Management believes that the statements of operations include a reasonable allocation of costs incurred by PDL which benefited BioCo. However, such expenses may not be indicative of the actual level of expense that would have been incurred by BioCo if it had operated as an independent, publicly traded company or of the costs expected to be incurred in the future. As such, the financial information herein may not necessarily reflect the financial position, results of operations, and cash flows of BioCo in the future or what it would have been had BioCo been an independent, publicly traded company during the periods presented.

        As BioCo was not a separate legal entity until July 2008, no separate cash accounts for the Biotechnology Business were historically maintained and, therefore, PDL is presumed to have funded BioCo's operating, investing and financing activities as necessary. For purposes of the historical combined financial statements, funding of BioCo's expenditures is reflected in the combined financial statements as a component of parent company investment. In connection with the asset transfer and Spin-off discussed above, PDL will provide BioCo cash and cash equivalents of $375 million, which amount will be increased by any milestones or similar payments received by PDL on or prior to the distribution date related to the Biotechnology Business.

        We describe the Biotechnology Business transferred to us by PDL in connection with the Spin-off as though the Biotechnology Business were our business for all historical periods described. However, BioCo is a newly-formed entity that has not conducted any operations prior to the Spin-off and some of the actions necessary to transfer assets and liabilities of PDL to us have not occurred but will occur before the effectiveness of the Spin-off. References in this Information Statement to the historical assets, liabilities, products, business or activities of our business are intended to refer to the historical assets, liabilities, products, business or activities of the Biotechnology Business as those were conducted as part of PDL prior to the Spin-off.

Interim Financial Information

        The financial information at March 31, 2008, and for the three months ended March 31, 2007 and 2008 is unaudited but includes all adjustments (consisting only of normal recurring adjustments) which

F-8

Biotech Spinco, Inc.
(Biotechnology Business of PDL BioPharma, Inc.)

Notes to Combined Financial Statements (Continued)

1. Organization and Business (Continued)

BioCo considers necessary for a fair presentation of the financial position at such date and of the operating results and cash flows for those periods. Financial results for the three months ended March 31, 2007 and 2008 are not necessarily indicative of results expected for the entire year.

Management Estimates

        The preparation of combined financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires the use of management's estimates and assumptions that affect the amounts reported in the combined financial statements and accompanying notes. Actual results could differ from those estimates.

2. Summary of Significant Accounting Policies

Segment Disclosures

        In accordance with Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosure About Segments of an Enterprise and Related Information," we are required to report operating segments and make related disclosures about our products, services, geographic areas and major customers. We operate in one segment, and our facilities are located primarily within the United States.

Revenue Recognition

        We recognize revenue under the guidance of Staff Accounting Bulletin (SAB) No. 104, "Revenue Recognition." In December 2007, the Financial Accounting Standards Board (FASB) ratified the final consensuses in Emerging Issues Task Force (EITF) Issue No. 07-1, "Accounting for Collaborative Arrangements" (EITF 07-1), which requires certain income statement presentation of transactions with third parties and of payments between the parties to the collaborative arrangement, along with disclosure about the nature and purpose of the arrangement. While EITF 07-1 would be effective for us beginning on January 1, 2009, we have early adopted its provisions and have presented our collaboration revenues and expenses in accordance with EITF 07-1 for all periods presented, as discussed below.

        The following represents the types of licensing arrangements we enter into under which we provide access to our proprietary patent portfolio covering the humanization of antibodies:

Collaboration Agreements

        Under our former collaborations with Hoffmann-La Roche Inc. and F. Hoffman La Roche Ltd. (together, Roche) and our current collaboration with Biogen Idec MA, Inc. (Biogen Idec), we share development costs related to the products covered by the collaboration. The purpose of the collaboration agreements is to create synergies while bringing a product candidate to market by sharing technologies, know-how and costs. Once a product is brought to market, we would share in commercialization costs as well as in profits related to the product. Our collaboration agreements involve a combination of upfront fees, milestones and development costs for which we are not able to establish fair value of the undelivered elements. As such, we recognize these upfront fees, milestones and reimbursements of development costs as the services are performed. Each quarter, we and our collaborator reconcile what each party has incurred in terms of development costs, and we record either a net receivable or a net payable on our combined financial statements. For each quarterly

F-9

Biotech Spinco, Inc.
(Biotechnology Business of PDL BioPharma, Inc.)

Notes to Combined Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

period, if we have a net receivable from a collaborator, we recognize revenues by such amount, and if we have a net payable to our collaborator, we recognize additional research and development expenses by such amount. Therefore, our revenues and R&D expenses may fluctuate depending on which party in the collaboration is conducting the majority of the development activities.

Patent License Agreements

        Under patent license agreements, the licensee typically obtains a non-exclusive license to one or more of our patents. In this arrangement, the licensee is responsible for all of the development work on its product. The licensee has the technical ability to perform the humanization of the antibody it is developing using our patented technology, but needs to obtain a license from us to avoid infringing our patents. We have no future performance obligations under these agreements. Consideration that we receive for patent license agreements is recognized as revenue upon execution and delivery of the patent license agreement and when payment is reasonably assured. If the agreements require continuing involvement in the form of development, manufacturing or other commercialization efforts by us, we recognize revenues in the same manner as the final deliverable in the arrangement. Under patent license agreements, we may also receive annual license maintenance fees, payable at the election of the licensee to maintain the license in effect. We have no performance obligations with respect to such fees, and they are recognized as they are due and when payment is reasonably assured.

Humanization Services Agreements

        Under our humanization services agreements, the licensee typically pays an upfront fee to PDL to humanize an antibody, and we perform these services on PDL's behalf. We recognize these fees as the humanization work is performed, which is typically over three to six months, or upon acceptance of the humanized antibody by the licensee if such acceptance clause exists in the agreement. See Note 4 for the financial terms of our transition services performed for PDL.

Milestones

        Our licensing arrangements may contain milestones related to reaching particular stages in product development. We recognize "at risk" milestone payments upon achievement of the underlying milestone event and when they are due and payable under the arrangement. Milestones are deemed to be "at risk" when, at the onset of an arrangement, management believes that they will require a reasonable amount of effort to be achieved and are not simply reached by the lapse of time or through a perfunctory effort. Milestones which are not deemed to be "at risk" are recognized as revenue in the same manner as up-front payments. We also receive milestone payments under patent license agreements, under which we have no further obligations, when our licensees reach certain stages of development with respect to the licensed product. We recognize these milestones as revenue once they have been reached and payment is reasonably assured.

Clinical Trial Expenses

        We base our cost accruals for clinical trials on estimates of the services received and efforts expended pursuant to contracts with numerous clinical trial centers and clinical research organizations (CROs). In the normal course of business, we contract with third parties to perform various clinical trial activities in the ongoing development of potential drugs. The financial terms of these agreements

F-10

Biotech Spinco, Inc.
(Biotechnology Business of PDL BioPharma, Inc.)

Notes to Combined Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

vary from contract to contract, are subject to negotiation and may result in uneven payment flows. Payments under the contracts depend on factors such as the achievement of certain events, the successful accrual of patients or the completion of portions of the clinical trial or similar conditions. The objective of our accrual policy is to match the recording of expenses in our combined financial statements to the actual services received and efforts expended. As such, we recognize direct expenses related to each patient enrolled in a clinical trial on an estimated cost-per-patient basis as services are performed. In addition to considering information from our clinical operations group regarding the status of our clinical trials, we rely on information from CROs, such as estimated costs per patient, to calculate our accrual for direct clinical expenses at the end of each reporting period. For indirect expenses, which relate to site and other administrative costs to manage our clinical trials, we rely on information provided by the CRO, including costs incurred by the CRO as of a particular reporting date, to calculate our indirect clinical expenses. In the event of early termination of a clinical trial, we accrue an amount based on our estimate of the remaining non-cancelable obligations associated with the winding down of the clinical trial, which we confirm directly with the CRO. Our estimates and assumptions could differ significantly from the amounts that we actually may incur.

Research and Development

        Major components of research and development expenses consist of personnel costs, including salaries and benefits, clinical development performed by us and CROs, preclinical work, pharmaceutical development, materials and supplies, payments related to work completed for us by third-party research organizations and overhead allocations consisting of various administrative and facilities related costs. All research and development costs are charged to expense as incurred.

Comprehensive Loss

        Comprehensive loss is comprised of net loss and other comprehensive income (loss). Specifically, we included the liability that has not yet been recognized as net periodic benefit cost for our postretirement benefit plan in accordance with SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of Financial Accounting Standards Board (FASB) Statements No. 87, 88, 106, and 132(R)" (SFAS No. 158), which we adopted during the fourth quarter of 2006. Our comprehensive loss for the years ended December 31, 2007, 2006 and 2005 and for the three months ended March 31, 2008 is reflected in the Combined Statements of Changes in Parent Company Equity.

Capitalized Software

        Pursuant to Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," we recognize costs incurred in the preliminary planning phase of software development as expense as the costs are incurred. Software development costs incurred in the application development phase are capitalized and are included in property and equipment. For the years ended December 31, 2007, 2006 and 2005, we capitalized software development costs of $2.5 million, $4.0 million and $3.5 million, respectively. Once the developed software is placed into service, these costs are amortized over the estimated useful life of the software.

F-11

Biotech Spinco, Inc.
(Biotechnology Business of PDL BioPharma, Inc.)

Notes to Combined Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

Foreign Currency Translation

        The U.S. dollar is the functional currency for our French subsidiary. All foreign currency gains and losses are included in interest and other income, net, in the accompanying Combined Statements of Operations and have not been material.

Land, Property and Equipment

        Land, property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method over the following estimated useful lives:

Buildings and improvements	20 years
Leasehold improvements	Shorter of asset life or term of lease
Laboratory and manufacturing equipment	7 years
Computer and office equipment	3 years
Furniture and fixtures	7 years

Intangible and Other Long-Lived Assets

        At December 31, 2007 and 2006, our intangible assets consisted of purchased core technology and assembled workforce. In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets," (SFAS No. 142), we are amortizing our intangible assets with definite lives over their estimated useful lives and we review them for impairment when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. We are amortizing the purchased core technology, which relates to our daclizumab product, over its estimated useful life of ten years. The assembled workforce asset, which we acquired in connection with our acquisition of Eos Biotechnology, Inc. (Eos) in 2003, is completely amortized.

        Long-lived assets to be held and used are reviewed for impairment when events or changes in circumstances indicate the carrying amount of an asset may not be recoverable, or its estimated useful life has changed significantly. When an asset's expected future undiscounted cash flows are less than its carrying value, an impairment loss is recognized and the asset is written down to its estimated value. Long-lived assets to be disposed of are reported at the lower of the carrying amount of fair value less cost to dispose.

Income Taxes

        BioCo's operating results historically have been included in PDL's consolidated U.S. and state income tax returns and in tax returns of certain PDL foreign subsidiaries. The provision for income taxes and the deferred tax assets and liabilities in these financial statements has been determined as if BioCo were a separate tax paying entity in the periods presented.

3. Stock-Based Compensation

        As of March 31, 2008, we have not issued any BioCo stock-based awards to our employees. However, our employees have in the past received PDL stock-based compensation awards, and

F-12

Biotech Spinco, Inc.
(Biotechnology Business of PDL BioPharma, Inc.)

Notes to Combined Financial Statements (Continued)

3. Stock-Based Compensation (Continued)

therefore, the following disclosures pertain to stock-based compensation that has been allocated to BioCo related to PDL stock-based equity awards.

        Effective January 1, 2006, PDL adopted SFAS No. 123, "Share-Based Payment (Revised 2004)" (SFAS No. 123(R)), which supersedes our previous accounting under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25), and related interpretations. SFAS No. 123(R) requires the recognition of compensation expense, using a fair-value based method, for costs related to all share-based awards including stock options and stock issued to our employees and directors under our parent company's stock plans. It requires companies to estimate the fair value of share-based awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense on a straight-line basis over the requisite service periods in our Combined Statements of Operations.

        Stock options granted to persons other than employees or directors were accounted for at fair value and were subject to periodic remeasurement over their vesting terms. The resulting stock-based compensation expense was recognized during the service period over which the non-employee provides services. The stock-based compensation expense related to non-employees for the years ended December 31, 2007, 2006 and 2005 was $0.1 million, $0.3 million and $0.3 million, respectively.

Stock-Based Incentive Plans

        PDL has four active stock-based incentive plans under which it grants stock-based awards to employees, officers and consultants engaged in the Biotechnology Business: the 1991 Nonstatutory Stock Option Plan, the 1999 Stock Option Plan, the 1999 Nonstatutory Stock Option Plan, and the 2005 Equity Incentive Plan.

        Under PDL's 2005 Equity Incentive Plan, PDL is authorized to issue a variety of incentive awards, including stock options, stock appreciation rights, restricted stock unit awards, performance share and performance unit awards, deferred compensation awards and other stock-based or cash-based awards. Under PDL's 1999 Stock Option Plan and 1999 Nonstatutory Stock Option Plan, PDL is only authorized to issue stock options. PDL no longer grants any options under its 1991 Nonstatutory Stock Option Plan, and all such options granted to employees engaged in the Biotechnology Business were vested as of December 31, 2007.

        Stock options granted to employees under PDL's plans in connection with the start of employment customarily vest over four years with 25% of the shares subject to such an option vesting on the first anniversary of the grant date and the remainder of the stock option vesting monthly after the first anniversary at a rate of one thirty-sixth of the remaining nonvested shares subject to the stock option. Stock options granted to employees as additional incentive and for performance reasons after the start of employment customarily vest monthly after the grant date or such other vesting start date set by the Company on the grant date at a rate of one forty-eighth of the shares subject to the option. Each outstanding stock option granted prior to mid-July 2005 has a term of 10 years. Stock options granted after mid-July 2005 have a term of seven years.

Employee Stock Purchase Plan

        In addition to the stock-based incentive plans described above, PDL adopted the 1993 Employee Stock Purchase Plan (ESPP), which is intended to qualify as an "employee stock purchase plan" under

F-13

Biotech Spinco, Inc.
(Biotechnology Business of PDL BioPharma, Inc.)

Notes to Combined Financial Statements (Continued)

3. Stock-Based Compensation (Continued)

Section 423 of the Internal Revenue Code of 1986, as amended. Full-time employees involved in the Biotechnology Business who own less than 5% of PDL's outstanding shares of common stock are eligible to contribute a percentage of their base salary, subject to certain limitations, over the course of six-month offering periods for the purchase of shares of common stock. The purchase price for shares of common stock purchased under PDL's ESPP equals 85% of the fair market value of a share of common stock at the beginning or end of the relevant six-month offering period, whichever is lower. The stock-based compensation expense related to the Biotechnology Business and recognized in connection with PDL's ESPP for the years ended December 31, 2007 and 2006 was $1.6 million for each year.

Prior to the Adoption of SFAS No. 123(R)

        Prior to the adoption of SFAS No. 123(R), stock-based awards were accounted for under the intrinsic value method, which followed the recognition and measurement principles of APB 25 and related interpretations. Accordingly, we did not recognize compensation expense in our Combined Statements of Operations with respect to options awarded to our employees with exercise prices greater than or equal to the fair value of the underlying common stock on the date of grant. However, we did recognize compensation expense in our Combined Statements of Operations with respect to the modification of certain employee stock option awards and the issuance of restricted stock to certain employees.

        The table below illustrates the effect on net loss if the fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," (SFAS 123) as amended had been applied to stock-based awards prior to the adoption of SFAS No. 123(R). For purposes of this pro forma disclosure, the value of the options was estimated using the Black-Scholes option-pricing model.

(In thousands)			Year Ended December 31, 2005
Net loss, as reported			$	(167,221	)
	Add: Total stock-based employee compensation expense included in net loss, net of taxes			619
	Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of taxes			(18,270	)
		Pro forma net loss	$	(184,872	)

Adoption of SFAS No. 123(R)

        Stock-based compensation expense was calculated based on the number of awards ultimately expected to vest, net of estimated forfeitures. SFAS No. 123(R) requires us to estimate forfeiture rates at the time of grant and revise such rates, if necessary, in subsequent periods if actual forfeitures differ from those estimates. We adopted SFAS No. 123(R) using the modified prospective application transition method, which requires that we recognize compensation expense in our combined financial statements for all awards granted to employees after the date of adoption as well as for existing awards for which the requisite service has not been rendered as of the date of adoption. Upon adopting SFAS No. 123(R), we changed from the multiple-option approach to the single-option approach to value

F-14

Biotech Spinco, Inc.
(Biotechnology Business of PDL BioPharma, Inc.)

Notes to Combined Financial Statements (Continued)

3. Stock-Based Compensation (Continued)

stock-based awards with a measurement date on or subsequent to January 1, 2006. In addition, we are amortizing the fair value of these awards using the straight-line attribution method. We continue to expense the nonvested awards granted prior to January 1, 2006 under the multiple-option approach with graded-vesting attribution.

        Stock-based compensation expense recognized under SFAS No. 123(R) for employees was as follows:

		Years Ended December 31,				Three Months Ended March 31,
(In thousands)		2007		2006		2008		2007
						(unaudited)
Research and development		$	10,285	$	12,138	$	1,637	$	2,579
General and administrative			3,974		5,882		1,822		957
	Total stock-based compensation expense	$	14,259	$	18,020	$	3,459	$	3,536

Valuation Assumptions

        The stock-based compensation expense recognized under SFAS No. 123(R) for the years ended December 31, 2007 and 2006 and presented in the pro forma disclosure required under SFAS 123 for the year ended December 31, 2005 was determined using the Black-Scholes option valuation model. Option valuation models require the input of subjective assumptions and these assumptions can vary over time. The weighted-average assumptions used were as follows:

	Years Ended December 31,
	2007			2006			2005
Stock Option Plans
Expected life, in years		4.0			4.0			3.1
Risk free interest rate		4.5	%		5.0	%		3.7	%
Volatility		38	%		47	%		63	%
Dividend yield		—			—			—
Employee Stock Purchase Plans
Expected life, in years		0.5			0.5			0.5
Risk free interest rate		5.1	%		4.8	%		3.4	%
Volatility		38	%		43	%		42	%
Dividend yield		—			—			—

        The expected term represents the period that we expect the stock-based awards to be outstanding, which we determined based on historical experience of similar awards, the contractual terms of the stock-based awards, vesting schedules and expectations of future optionee behavior as influenced by changes to the terms of stock-based awards. We base expected volatility on both the historical volatility of PDL's common stock and implied volatility derived from the market prices of traded options of PDL's common stock. We base the risk-free interest rate on the implied yield available on U.S. Treasury zero-coupon issues with a remaining term equal to the expected term of the stock options at the time of grant. Prior to May 2008, when PDL issued a one-time dividend to stockholders of $4.25

F-15

Biotech Spinco, Inc.
(Biotechnology Business of PDL BioPharma, Inc.)

Notes to Combined Financial Statements (Continued)

3. Stock-Based Compensation (Continued)

per share of common stock, PDL had not issued any dividends, and PDL does not have a plan in place to pay any additional cash dividends in the foreseeable future. We therefore have assumed a dividend yield of zero for purposes of these fair value estimations.

        Stock-based compensation expense related to the issuance of PDL's restricted stock for the years ended December 31, 2007 and 2006 was $1.2 million and $0.7 million, respectively.

4. Contractual Agreements with PDL

Separation and Distribution Agreement

        The Separation and Distribution Agreement will set forth our agreements with PDL regarding the principal transactions necessary to separate us from PDL. It will also set forth other agreements that govern certain aspects of our relationship with PDL after the completion of the separation. Concurrently with our separation from PDL, we will enter into the Separation and Distribution Agreement with PDL.

Transfer of Assets and Assumption of Liabilities

        The Separation and Distribution Agreement will identify assets to be transferred, liabilities to be assumed and contracts to be assigned to us as part of the separation of PDL into two independent companies, and will describe when and how these transfers, assumptions and assignments will occur. In particular, the Separation and Distribution Agreement will provide that, subject to the terms and conditions contained in the Separation and Distribution Agreement:

•

All of the assets and liabilities associated or primarily used in connection with the Biotechnology Business of PDL will be transferred to us, including all of PDL's intellectual property assets (excluding the Queen et al. patents), and other assets and liabilities of PDL, but excluding the assets and liabilities of the Royalty Business and the 2.00% Convertible Senior Notes due February 14, 2012 with a principal amount of $250.0 million and the 2.75% Convertible Subordinated Notes due August 16, 2023 with a principal amount of $250.0 million (the Convertible Notes);



•

The Royalty Business including the Queen et al. patents and related assets and liabilities will be retained by PDL;



•

PDL will retain the Convertible Notes;



•

Assets and liabilities relating to the ongoing obligations under transition services agreements with EKR Therapeutics, Inc. (EKR), Genmab A/S (Genmab) and Otsuka Pharmaceutical Co., Ltd (Otsuka) related to the prior Commercial and Cardiovascular Business of PDL, as well as rights to potential future milestone and royalty payments under the asset purchase agreement with EKR, will be transferred to us; and



•

We expect PDL's leases for the facilities located in Redwood City, California and Paris, France to be transferred to us.

F-16

Biotech Spinco, Inc.
(Biotechnology Business of PDL BioPharma, Inc.)

Notes to Combined Financial Statements (Continued)

4. Contractual Agreements with PDL (Continued)

Transition Services Agreement

        Concurrently with our separation from PDL, we will enter into a Transition Services Agreement with PDL pursuant to which PDL and BioCo will provide each other with a variety of administrative services for a period of time following the Spin-off. Among the principal services we will provide to PDL are:

•

Information technology support for a defined timeframe, including SAP access setup, all other data access such as email and other business systems, help desk support and information technology setup;



•

Record-keeping support;



•

Finance, tax and accounting support to assist PDL in a secondary capacity to PDL personnel;



•

Legal support;



•

Human resources support; and



•

Facilities support to the extent PDL occupies space at current Redwood City, California facilities.

        Among the principal services PDL will provide to us are:

•

Financial and administrative support for audits and inquiries related to BioCo's historical combined financial statements; and



•

Access to both the historical financial systems for PDL and the supporting documentation, as well as general financial support for the purposes of compilation and audit of carve-out financial statements for the Cardiovascular Business as allowed for under the Asset Purchase Agreement with EKR.

        PDL and BioCo will agree to make each service available to the other on an as-needed basis for periods of time following the date the Spin-off is completed as are provided in the Transition Services Agreement.

Non-Exclusive Cross License Agreement

        Concurrently with our separation from PDL, we will enter into a Non-Exclusive Cross License Agreement relating to Queen et al. patents and certain related intellectual property we acquired from PDL as a result of the separation. Under the Non-Exclusive Cross License Agreement, PDL will grant to us a royalty-free, development license to the Queen et al. patents and a royalty-bearing, commercialization license to the Queen et al. patents and we will grant to PDL a royalty-free license under certain intellectual property we own solely for the purposes of allowing PDL to perform and fulfill existing obligations that PDL has under certain agreements between PDL and third parties. We will have the right to sublicense the Queen et al. patents subject to restrictions to ensure that we cannot grant sublicenses except in connection with a collaboration or similar arrangement in which we also are granting rights to our own intellectual property.

F-17

Biotech Spinco, Inc.
(Biotechnology Business of PDL BioPharma, Inc.)

Notes to Combined Financial Statements (Continued)

4. Contractual Agreements with PDL (Continued)

Employee Matters Agreement

        Concurrently with our separation from PDL, we will enter into an Employee Matters Agreement, which will govern the employee benefit obligations of PDL and us as they relate to current and former employees. The Employee Matters Agreement allocates liabilities and responsibilities relating to employee benefit matters that are subject to ERISA (other than severance plans) in connection with the separation, including the assignment and transfer of employees, and the establishment of a savings plan and a welfare plan.

Tax Sharing and Indemnification Agreement

        Concurrently with our separation from PDL, we will enter into a Tax Sharing and Indemnification Agreement that generally will govern PDL's and our respective rights, responsibilities and obligations after the separation with respect to taxes. Under the Tax Sharing and Indemnification Agreement, all tax liabilities (including tax refunds and credits) (1) attributable to PDL's Biotechnology Business for any and all periods or portions thereof ending prior to or on, and including, the distribution date, (2) resulting or arising from the contribution of PDL's Biotechnology Business to us, the distribution of our shares of common stock and the other separation transactions and (3) otherwise attributable to PDL, will be borne solely by PDL. As a result, we generally expect to be liable only for tax liabilities attributable to, or incurred with respect to, the Biotechnology Business after the distribution date.

5. Collaborative Arrangements

         Biogen Idec MA, Inc.    In September 2005, we entered into a collaboration agreement with Biogen Idec for the joint development, manufacture and commercialization of three antibodies. The agreement provides for shared development and commercialization of daclizumab in multiple sclerosis and indications other than transplant and respiratory diseases, and for shared development and commercialization of volociximab (M200) and HuZAF (fontolizumab) in all indications.

        We received an upfront license fee payment of $40.0 million and, pursuant to a related stock purchase agreement, Biogen Idec purchased 4.1 million shares of PDL's common stock at $24.637 per share, which represented the then fair market value of the stock, for an aggregate amount of $100.0 million in cash.

        We and Biogen Idec share equally the costs of all development activities and all operating profits from each collaboration product within the United States and Europe. The companies share the development, manufacturing and commercialization plans for collaboration products and intend to divide implementation responsibilities to leverage each company's capabilities and expertise. We are eligible to receive development and commercialization milestones based on the further successful development of the antibodies covered by the collaboration agreement. Each party will have co-promotion rights in the United States and Europe. Outside the United States and Europe, Biogen Idec will fund all incremental development and commercialization costs and pay a royalty to us on sales of collaboration products. If multiple products are developed successfully in multiple indications and all milestones are achieved, we could receive certain development and commercialization milestone payments totaling up to $660 million. Of these, $560 million are related to development and $100 million are related to commercialization of collaboration products.

F-18

Biotech Spinco, Inc.
(Biotechnology Business of PDL BioPharma, Inc.)

Notes to Combined Financial Statements (Continued)

5. Collaborative Arrangements (Continued)

        We determined that all elements under the collaboration agreement should be accounted for as a single unit of accounting under EITF Issue No. 00-21. As we have continuing obligations under the collaboration agreement, and as significant development risk remains, we recorded the $40.0 million upfront license fee as deferred revenue, and we are recognizing this amount over the respective development periods of the antibodies, ranging from six to eight years.

        During 2007, 2006 and 2005, we recognized revenues of $17.4 million, $18.1 million and $11.2 million, respectively, under these arrangements with Biogen Idec.

         Roche.    Effective October 2003, we entered into an Amended and Restated Worldwide Agreement (the 2003 Worldwide Agreement) with Roche under which we paid $80 million to Roche in consideration of Roche's license to us of intellectual property related to daclizumab for use in autoimmune and other indications other than transplant indications. Roche retained rights to daclizumab in transplant indications, including the right to market and sell Zenapax (daclizumab) for the prevention of acute organ rejection in patients receiving kidney transplants. Under the Amended and Restated Worldwide Agreement, we had the right to terminate our license to Roche in consideration of a fee payable to Roche (the reversion right). Of the $80 million that we paid to Roche, we recorded a charge to acquired in-process research and development totaling approximately $48.2 million, representing technology that had not yet reached technological feasibility and that had no known future alternative uses. In particular, this amount related to the rights to autoimmune indications for daclizumab that we were developing and testing in clinical studies at that time, specifically to treat asthma and ulcerative colitis. We capitalized the remaining amount of $31.8 million, $16.0 million of which related to the daclizumab core technology, and $15.8 million of which related to the reversion option. We are amortizing the value of the core technology over the term of the patents underlying the acquired technology, and in the fourth quarter of 2005, we wrote off the entire remaining value of the reversion option in connection with our entrance into the Second Amended and Restated Worldwide Agreement with Roche in October 2005 because we agreed to not exercise the reversion option (see below).

        In September 2004, we entered into a Co-Development and Commercialization Agreement with Roche for the joint development and commercialization of daclizumab for the treatment of asthma and other respiratory diseases (the Asthma Collaboration).

        In October 2005, we and Roche entered into the Second Amended and Restated Worldwide Agreement (the 2005 Worldwide Agreement), which amended and restated the 2003 Worldwide Agreement. Pursuant to the 2005 Worldwide Agreement, we acquired all of Roche's remaining rights to daclizumab subject to Roche's exclusive right to continue to commercialize daclizumab under the trademark Zenapax® for the prevention of acute organ rejection in patients undergoing kidney transplants. In consideration, we agreed to relinquish our reversion right we had held under the Amended and Restated Worldwide Agreement. As a result, during the fourth quarter of 2005, we wrote off the carrying value of the reversion right of $15.8 million. The 2005 Worldwide Agreement also provided that Roche will only be obligated to pay us royalties on sales of Zenapax antibody above a threshold level, which we do not expect to be reached based on our current expectations. As a result, we do not expect to receive royalties from Roche under the 2005 Worldwide Agreement.

F-19

Biotech Spinco, Inc.
(Biotechnology Business of PDL BioPharma, Inc.)

Notes to Combined Financial Statements (Continued)

5. Collaborative Arrangements (Continued)

        Also in October 2005, we and Roche entered into the Amended and Restated Co-Development and Commercialization Agreement (the Roche Co-Development Agreement), which broadened the scope of the Asthma Collaboration to include the joint development and commercialization of daclizumab for transplant indications, with an emphasis on transplant maintenance.

        In August 2006, Roche elected to discontinue its involvement in the Asthma Collaboration under the Roche Co-Development Agreement. On that date, as we had no further obligations to Roche under this arrangement, we recognized approximately $18.8 million in deferred license, collaboration and other revenues related to unearned amounts that we had received from Roche specifically related to the Asthma Collaboration that would otherwise been deferred to future periods had the termination not occured. In November 2006, we earned and received from Roche a final $5.0 million milestone payment under the Asthma Collaboration, which we recognized as license, collaboration and other revenues in the fourth quarter of 2006.

        In November 2006, Roche also notified us that it had elected to terminate the Roche Co-Development Agreement under which we were also co-developing daclizumab for transplant indications, with an emphasis on transplant maintenance (the Transplant Collaboration). As a result of the termination of the Asthma Collaboration and the termination of the Roche Co-Development Agreement, we will not receive any further milestone payments related to the Asthma Collaboration or the Transplant Collaboration; however, we continued to recognize unearned amounts under the Transplant Collaboration through the date of the termination of the Roche Co-Development Agreement in April 2007. During the fourth quarter of 2006, we recognized approximately $1.7 million in previously deferred revenues that would have otherwise been deferred to future periods had the termination not occurred.

        During 2007, 2006 and 2005, we recognized revenues of $7.2 million, $30.8 million and $15.9 million, respectively, under these arrangements with Roche. Of the total revenues in 2006 and 2005 recognized under agreements with Roche, $0.4 million and $7.7 million, respectively, represented royalties on the sale of Zenapax.

6. Gain on Sale of Assets

        In March 2008, we sold our Minnesota manufacturing facility and related operations to Genmab for total cash proceeds of $240 million. Under the terms of the purchase agreement, Genmab acquired our manufacturing and related administrative facilities in Brooklyn Park, Minnesota, and related assets therein, and assumed certain of our lease obligations related to our facilities in Plymouth, Minnesota (together, the Manufacturing Assets). In connection with the sale of the Manufacturing Assets, we entered into an agreement with Genmab under which we and Genmab will each provide transition services to the other through March 2009.

        We recognized a pre-tax gain of $49.7 million upon the close of the sale in March 2008. Such gain represents the $240 million in gross proceeds, less the net book value of the underlying assets transferred of $185.4 million and $4.9 million in transaction costs and other charges.

        In addition, to fulfill our clinical manufacturing needs in the near-term, we entered into a clinical supply agreement with Genmab that became effective upon the close of the transaction. Under the

F-20

Biotech Spinco, Inc.
(Biotechnology Business of PDL BioPharma, Inc.)

Notes to Combined Financial Statements (Continued)

6. Gain on Sale of Assets (Continued)

terms of the clinical supply agreement, Genmab agreed to produce clinical trial material for certain of our pipeline products until March 2010.

7. Restructuring and Other Charges

Manufacturing Restructuring

        In August 2007, in connection with a months-long evaluation of strategic alternatives that PDL's management and the Board conducted, PDL announced a strategic change to focus its business on the discovery and development of novel antibodies in oncology and select immunologic diseases. As a result of this new strategic focus, PDL communicated its intent to sell certain of its assets that were not aligned with this new strategic direction. In addition, PDL announced its plans to conduct a thorough review of its organization, where it anticipated a sizeable workforce reduction, to ensure that its structure and scope of operations were appropriately aligned with its new strategy.

        In late September 2007, PDL's Board formally approved a workforce reduction related to our former manufacturing operations. During the third quarter of 2007, PDL informed employees that any employees terminated in a reduction would be eligible for a package consisting of severance payments of generally 12 weeks of salary and medical benefits and up to three months of outplacement services. In early October 2007, PDL notified the 104 individuals affected by this workforce reduction, and all impacted employees were provided 60 days advance notice of the date their employment would terminate. In 2007, PDL recognized restructuring charges related to this workforce reduction of $3.6 million, consisting of $2.4 million in post-termination severance costs, $0.3 million of 401(k) matching payments and $0.9 million of salary and bonus accruals relating to the portion of the 60-day notice period over which the terminated employees would not be providing services related to the Biotechnology Business. In 2007, all actions under this restructuring plan were completed and substantially all payments were made.

Facilities-related Restructuring

        During the third quarter of 2007, we initiated our move from our prior corporate headquarters in Fremont, California to our new location in Redwood City, California. In connection with this move, we ceased use of a portion of the leased property in Fremont, California and, as a result, we recognized a restructuring charge of approximately $1.3 million. We paid all obligations relating to these leases by the end of the first quarter of 2008, when the leases on these facilities terminated.

        In addition, during 2007, we ceased use of two of our leased facilities in Plymouth, Minnesota. During 2007, we recognized restructuring charges of $1.8 million related to these leased facilities. In connection with the sale of our Manufacturing Assets in March 2008, Genmab assumed our obligations for one of these two facilities. We expect to pay all obligations accrued relating to the remaining lease by the end of the first quarter of 2009.

Company-wide Restructuring

        In an effort to reduce our operating costs to a level more consistent with a biotechnology company focused on antibody discovery and development, in March 2008, we commenced a restructuring plan pursuant to which we eliminated approximately 120 employment positions and would eliminate

F-21

Biotech Spinco, Inc.
(Biotechnology Business of PDL BioPharma, Inc.)

Notes to Combined Financial Statements (Continued)

7. Restructuring and Other Charges (Continued)

approximately 130 additional employment positions over the subsequent 12 months. All impacted employees were notified in March 2008. Subsequent to the completion of the restructuring, we expect to have approximately 300 employees.

        Employees terminated in connection with the restructuring are eligible for a package consisting of severance payments of generally 12 weeks of salary and medical benefits along with up to three months of outplacement services. During the first quarter of 2008, we recognized restructuring charges of $5.5 million consisting of post-termination severance costs as well as salary accruals relating to the portion of the 60-day notice period over which the terminated employees would not be providing services to the Company.

        The following table summarizes the restructuring activity discussed above, as well as the remaining reserve balance at March 31, 2008:

(In thousands)		Personnel Costs			Facilities Related			Total
Balance at December 31, 2006		$	—		$	—		$	—
	Restructuring charges		3,616			3,052			6,668
	Payments		(3,205	)		(1,195	)		(4,400	)
	Other		—			55			55
Balance at December 31, 2007			411			1,912			2,323
	Restructuring charges (unaudited)		5,465			82			5,547
	Payments (unaudited)		(377	)		(1,266	)		(1,643	)
Balance at March 31, 2008 (unaudited)		$	5,499		$	728		$	6,227

Other Charges

        During the fourth quarter of 2007, we put severance arrangements in place for several of our executives. The expense related to these severance arrangements equaled $2.1 million, which was recognized in the fourth quarter of 2007 in general and administrative expenses. We expect to pay all amounts due under these arrangements by the end of 2008.

8. Asset Impairment Charges

        On June 30, 2007, management committed to a plan to sell two buildings that comprised part of our prior corporate headquarters in Fremont, California. Based on market value information we had at the time, we concluded that the net carrying value of the assets was impaired as of June 30, 2007, and we recognized an impairment charge of $5.0 million to reduce the net carrying value of the assets to $20.6 million, which was our estimate of fair value, less cost to sell. The sale of these two buildings closed in October 2007 on terms consistent with those expected and, as a result, no significant gain or loss on the sale was recognized at the time of sale.

        In June 2006, we concluded that the carrying amount of the licensed research technology acquired from Morphotek Inc. in 2004 was impaired because we abandoned the related technology associated with our research projects. Accordingly, we recorded an impairment charge of $0.9 million, representing the unamortized balance prior to the impairment assessment, during the second quarter of 2006.

F-22

Biotech Spinco, Inc.
(Biotechnology Business of PDL BioPharma, Inc.)

Notes to Combined Financial Statements (Continued)

8. Asset Impairment Charges (Continued)

        In October 2005, pursuant to the terms of the 2005 Worldwide Agreement with Roche, we agreed to relinquish our reversion right we had held under the Amended and Restated Worldwide Agreement. As a result, during the fourth quarter of 2005, we wrote off the carrying value of the reversion right of $15.8 million. See Note 5 for details about our arrangements with Roche.

9. Restricted Cash

        As of March 31, 2008, December 31, 2007 and December 31, 2006, we had a total of $18.3 million, $28.3 million and $18.3 million of restricted cash, respectively. As of March 31, 2008, December 31, 2007 and December 31, 2006, $15.0 million, $25.0 million and $15.0 million of the restricted cash, respectively, supported letters of credit on which our landlord and construction contractor could have drawn if we had not fulfilled our obligations with respect to the construction of certain leasehold improvements to our Redwood City, California, facility. This letter of credit is scheduled to expire in November 2008. The remaining $3.3 million of long-term restricted cash supports letters of credit serving as a security deposit for our Redwood City, California leases.

10. Land, Property and Equipment

        Land, property, and equipment consisted of the following:

		December 31,						March 31,
(In thousands)		2007			2006			2008
								(unaudited)
Land		$	7,778		$	14,717		$	—
Buildings and improvements			179,261			178,624			26,665
Leasehold improvements			86,408			22,856			82,568
Laboratory and manufacturing equipment			75,578			77,709			25,425
Construction-in-process			5,401			42,398			3,162
Computer and office equipment			37,623			30,218			25,215
Furniture and fixtures			5,102			4,393			2,610
	Gross land, property and equipment		397,151			370,915			165,645
Less: accumulated depreciation and amortization			(71,182	)		(81,583	)		(35,323	)
	Land, property and equipment, net	$	325,969		$	289,332		$	130,322

        We began moving our corporate headquarters to Redwood City, California in September 2007 and completed the move by the end of 2007. In October 2007, we closed on the sale of property that we had owned in Fremont, California, which was part of our former corporate headquarters. In connection with the sale of this property in Fremont, which closed in the fourth quarter of 2007, we received gross proceeds of $20.9 million and, after repaying the underlying mortgage and other closing costs, our net proceeds from the sale were $13.2 million.

        In March 2008, we sold our Minnesota manufacturing facility and related operations to Genmab for total cash proceeds of $240 million. Under the terms of the purchase agreement, Genmab acquired our manufacturing and related administrative facilities in Brooklyn Park, Minnesota, and related assets

F-23

Biotech Spinco, Inc.
(Biotechnology Business of PDL BioPharma, Inc.)

Notes to Combined Financial Statements (Continued)

10. Land, Property and Equipment (Continued)

therein, and assumed certain of our lease obligations related to our facilities in Plymouth, Minnesota. See Note 6 for details about the sale of our Minnesota manufacturing facility.

11. Intangible Assets

        Intangible assets consisted of the following:

		December 31, 2007							December 31, 2006
(In thousands)		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Core technology		$	16,053	$	(6,997	)	$	9,056	$	16,053	$	(5,351	)	$	10,702
Assembled workforce			1,410		(1,410	)		—		1,410		(1,410	)		—
	Net intangible assets	$	17,463	$	(8,407	)	$	9,056	$	17,463	$	(6,761	)	$	10,702

        Amortization expense for our core technology and assembled workforce intangible assets was included in research and development and general and administrative expenses during the years ended December 31, 2007, 2006 and 2005, and was $1.6 million, $1.8 million and $2.1 million, respectively. For our core technology intangible asset, the expected future annual amortization expense is as follows:

(In thousands) For the year ending December 31,		Core Technology
2008		$	1,647
2009			1,647
2010			1,647
2011			1,647
2012			1,647
Thereafter			821
	Total amortization expense	$	9,056

12. Accrued Liabilities

        Other accrued liabilities consisted of the following:

		December 31,
						March 31, 2008
(In thousands)		2007		2006
						(unaudited)
Consulting and services		$	5,619	$	6,793	$	4,073
Restructuring			2,323		—		6,227
Accrued clinical and pre-clinical trial costs			5,653		11,513		4,050
Construction-in-process			2,288		3,294		—
Other			2,357		309		4,417
	Total	$	18,240	$	21,909	$	18,767

F-24

Biotech Spinco, Inc.
(Biotechnology Business of PDL BioPharma, Inc.)

Notes to Combined Financial Statements (Continued)

13. Postretirement Benefit Plan

        In June 2003, PDL established a postretirement health care plan (the Plan), which covers medical, dental and vision coverage for certain of our former officers and their dependents. Coverage for eligible retirees is noncontributory, but retirees are required to contribute 25% of dependent premium cost. In addition, coverage under the Plan ceases when participants become eligible for Medicare benefits.

        In December 2006, we adopted SFAS No. 158 which required us to recognize the funded status of the Plan in our Combined Balance Sheets, which was a liability of $1.7 million at both December 31, 2007 and December 31, 2006. The following table illustrates the incremental effect of applying SFAS No. 158 on individual line items in our Combined Balance Sheet as of December 31, 2006:

(In thousands)	Before Application of SFAS 158			Adjustments			After Application of SFAS 158
Other long-term liabilities	$	36,671		$	858		$	37,529
Total liabilities	$	673,494		$	858		$	674,352
Accumulated other comprehensive loss	$	(468	)	$	(858	)	$	(1,326	)
Total parent company equity	$	468,399		$	(858	)	$	467,541

        The following table sets forth the change in benefit obligation for the Plan:

			December 31,
(In thousands)			2007			2006
Accumulated postretirement benefit obligation at beginning of year			$	1,706		$	1,794
	Service cost			164			148
	Interest cost			96			97
	Actuarial gain			(233	)		(263	)
	Plan participants' contributions			12			11
	Benefits paid			(87	)		(81	)
		Accumulated postretirement benefit obligation at end of year	$	1,658		$	1,706

        We calculated the accumulated postretirement benefit obligation using an assumed discount rate of 5.8% for the years ended December 31, 2007 and 2006. In 2007 and 2006, we assumed the rate of increase in per capita costs of covered health care benefits would increase to 8%, decreasing gradually to 5.5%, for both assumptions by the end of year 2010.

        As of December 31, 2007, the amounts recognized in our Combined Balance Sheets are as follows:

		December 31,
(In thousands)		2007		2006
Other accrued liabilities		$	72	$	81
Other long-term liabilities			1,586		1,625
	Net liability recognized	$	1,658	$	1,706

F-25

Biotech Spinco, Inc.
(Biotechnology Business of PDL BioPharma, Inc.)

Notes to Combined Financial Statements (Continued)

13. Postretirement Benefit Plan (Continued)

        Net periodic benefit cost for the Plan consists of the following:

		December 31,
(In thousands)		2007		2006		2005
Service cost		$	164	$	148	$	109
Interest cost			96		97		72
Amortization of prior service cost			74		74		74
Amortization of net (gain) loss			11		36		8
	Net periodic benefit cost	$	345	$	355	$	263

        Assumed health care trend rates could have a significant effect on the amounts reported for healthcare plans. A one-percentage-point change in assumed health care cost trend rate would have the following effects:

(In thousands)	One percentage point increase		One percentage point decrease
Effect on accumulated postretirement benefit obligation as of December 31, 2007	$	148	$	(132	)
Effect on total of service and interest cost in 2007	$	31	$	(27	)

        In connection with the Plan, we expect to pay health care net premiums aggregating $0.3 million during the years 2008 through 2011 and $0.5 million during the years 2012 through 2017.

        The following table sets forth the amounts of net actuarial loss and prior service cost which have been recognized in other comprehensive income but which have not yet been recognized as components of net periodic benefit cost:

		December 31,
(In thousands)		2007		2006
Net actuarial loss		$	63	$	308
Prior service cost			476		550
	Amount recognized in accumulated other comprehensive income	$	539	$	858

        Of these amounts, we expect to recognize approximately $74,000 of prior service cost as the components of net periodic benefit cost in 2008.

14. Non-Monetary Transaction

        In January 2008, we and Biogen Idec entered into an exclusive worldwide licensing agreement with Ophthotech Corporation (Ophthotech), a privately held company, for an anti-angiogenesis antibody to treat age-related macular degeneration (AMD). Under the terms of the agreement, we and Biogen Idec have granted Ophthotech worldwide development and commercial rights to all ophthalmic uses of volociximab (M200). In addition, we and Biogen Idec have an obligation to supply both clinical and commercial M200 product to Ophthotech. In connection with this agreement, we received an equity

F-26

Biotech Spinco, Inc.
(Biotechnology Business of PDL BioPharma, Inc.)

Notes to Combined Financial Statements (Continued)

14. Non-Monetary Transaction (Continued)

position in Ophthotech, and we may receive a combination of development and commercial milestone payments and royalties on future product sales.

        We have estimated the fair value of the nonmarketable equity instruments received based predominately upon the price of similar Ophthotech equity instruments that Ophthotech had recently sold to independent parties for cash consideration. Based on this approach, we have estimated the fair value of our equity position to be $1.8 million, which we recorded in other assets on our Combined Balance Sheet as of March 31, 2008.

        For the purposes of revenue recognition, we are treating the grant of the license and the manufacturing obligation as a single unit of accounting. Because we are currently unable to estimate the time period over which we are obligated to supply the M200 product for clinical and commercial purposes, we have not recognized any revenue under the agreement. We have recorded the fair value of the consideration received as long-term deferred revenue as of March 31, 2008. We do not intend to recognize any revenue related to this agreement until such point that we are able to reasonably estimate the date at which our obligation will end.

15. Commitments and Contingencies

Commitments

Operating Leases

        We occupy leased facilities under agreements that have expiration dates between 2008 and 2021. We also have leased certain office equipment under operating leases. Rental expense under these arrangements totaled $8.5 million, $5.0 million, and $3.8 million for the years ended December 31, 2007, 2006 and 2005, respectively. Future payments under non-cancelable operating leases as of December 31, 2007, are as follows:

For the year ending December 31,	(In thousands)
2008	$	4,368
2009		3,897
2010		3,607
2011		3,466
2012		3,464
Thereafter		63,309
	$	82,111

Lease Financing Obligation

        In July 2006, PDL entered into agreements to lease two buildings in Redwood City, California, to serve as our corporate headquarters, and as part of the Separation Agreement, we expect these leases will be assigned to us. The underlying lease term for these facilities is 15 years, and we have options to extend the terms of our leases for up to ten years to December 2031. We took possession of these buildings during the fourth quarter of 2006, constructed leasehold improvements for both buildings, and completed our move into the buildings by the end of 2007. The larger of the two buildings, the

F-27

Biotech Spinco, Inc.
(Biotechnology Business of PDL BioPharma, Inc.)

Notes to Combined Financial Statements (Continued)

15. Commitments and Contingencies (Continued)

Administration Building, will primarily serve as general office space, while the other will serve as our principal laboratory space (Lab Building). Future payments related to the Administration Building are included in the disclosure of operating leases above.

        Significant leasehold improvements were performed for the Lab Building, which had never been occupied or improved for occupancy. Due to our involvement in and assumed risk during the construction period, as well as the nature of the leasehold improvements for the Lab Building, we were required under Emerging Issues Task Force No. 97-10, "The Effect of Lessee Involvement in Asset Construction," to reflect the lease of the Lab Building in our financial statements as if we had purchased the building. Therefore, we recorded the fair value of the building and a corresponding long-term financing liability. At December 31, 2007 and 2006, our financing liability related to the Lab Building was approximately $26.9 million and $25.4 million, respectively.

        Future payments for the Lab Building as of December 31, 2007, are as follows:

For the year ending December 31,		(In thousands)
2008		$	3,376
2009			3,494
2010			3,616
2011			3,743
2012			3,874
Thereafter			37,457
Total			55,560
	Less amount representing interest		(15,204	)
	Less amount representing ground rental expense		(13,483	)
	Less amount representing future reimbursement of leasehold improvements		(2,118	)
Present value of future payments		$	24,755

Minimum Purchase Commitments

        At March 31, 2008, we estimated minimum purchase commitments related to our contract manufacturing arrangements for our clinical products to be $25.7 million, of which $25.0 million related to our clinical supply agreement with Genmab. See Note 6 for further details about our agreement with Genmab.

Contingencies

        As permitted under Delaware law, pursuant to the terms of our bylaws, we have agreed to indemnify our officers and directors and, pursuant to the terms of indemnification agreements we expect to enter into, we will agree to indemnify our executive officers and directors for certain events or occurrences, subject to certain limits, while the officer or director is or was serving as an officer or director of the Company. While the maximum amount of potential future indemnification is unlimited, we expect to have a director and officer insurance policy in place before the Spin-off that limits our exposure and may enable us to recover a portion of any future amounts paid. We believe the fair value

F-28

Biotech Spinco, Inc.
(Biotechnology Business of PDL BioPharma, Inc.)

Notes to Combined Financial Statements (Continued)

15. Commitments and Contingencies (Continued)

of these indemnification agreements and bylaw provisions will be minimal, and accordingly, we have not recorded the fair value liability associated with these agreements as of December 31, 2007 or as of March 31, 2008.

        Under the terms of the Separation and Distribution Agreement, we and PDL each will agree to indemnify the other from and after the Spin-off with respect to the indebtedness, liabilities and obligations that will be retained by our respective companies. These indemnification obligations could be significant. The ability to satisfy these indemnities if called upon to do so will depend upon the future financial strength of each of our companies. We cannot determine whether we will have to indemnify PDL for any substantial obligations after the distribution. We also cannot assure you that, if PDL has to indemnify us for any substantial obligations, PDL will have the ability to satisfy those obligations.

16. Long-Term Liabilities

        Our long-term lease financing liability as of December 31, 2007 and 2006 included $26.2 million and $24.7 million, respectively, for the financing obligation related to our Lab Building in Redwood City, California, as discussed in Note 15. Our other long-term liabilities as of December 31, 2007 and 2006 included $1.6 million related to the non-current portion of our accumulated postretirement benefit obligation recognized as of December 31, 2007 and 2006, as discussed in Note 13, and $3.6 million and $0.9 million, respectively, related to the timing difference between straight-line recognition of rent expenses and actual rent payments.

        Additionally, as of December 31, 2006, our long-tem liabilities included $6.2 million related to a $10.2 million term loan which we obtained in September 1999 to purchase certain of our former Fremont, California facilities. The loan bore interest at the rate of 7.64% per year amortized over 15 years with principal and interest payable monthly. During the fourth quarter of 2007, in connection with the sale of these facilities, we paid off the loan in entirety. In connection with the early extinguishment of this debt, we recognized loan defeasance costs of $0.9 million, which is included in other income (expense), net, in the Combined Statement of Operations.

17. Revenues By Geographic Area and Significant Customers

        The following table summarizes revenues from companies who individually accounted for 10% or more of our total revenues (as a percentage of total revenues):

		Years Ended December 31,									Three Months Ended March 31,
		2007			2006			2005			2008			2007
Licensees											(unaudited)
	Biogen Idec		66	%		35	%		39	%		73	%		45	%
	Roche		27	%		60	%		55	%		0	%		55	%
	Abbott Laboratories, Inc.		*			*			*			27	%		*

*

Amount less than 10%

F-29

Biotech Spinco, Inc.
(Biotechnology Business of PDL BioPharma, Inc.)

Notes to Combined Financial Statements (Continued)

17. Revenues By Geographic Area and Significant Customers (Continued)

        Revenues by geographic area are based on the country of domicile of the counterparty to the agreement. The following table summarizes revenues by geographic area:

		Years Ended December 31,						Three Months Ended March 31,
		2007		2006		2005		2008		2007
(In thousands)								(unaudited)
Europe		$	7,229	$	30,776	$	15,904	$	—	$	4,883
United States			19,063		20,641		12,953		3,682		3,928
	Total revenues	$	26,292	$	51,417	$	28,857	$	3,682	$	8,811

18. Income Taxes

        The operations of BioCo were historically included in PDL's consolidated U.S. federal and state income tax returns and in returns of certain PDL foreign subsidiaries. The provision for income taxes for BioCo has been determined as if BioCo had filed tax returns separate and apart from PDL. Income tax expense in 2007, 2006 and 2005 and during the three months ended March 31, 2008 and 2007 related to foreign taxes on income earned by our foreign operations.

        The provision for income taxes for BioCo consisted of the following:

		Years Ended December 31,
(In thousands)		2007		2006		2005
Federal		$	—	$	—	$	—
State			—		—		—
Foreign			123		81		47
	Total provision	$	123	$	81	$	47

        A reconciliation of the income tax provision computed using the U.S. statutory federal income tax rate to the income tax provision included in the statement of operations for BioCo is as follows:

		Years Ended December 31,
(In thousands)		2007			2006			2005
Tax at U.S. statutory rate on loss before income taxes		$	(79,651	)	$	(65,313	)	$	(58,511	)
Unutilized net operating losses			79,651			65,313			58,511
Foreign taxes			123			81			47
	Total	$	123		$	81		$	47

        Federal and state net operating loss, research and other credit carry forwards for the Biotechnology Business have been determined as if BioCo had filed tax returns separate and apart from PDL. However, none of PDL's net operating loss and credit carry forwards will be transferred to BioCo upon the Spin-off as BioCo will be a new company with no net operating loss or credit carry forwards.

F-30

Biotech Spinco, Inc.
(Biotechnology Business of PDL BioPharma, Inc.)

Notes to Combined Financial Statements (Continued)

18. Income Taxes (Continued)

        If BioCo had operated as a separate entity, it would have had federal and state net operating loss carry forwards of $1,366 million and $748 million, respectively, and federal and California state research and other tax credit carry forwards of $36.9 million and $25.3 million, respectively, as of December 31, 2007.

        Deferred income tax assets and liabilities are determined based on the differences between financial reporting and income tax bases of assets and liabilities, as well as net operating loss and credit carry forwards, and are measured using the enacted tax rates and laws in effect when the differences are expected to reverse. The differences between financial reporting and income tax bases of assets and liabilities for BioCo have been determined as if BioCo had filed tax returns separate and apart from PDL. BioCo's tax basis in the assets and liabilities allocated to the Biotechnology Business are equal to PDL's tax basis in the assets at the time of their contribution. The significant components of the net deferred tax assets and liabilities for the Biotechnology Business are as follows:

		December 31,
(In thousands)		2007			2006
Deferred tax assets:
	Net operating loss carryforwards	$	407,615		$	313,084
	Research and other tax credits		37,096			30,864
	Intangible assets		20,651			22,282
	Deferred revenue		12,217			17,590
	Stock-based compensation		9,861			6,641
	Reserves and accruals		6,141			2,067
	Capitalized research and development costs		3,211			4,121
	Other		599			6,029
Total deferred tax assets			497,391			402,678
Valuation allowance			(497,391	)		(402,678	)
	Total deferred tax assets	$	—		$	—

        These deferred tax assets are hypothetical amounts that would have existed if BioCo had operated as a separate company. The actual deferred tax assets will not equal these amounts.

        Due to our lack of earnings history, the net deferred tax assets have been fully offset by a valuation allowance. The valuation allowance increased by $94.7 million and $77.0 million for the years ended December 31, 2007 and 2006, respectively. In addition, the deferred tax asset balances for BioCo at December 31, 2007 and December 31, 2006 did not include excess tax benefits from stock options expenses as a result of PDL's adoption of SFAS No. 123 (R).

        In July 2006, the FASB issued Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" (FIN 48), which was effective for fiscal years beginning after December 15, 2006. On January 1, 2007, PDL adopted the provisions of FIN 48, which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in income tax returns. Unrecognized tax benefits represent tax positions for

F-31

Biotech Spinco, Inc.
(Biotechnology Business of PDL BioPharma, Inc.)

Notes to Combined Financial Statements (Continued)

18. Income Taxes (Continued)

which reserves have been established. A reconciliation of our unrecognized tax benefits, excluding accrued interest, for 2007 is as follows:

(In thousands)
Balance at January 1, 2007		$	8,438
	Increases related to current year tax positions		10,545
Balance at December 31, 2007		$	18,983

        The future impact of the unrecognized tax benefit of $19.0 million, if recognized, would result in adjustments to deferred tax assets and corresponding adjustments to the valuation allowance.

        We had $0 estimated interest and penalties related to the underpayment of income taxes as of December 31, 2007 and March 31, 2008.

        In general, PDL's income tax returns are subject to examination by U.S. federal, state and various local tax authorities for tax years 1993 forward. We do not anticipate any additional unrecognized benefits in the next 12 months that would result in a material change to our financial position.

F-32

QuickLinks

Exhibit 99.1

Table of Contents
Explanatory Note
Summary
Summary Historical Combined Financial Information
Risk Factors
Forward-Looking Statements
The Spin-Off
Dividend Policy
Capitalization
Our Business
Historical Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results of Operations
Our Relationship with PDL after the Spin-Off
Unaudited Pro Forma Condensed Combined Balance Sheet
Biotech Spinco, Inc. (Biotechnology Business of PDL Biopharma) Unaudited Pro Forma Condensed Combined Balance Sheet (In thousands)
Management
Board of Directors
Compensation Discussion and Analysis
Security Ownership of Certain Beneficial Owners and Management
Related Person Transactions
Description of Capital Stock
No Dissenters' Rights
Indemnification of Officers and Directors
Distribution of Information Statement
Where to Obtain More Information
Index to Combined Financial Statements
Report of Independent Registered Public Accounting Firm
Biotech Spinco, Inc. (Biotechnology Business of PDL BioPharma, Inc.) Combined Balance Sheets (In thousands)
Biotech Spinco, Inc. (Biotechnology Business of PDL BioPharma, Inc.) Combined Statements of Operations (In thousands)
Biotech Spinco, Inc. (Biotechnology Business of PDL BioPharma, Inc.) Combined Statements of Cash Flows (In thousands)
Biotech Spinco, Inc. (Biotechnology Business of PDL BioPharma, Inc.) Combined Statements of Changes in Parent Company Equity (In thousands)
Biotech Spinco, Inc. (Biotechnology Business of PDL BioPharma, Inc.) Notes to Combined Financial Statements

COVER

	DLA Piper US LLP 153 Townsend Street, Suite 800 San Francisco, California  94107-1957 www.dlapiper.com
	J. Howard Clowes howard.clowes@dlapiper.com T   415.836.2510 F   415.659.7410

August 13, 2008

VIA EDGAR

Filing Clerk

U.S. Securities and Exchange Commission

Division of Corporation Finance

450 Fifth Street, N.W.

Washington, D.C. 20549

Re:	Biotech Spinco, Inc.
	CIK No. 0001441848
	Registration Statement on Form 10

Ladies and Gentlemen:

On behalf of our client, Biotech Spinco, Inc., a Delaware corporation (the “Company”), enclosed please find a Registration Statement on Form 10 filed in connection with the proposed registration of the common stock of the Company under Section 12(b) of the Securities Exchange Act of 1934, as amended.

If you have any questions, please contact me at (415) 836-2510 or Eric Wang at (650) 833-2106.

Very truly yours,

DLA Piper US LLP

/s/ J. Howard Clowes

J. Howard Clowes

Enclosures

cc:	Andrew Guggenhime, Biotech Spinco, Inc.
	Francis Sarena, Biotech Spinco, Inc.