-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H6PS8psaQV6JgGhKzVNYBYjtq9jMmTzH1xpLRCPiF3maNviiKm2hmAu1CmY953DY gdsC1ag5Z5yP6i2WxBGWhA== /in/edgar/work/0000912057-00-049123/0000912057-00-049123.txt : 20001114 0000912057-00-049123.hdr.sgml : 20001114 ACCESSION NUMBER: 0000912057-00-049123 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ABGENIX INC CENTRAL INDEX KEY: 0001052837 STANDARD INDUSTRIAL CLASSIFICATION: [2836 ] IRS NUMBER: 943248826 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-24207 FILM NUMBER: 761185 BUSINESS ADDRESS: STREET 1: 7601 DUMBARTON CIRCLE CITY: FREMONT STATE: CA ZIP: 94555 BUSINESS PHONE: 5106086500 MAIL ADDRESS: STREET 1: 7601 DUMBARTON CIRCLE CITY: FREMONT STATE: CA ZIP: 94555 10-Q 1 a2030181z10-q.txt FORM 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------- FORM 10-Q --------- (Mark One) |X| Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the period ended September 30, 2000 OR |_| Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission file number: 000-24207 ABGENIX, INC. (Exact name of registrant as specified in its charter) DELAWARE 94-3248826 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 7601 Dumbarton Circle Fremont, California 94555 (Address of principal executive offices) Telephone Number (510) 608-6500 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| As of October 31, 2000 there were 81,744,311 shares of the Registrant's Common Stock outstanding. ================================================================================ ABGENIX, INC. Form 10-Q INDEX
Page No. -------- PART I - Financial Information ITEM 1 - Financial Statements Condensed Consolidated Balance Sheets - September 30, 2000 and December 31, 1999 ........... 3 Condensed Consolidated Statements of Operations - Three months and nine months ended September 30, 2000 and September 30, 1999 .............................................. 4 Condensed Consolidated Statements of Cash Flows - Nine months ended September 30, 2000 and September 30, 1999 .................................................. 5 Notes to Condensed Consolidated Financial Statements ....................................... 6 ITEM 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations ............................................................. 12 ITEM 3 - Quantitative and Qualitative Disclosures about Market Risk ........................ 36 PART II - Other Information ITEM 1 - Legal Proceedings ................................................................. 37 ITEM 2 - Changes in Securities and Use of Proceeds ......................................... 37 ITEM 3 - Defaults upon Senior Securities ................................................... 37 ITEM 4 - Submission of Matters to a Vote of Security Holders ............................... 37 ITEM 5 - Other Information ................................................................. 37 ITEM 6 - Exhibits and Reports on Form 8-K .................................................. 62 SIGNATURES .................................................................................... 64
2 ABGENIX, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data)
September 30, December 31, 2000 1999 ------------- ------------ Unaudited ASSETS Current assets: Cash and cash equivalents $ 107,516 $ 13,366 Marketable securities 437,825 43,543 Interest receivable 7,482 1,103 Accounts receivable 1,126 4,150 Prepaid expenses and other current assets 9,269 4,861 --------- --------- Total current assets 563,218 67,023 Property and equipment, net 7,585 5,300 Long-term investments 71,639 29,225 Intangible assets, net 44,261 46,591 Deposits and other assets 703 402 --------- --------- $ 687,406 $ 148,541 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 5,603 $ 1,705 Deferred revenue 14,405 3,767 Accrued product development costs 233 1,667 Accrued employee benefits 1,524 1,287 Other accrued liabilities 1,418 725 Current portion of long-term debt 447 1,759 --------- --------- Total current liabilities 23,630 10,910 Deferred rent 406 150 Long-term debt -- 421 Commitments Stockholders' equity: Preferred stock, $.0001 par value; 5,000,000 shares authorized, none issued and outstanding Common stock, $0.0001 par value; 220,000,000 shares authorized, 81,607,172 and 68,669,092 shares issued and outstanding at September 30, 2000 and December 31, 1999, respectively, at amount paid in 683,317 181,263 Additional paid-in capital 32,849 32,254 Deferred compensation (325) (670) Accumulated other comprehensive income 41,627 14,013 Accumulated deficit (94,098) (89,800) --------- --------- Total stockholders' equity 663,370 137,060 --------- --------- $ 687,406 $ 148,541 ========= =========
See accompanying notes. 3 ABGENIX, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, ----------------------- ------------------------ 2000 1999 2000 1999 -------- -------- -------- -------- Revenues: Contract revenue $ 7,634 $ 3,670 $ 13,077 $ 5,390 Interest income 9,213 762 22,334 1,954 -------- -------- -------- -------- Total revenues 16,847 4,432 35,411 7,344 Costs and expenses: Research and development 12,784 4,493 31,910 14,371 General and administrative 1,762 1,134 5,152 3,428 Amortization of intangible assets 777 -- 2,330 -- Equity in income from the Xenotech joint venture -- (18) -- (558) Interest expense 17 102 317 347 -------- -------- -------- -------- Total costs and expenses 15,340 5,711 39,709 17,588 -------- -------- -------- -------- Net income (loss) $ 1,507 $ (1,279) $ (4,298) $(10,244) ======== ======== ======== ======== Basic net income (loss) per share $ 0.02 $ (0.02) $ (0.05) $ (0.18) ======== ======== ======== ======== Shares used in computing basic net income (loss) per share 81,323 60,092 78,799 56,196 ======== ======== ======== ======== Diluted net income (loss) per share $ 0.02 $ (0.02) $ (0.05) $ (0.18) ======== ======== ======== ======== Shares used in computing diluted net income (loss) per share 88,611 60,092 78,799 56,196 ======== ======== ======== ========
See accompanying notes. 4 ABGENIX, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Nine Months ended September 30, --------------------------------- 2000 1999 --------- --------- Operating activities: Net loss $ (4,298) $ (10,244) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Equity in income of Xenotech -- (558) Depreciation and amortization 3,822 1,257 Stock-based compensation related to stock options issued to consultants 595 638 Changes for certain assets and liabilities: Interest receivable (6,379) (430) Accounts receivable 3,024 (642) Prepaid expenses and other current assets (4,408) (2,802) Deposits and other assets (315) 100 Accounts payable 3,898 273 Deferred revenue 10,638 (300) Accrued product development costs (1,434) (299) Other accrued liabilities 930 445 Deferred rent 256 -- --------- --------- Net cash provided by (used in) operating activities 6,329 (12,562) --------- --------- Investing activities: Purchases of marketable securities (803,708) (58,807) Sales of marketable securities 394,626 22,774 Capital expenditures (3,418) (424) --------- --------- Net cash used in investing activities (412,500) (36,457) --------- --------- Financing activities: Net proceeds from issuances of common stock 502,054 53,123 Payments on long-term debt (1,733) (1,268) --------- --------- Net cash provided by financing activities 500,321 51,855 --------- --------- Net increase in cash and cash equivalents 94,150 2,836 Cash and cash equivalents at the beginning of the period 13,366 1,415 --------- --------- Cash and cash equivalents at the end of the period $ 107,516 $ 4,251 ========= =========
See accompanying notes. 5 ABGENIX, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2000 1. Basis of Presentation and Summary of Significant Accounting Policies Basis of Presentation - The unaudited condensed financial statements of Abgenix, Inc. (the "Company" or "Abgenix") included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information or footnote disclosure normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. In the opinion of the Company, the accompanying unaudited condensed financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial information included therein. These financial statements should be read in conjunction with the audited financial statements for the year ended December 31, 1999 and accompanying notes included in the Company's Annual Report as filed on Form 10-K with the Securities and Exchange Commission on March 28, 2000. The results of operations for the quarter and nine months ended September 30, 2000 are not necessarily indicative of the results to be expected for the full year or for any other future period. Revenue Recognition - In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101--Revenue Recognition in Financial Statements ("SAB 101"), which provides guidance on the accounting for revenue recognition. The Company is currently evaluating the applicability of SAB 101 to its existing agreements. Should the Company conclude that its approach is different from the approach described in SAB 101, it will change its method of accounting. As amended, SAB 101 is required to be implemented no later than the fourth fiscal quarter of 2000, for companies with fiscal years beginning between December 16, 1999 and March 15, 2000. The Company receives payments from customers for licenses, options and services. These payments are generally non-refundable but are reported as deferred revenue until they are recognizable as revenue. The Company has followed the following principles in recognizing revenue: - Research license fees: Fees to license the use of XenoMouse in research performed by the customer are generally recognized when both the inception of the license period and delivery of the technology have occurred. If Abgenix is obligated to provide significant assistance to enable the customer to practice the license, then the revenue is recognized over the period of such obligation. - Product license fees: Fees to license the production, use and sale of an antibody generated by XenoMouse are generally recognized when both the inception of the license period and delivery of the technology have occurred. If Abgenix is obligated to provide significant assistance to enable the customer to practice the license, then the revenue is recognized over the period of such obligation. - Option fees: Fees for granting options to obtain product licenses are recognized as revenue when the option is exercised or when the option period expires, whichever occurs first. - Payments for research services performed by Abgenix are recognized ratably over the period during which these services are performed. - Milestone payments are recognized as revenue when the milestone is achieved. Two-for-One Stock Splits - The accompanying financial statements have been restated to reflect both a two-for-one common stock split effective on April 6, 2000 and a two-for-one common stock split effective on July 7, 2000. 6 Earnings per Share A reconciliation of the shares used in the computation of the company's basic and diluted earnings per common share is as follows (in thousands): Three Months Ended Nine Months Ended September 30, September 30, ------------------ ------------------ 2000 1999 2000 1999 ------ ------ ------ ------ Weighted average common shares outstanding 81,323 60,092 78,799 56,196 Dilutive effect of employee stock options 7,288 -- -- -- ------ ------ ------ ------ Weighted average common shares outstanding, assuming dilution 88,611 60,092 78,799 56,196 ====== ====== ====== ====== Weighted average common shares outstanding, assuming dilution, includes the incremental shares that would be issued upon the assumed exercise of stock options. Certain of the company's stock options were excluded from the calculation of diluted earnings per share because they were antidilutive, but these options could be dilutive in the future. 2. Marketable Securities The following is a summary of marketable securities at September 30, 2000 and December 31, 1999:
----------------------------------------- ---------------------------------------- As of September 30, 2000 As of December 31, 1999 ----------------------------------------- ---------------------------------------- Amortized Unrealized Estimated Amortized Unrealized Estimated Cost Gain/(Loss) Fair Value Cost Gain/(Loss) Fair Value --------- ---------- ---------- --------- ----------- ---------- (in thousands) (in thousands) Commercial obligations ...................... $ 32,039 $ (25) $ 32,014 $ 22,277 $ (73) $ 22,204 Commercial paper ............................ 505,760 39 505,799 15,358 10 15,368 Obligations of the U.S. government and its agencies ........................... 5,999 (26) 5,973 17,271 (149) 17,122 Marketable equity securities ................ 30,000 41,639 71,639 15,000 14,225 29,225 --------- --------- --------- --------- --------- --------- Total ....................................... $ 573,798 $ 41,627 $ 615,425 $ 69,906 $ 14,013 $ 83,919 ========= ========= ========= ========= ========= ========= Classified as: Cash equivalents ......................... $ 105,961 $ 11,151 Marketable securities .................... 437,825 43,543 Long-term investments .................... 71,639 29,225 --------- --------- $ 615,425 $ 83,919 ========= ========= The Company's available-for-sale debt securities have the following maturities at September 30, 2000: Due in one year or less ..................... $ 543,786 Due after one year but less than five years.. -- --------- $ 543,786 =========
7 3. Comprehensive Income Other comprehensive gains/(losses) consist of unrealized gains or losses on available-for-sale securities. The components of comprehensive income, net of tax, were as follows (in thousands): Three Months Ended Nine Months Ended September 30, September 30, -------------------- --------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Net income (loss) $ 1,507 $ (1,279) $ (4,298) $(10,244) Increase (decrease) in net unrealized gains on available-for-sale investments 24,887 (180) 27,614 (180) -------- -------- -------- -------- Comprehensive income (loss) $ 26,394 $ (1,459) $ 23,316 $(10,424) ======== ======== ======== ======== 4. Stockholders' Equity and Follow-on Public Offering On February 10, 2000, the Company completed a follow-on public offering in which the Company sold 8,640,000 shares and Cell Genesys sold 3,360,000 shares of the Company's common stock to the public at a price of $52.50 per share. On February 29, 2000 the Company's underwriters exercised their overallotment option to purchase 1,800,000 additional shares, of which 1,296,000 shares were sold by the Company and 504,000 shares were sold by Cell Genesys at a price of $52.50 per share. The Company received net proceeds from the offerings of approximately $496.5 million after the underwriters' discount and costs of offering. In January 2000, Cell Genesys exercised its warrants to purchase 486,668 shares of the Company's stock at an exercise price of $1.50 per share. On May 3, 2000, the Company's stockholders approved an increase to the aggregate number of shares of common stock authorized for issuance under the Company's 1996 Incentive Stock Plan by 1,200,000 shares. On May 3, 2000, the Company's stockholders approved an amendment to the Company's Certificate of Incorporation to increase the authorized number of shares of common stock from 50,000,000 to 100,000,000. On August 23, 2000, the Company's stockholders approved an amendment to the Company's Certificate of Incorporation to increase the authorized number of shares of common stock from 100,000,000 to 220,000,000. 5. Customer and License Agreements Abbott: In May 2000, the Company entered into a collaboration agreement, including an option and research license, with Abbott Laboratories to generate fully human antibodies to disease targets. Under this agreement, Abbott is required to pay the Company to perform the immunizations and certain research activities. Corixa: In March 2000, the Company entered into an agreement to discover and develop fully human antibodies against selected targets from Corixa Corporation's library of proprietary autoimmune disease, cancer and infectious disease antigens. 8 Elan: In January 2000, the Company entered into a research license and option agreement with Elan Pharmaceuticals Inc. to generate fully human antibodies to an undisclosed antigen in the field of neurological diseases. Gliatech: In January 2000, the Company entered into a research agreement, option and license agreement with Gliatech Medical Inc. to generate fully human antibodies for use in the fields of cardiovascular and inflammatory diseases. Under this agreement, Gliatech is required to pay the Company to perform the immunizations and certain research activities. Immunex: In July 2000, the Company entered into a joint development and commercialization agreement with Immunex Corporation, for ABX-EGF, a fully human antibody created by the Company and currently in a Phase I clinical trial involving several tumor types. Under the agreement, Immunex has agreed to make an initial license fee payment to the Company, and a second license fee payment upon commencement of Phase II clinical trials of ABX-EGF. Development costs will be shared equally, as would any potential profits from sales of a targeted product. Payments totaling $5 million were received in the third quarter of 2000 representing the initial license fee. The Company is recognizing this fee ratably each month over the period ended December 31, 2001, which is the period Abgenix is obligated to share in development costs. Accordingly, $0.6 million was recognized as revenue in the quarter ended September 30, 2000. Additionally, Abgenix recognized $0.5 million as revenue, which represents development costs incurred in the third quarter by Abgenix, net of development costs incurred by Immunex. Lexicon: In July 2000, the Company entered into a collaborative agreement with Lexicon Genetics Inc. Under the terms of the agreement, Lexicon agreed to contribute antigen targets that derive from its proprietary portfolio of full-length human genes whose functions are defined using Lexicon's knockout mouse technology. The Company will use its XenoMouse technology to generate fully human antibodies for each of the targets selected by a joint committee. Each party will have the right to obtain exclusive commercialization rights, including sublicensing rights, for an equal number of qualifying antibodies. Each party will receive milestone payments and royalties on sales of antibody drugs from the collaboration that are commercialized by the other party. Millennium: In March 2000, the Company granted Millennium BioTherapeutics, Inc. a license to use XenoMouse in research performed by Millennium and several licenses to make, use and sell antibodies generated with XenoMouse. Payments totaling $10 million were made in the first quarter of 2000 representing a research license fee, product license fees and service fees to establish the technology at Millennium. The Company is recognizing these fees ratably each month over the period ended December 31, 2000 during which Abgenix is obligated to assist in establishing the technology at Millennium, which will enable Millennium to practice the research license and product licenses. Accordingly, $3.0 million was recognized as revenue in the quarter ended September 30, 2000 and $7.0 million was recognized as revenue in the nine months ended September 30, 2000. At September 30, 2000, $3.0 million remained in deferred revenue. The $10 million payment was made in common stock of Millennium, which was subsequently sold in May 2000 shortly after the shares were registered. Millennium was obligated to make up the difference, if any, between the fair value of such stock upon sale and $10 million, and the Company was obligated to pay, and did pay, the excess of the fair value of such stock upon sale and $10 million. SangStat: In August 2000, the Company entered into a joint development and commercialization agreement with SangStat Medical Corporation for ABX-CBL, an antibody developed by the Company 9 and currently in a Phase II/III clinical trial. Under the agreement, SangStat will make an initial license fee payment and additional milestone payments to Abgenix. Development costs will be shared equally, as would any potential profits from sales of collaboration products. Payments totaling $2 million were made in the third quarter of 2000 representing the initial license fee and reimbursement of prior costs. The Company is recognizing these fees ratably each month over the period ended January 31, 2001, which is the period Abgenix is obligated to share in development costs. Accordingly, $0.7 million was recognized as revenue in the quarter ended September 30, 2000. Additionally, Abgenix recognized $0.5 million as revenue, which represents development costs incurred in the third quarter by Abgenix net of development costs incurred by Sangstat, and required to be reimbursed to Abgenix. SmithKline Beecham: In May 2000, the Company entered into a collaboration agreement, including an option and research license with SmithKline Beecham Pharmaceuticals Inc. to generate fully human antibodies to an undisclosed antigen. 6. Other Contractual Obligations In May 2000, the Company entered into an agreement to produce commercial quantities of its fully human antibody, ABX-IL8, using Genzyme Transgenics Corporation's manufacturing system. Under the terms of the agreement, in exchange for fees and milestone payments, Genzyme Transgenics agreed to develop transgenic goats that express ABX-IL8 in their milk. In May 2000, the Company entered into an agreement with a contract manufacturer of its product candidates, to reserve manufacturing capacity by acquiring an option to negotiate a supply agreement, the terms of which are generally outlined in the option agreement. The total amount paid for this agreement was approximately $3.8 million of which $2.3 million was recorded as an expense in research and development and approximately $1.5 million was recorded as a deposit because it is creditable to the supply agreement. If a supply agreement is not entered into, the $3.8 million is generally non-refundable, except under limited circumstances. In September 2000, the Company entered into a collaboration with ImmunoGen providing the Company with access to ImmunoGen's maytansinoid Tumor-Activated Prodrug technology. ImmunoGen will receive $5.0 million in technology access fee payments, as well as potential milestone payments, and royalties on net sales of any resulting products. In addition, Abgenix purchased $15.0 million of ImmunoGen common stock at $19.00 per share. 7. Facility Leases and Letter of Credit In February 2000, the Company signed an operating lease for an additional 100,100 square foot facility to be used primarily for offices. In May 2000, the Company also signed an operating lease for an additional 100,000 square foot facility to be built and used for pilot scale manufacturing. Both leases expire in the year 2015, with options to extend the lease terms. The Company issued a stand-by letter of credit for $2.0 million to the lessor for the lease term, as a condition to the lease. Future minimum payments under these non-cancelable operating leases are as follows (in thousands): 2000--$1,121; 2001--$3,986; 2002--$4,802; 2003--$4,969; 2004--$5,138; and thereafter --$65,509. 10 8. Subsequent Events Acquisitions In November 2000, the Company acquired ImmGenics Pharmaceuticals Inc. in an all-stock transaction. The transaction will be treated as a purchase and the total estimated purchase price including estimated acquisition costs was $77.5 million. In November 2000, the Company acquired IntraImmune Therapies, Inc. in a cash transaction. The transaction will be treated as a purchase and the total estimated purchase price was $9.0 million. Private Placement In November 2000, the Company completed a private placement of 3,300,000 shares of its common stock to accredited investors at a price of $70.00 per share for gross proceeds of $231.0 million. After commissions, the Company received net proceeds of $221.0 million. 11 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" CONTAINS FORWARD-LOOKING STATEMENTS BASED UPON CURRENT EXPECTATIONS THAT INVOLVE RISKS AND UNCERTAINTIES. WHEN USED IN THIS PROSPECTUS, THE WORDS "INTEND," "ANTICIPATE," "BELIEVE," "ESTIMATE," "PLAN" AND "EXPECT" AND SIMILAR EXPRESSIONS AS THEY RELATE TO US ARE INCLUDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. OUR ACTUAL RESULTS AND THE TIMING OF CERTAIN EVENTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS. Overview We are a biopharmaceutical company that develops and intends to commercialize antibody therapeutic products for the treatment of a variety of disease conditions, including transplant-related diseases, inflammatory and autoimmune disorders, cardiovascular disease, infectious diseases and cancer. We have developed XenoMouse technology, a proprietary technology that offers many advantages, including rapid generation of highly specific, fully human antibody product candidates that bind to essentially any disease target appropriate for antibody therapy. In addition, we believe our technology offers advantages in product development and flexibility in manufacturing. We intend to use XenoMouse technology to build a large and diversified product portfolio that we plan to develop and commercialize through licensing to pharmaceutical companies and others, joint development and internal product development programs. We have contractual arrangements with multiple pharmaceutical, biotechnology and genomics companies involving our XenoMouse technology. In addition, we have three proprietary antibody product candidates currently in clinical trials, two of which we recently agreed to co-develop and commercialize with others. Contractual Arrangements As of November 9, 2000, we have entered into contracts to use our XenoMouse technology to produce and/or to develop the resulting fully human antibodies with twenty-three customers covering numerous antigen targets. Pursuant to these contracts, we and our customers intend to generate antibody product candidates for the treatment of cancer, inflammation, autoimmune diseases, transplant rejection, cardiovascular disease, growth factor modulation, neurological diseases and infectious diseases. Our customers as of November 9, 2000 include Abbott Laboratories, Amgen, AVI BioPharma, BASF Bioresearch Corporation, Cell Genesys, Centocor/Johnson and Johnson, Chiron, Corixa, CuraGen, Elan, Genentech, Gliatech, Human Genome Sciences, Immunex, Japan Tobacco, Lexicon Genetics, Millenium, Pfizer, Research Corporation Technologies, SangStat, Schering-Plough, SmithKline Beecham and the U.S. Army. Of these customers, six have entered into new or expanded agreements with us specifying additional antigens for XenoMouse antibody development. Additionally, of the customers with whom we have entered technology license contracts, AVI BioPharma, Japan Tobacco, Millenium, Pfizer and Schering-Plough have entered into product licenses. Furthermore, one of our customers, Pfizer, has begun human clinical trials with a fully human antibody generated with XenoMouse technology. The terms of the arrangements vary, but can generally be categorized as follows: - Antigen Target Sourcing Contracts--Four of our contracts are target sourcing contracts with genomics and biopharmaceutical companies that may enable us to generate a pipeline of proprietary fully human antibody product candidates. Typically, these contracts provide that we make fully human antibodies to the contract parties' antigen targets. There are 12 various mechanisms for each of the parties to evaluate and select antibodies from the pool of generated antibodies for further development and commercialization. The party selecting a product candidate will generally pay to the other, for rights to develop and commercialize such product, license fees, milestone payments and royalty payments on any eventual product sales. - Proprietary Product Licensing--In July and August 2000, we entered into two joint development and commercialization agreements. The first is with Immunex Corporation for ABX-EGF, a fully human antibody created by us. Under the agreement, Immunex agrees to make an initial license fee payment to us and second license fee payment to us upon commencement of Phase II clinical trials of ABX-EGF. Development costs will be shared equally, as would any potential profits from sales of collaboration products. We both share responsibility for product development. We will be responsible for completing the ongoing Phase I trials, and if the Phase I trials are successful, both companies will share responsibility for the execution of Phase II trials across a variety of indications. Immunex will have primary responsibility for Phase III clinical trials and will market any potential product, while we will retain co-promotion rights. The second agreement is with SangStat Medical Corporation for ABX-CBL, an antibody developed by us. Under that agreement, SangStat agrees to make an initial license fee payment to us and additional milestone payments to us. Development costs will be shared equally, as would any potential profits from sales of collaboration products. We both will share responsibility for product development, including the ongoing Phase II/III clinical trials. SangStat will market any potential product and we will be responsible for manufacturing ABX-CBL. We intend to build our product portfolio by generating antibodies to antigen targets that we source, self-funding clinical activities to determine preliminary safety and efficacy and entering into more development and commercialization agreements with pharmaceutical and biotechnology companies. These arrangements may or may not involve joint sharing of costs and profits. - Technology Licensing--These agreements typically provide our customers with access to XenoMouse technology for the purpose of generating fully human antibody product candidates to one or more specific antigen targets provided by the customer. In most cases, we provide our mice to the customers who then carry out immunizations with their specific antigen targets. In other cases, we immunize the mice with the customers' antigen targets for additional compensation. The customer generally has a period of time to acquire product licenses for any antibody product they wish to develop and commercialize, generally referred to as an option. The financial terms of these agreements may include license fees, option fees and milestone payments paid to us by our customers. Based on our agreements, these payments and fees would average $8.0 to $10.0 million per antigen target if our customer takes the antibody product candidate into development and ultimately to commercialization. Additionally, we are entitled to receive royalties on any future product sales by the customer. Proprietary Products We have three antibody product candidates that are currently in clinical trials, as follows: - ABX-IL8--Generated using XenoMouse technology, ABX-IL8 is our fully human antibody candidate for the treatment of psoriasis. We completed Phase I and Phase I/II clinical trials and initiated Phase II clinical trials in April 2000 in which enrollment is ongoing. - ABX-EGF--Generated using XenoMouse technology, ABX-EGF is our fully human antibody candidate for the treatment of a variety of cancers. We initiated a Phase I clinical trial for 13 ABX-EGF in cancer in 1999 in which enrollment is ongoing. In July 2000, we entered the joint development and commercialization agreement with Immunex Corporation for ABX-EGF, as described above. - ABX-CBL--An in-licensed mouse antibody, we developed ABX-CBL for the treatment of a transplant-related disease known as graft versus host disease, or GVHD. We completed a multi-center Phase II clinical trial for ABX-CBL and initiated a Phase II/III clinical trial in December 1999 in which enrollment is ongoing. In August 2000, we entered into the joint development and commercialization agreement with SangStat Medical Corporation for ABX-CBL, as described above. We will expend significant capital to conduct clinical trials for these product candidates. We believe that more extensive clinical data will enable us to enter into more favorable proprietary product licensing agreements. We expect that this will increase our operating losses until our development expenses can be covered by increased revenues from licensing of XenoMouse technology and marketing of proprietary products. If clinical trials of one or more product candidates at any stage are unsuccessful, we may abandon that product candidate which would result in the substantial loss of our investment in such candidate. Acquisitions In November 2000, the Company acquired ImmGenics Pharmaceuticals Inc. in an all-stock transaction. Abgenix will issue approximately $77.0 million of its common stock and stock options for all of ImmGenics' voting securities and options. The transaction will be treated as a purchase and the total estimated purchase price including estimated acquisition costs was $77.5 million. As a result of the acquisition, the Company will record the following: a significant one-time charge in the fourth quarter for in-process research and development of approximately $4.8 million; significant assets related to intangible assets and goodwill acquired, and related amortization over a period of approximately 15 years; and deferred compensation related to the replacement of unvested stock options of ImmGenics for the Company's stock options expected to be amortized over approximately two years. In November 2000, the Company acquired Intraimmune Therapies, Inc in a cash transaction. The transaction will be treated as a purchase and the total estimated purchase price was $9.0 million. In December 1999, we paid $47.0 million to purchase Japan Tobacco's interest in the Xenotech joint venture, and a non-recurring payment of $10.0 million to terminate rights to the current XenoMouse technology. Additionally, Japan Tobacco paid us $6.0 million to acquire a license to new technology, and $4.0 million to acquire a research license and commercialization rights under existing and future XenoMouse technology on a more limited basis than it had under our prior collaboration with Japan Tobacco. Results of Operations Three Months and Nine Months Ended September 30, 2000 and 1999 Contract revenue totaled $7.6 million and $13.1 million in the three and nine-month periods ended September 30, 2000 compared to $3.6 million and $5.4 million, respectively, in the comparable 1999 periods. Contract revenue in the nine months ended September 30, 2000 included the following: - - Research and license fees of $3.0 million and $7.0 million, respectively, in the three and nine-month periods ended September 30, 2000, from the $10 million payment received under the agreement with Millennium BioTherapeutics. Although the payment from Millennium is non-refundable and was received at the inception of a research license and product licenses granted to Millennium upon 14 signing of the agreement, we are is obligated up to December 31, 2000 to provide assistance to enable Millennium to practice these licenses, so the payment from Millennium is being recognized ratably over this period. - - License and certain fees were received in the three and nine-month periods ended September 30, 2000 from Immunex and Sangstat of $5.0 million and $2.0 million respectively. These fees were related to the respective joint development and commercialization agreements of ABX-EGF and ABX-CBL. We are recognizing these fees ratably over the periods we are obligated to share in development costs. For Immunex this is the 17-month period ended December 31, 2001 and the amount recognized in the quarter ended September 30, 2000 was $0.6 million. For Sangstat this is the six-month period ended January 31, 2001, and the amount recognized in the quarter ended September 30, 2000 was $0.7 million. Additionally, in the third quarter ended September 30, 2000, Abgenix recognized in total $1.0 million as revenue from both Immunex and Sangstat, which represents 50% of the development costs of ABX-EGF and ABX-CBL incurred and recorded as expense in the third quarter by Abgenix, net of 50% of the development costs incurred by Immunex and Sangstat. - - A milestone fee was received and recognized in the three and nine-month periods ended September 30, 2000 from Pfizer related to Pfizer's filing of an Investigational New Drug application with the FDA for an antibody product candidate for the treatment of cancer, which was generated with our XenoMouse technology under an existing collaborative agreement. - - A product license fee was received and recognized in the three and nine-month periods ended September 30, 2000 from Amgen for an antibody product generated with our XenoMouse technology under an existing collaborative agreement. Additionally, two product license fees were received and recognized in the nine-month period ended September 30, 2000 from Japan Tobacco under an existing collaborative agreement. - - Research funding and fees for research milestones and certain research work were recognized in the three and nine-month periods ended September 30, 2000 related to six of our collaborative agreements. Contract revenue in the three months and nine months ended September 30, 1999 included non-refundable fees totaling $1.6 million and $2.3 million, respectively, under the collaborative agreement with Japan Tobacco on ABX-IL8 clinical development. Such fees were for the reimbursement of clinical trial costs and certain joint interest rights in data from the clinical trials. Additionally, in this period, contract revenue included fees for the achievement of research milestones, an execution fee for electing another antigen target and licensing fees for an antigen target, under existing collaborative agreements. Additionally, in the nine-month period ended September 30, 1999, contract revenue included non-refundable signing and option fees in connection with the execution of collaborative agreements, fees for the achievement of research milestones, an execution fee for electing another antigen target and licensing fees for an antigen target. Interest income consists primarily of interest from cash, cash equivalents and short-term investments. Interest income totaled $9.2 million and $22.3 million in the three and nine-month periods ended September 30, 2000 compared to $0.8 million and $2.0 million in the comparable 1999 periods. This is a result of our follow-on offering in February 2000 in which we received net proceeds of approximately $496.5 million, after the costs of the offering. Research and development expenses consist primarily of compensation and other expenses related to research and development personnel, costs associated with pre-clinical testing and clinical trials of our product candidates, including the costs of manufacturing the product candidates, and facilities expenses. Research and development expenses increased to $12.8 million in the three months ended September 30, 2000 from $4.5 million in the comparable period in 1999 and to $31.9 million in the nine months ended 15 September 30, 2000 from $14.4 million in the comparable period in 1999. The increase reflects primarily costs associated with the following: - - Increased personnel - Staffing at September 30, 2000 increased by approximately 88% from September 30, 1999. The increase is to support the increased level of product development activities, including new target validation, process sciences, manufacturing and increased clinical activities. Additionally, the increase in personnel is related to increased licensing activity. Included in the increase are salary and related fringe benefits, recruiting and relocation costs. We expect personnel costs to increase further as we continue to build our organization. - - Product Supply Agreement - Included in the nine-month period ended September 30, 2000 is a charge of approximately $2.3 million to reserve manufacturing capacity by acquiring an option to negotiate a supply agreement with a contract manufacturer. The total amount paid for this agreement was approximately $3.8 million, of which approximately $1.5 million is creditable to the supply agreement. If a supply agreement is not executed, the $3.8 million is non-refundable to us, except under limited circumstances. - - Research Fee-Included in the nine-month period ended September 30, 2000 is a fee paid to Genzyme Transgenics Corporation related to research they are performing in which they agreed to produce our antibody product candidate, ABX-IL8 using Genzyme's manufacturing system. Under this agreement, for undisclosed fees and milestone payments, Genzyme will develop transgenic goats that express ABX-IL8 in their milk. Additionally, several future payments are required if certain milestones are met. - - Clinical Costs- In the first nine months of 2000, we had clinical trials in progress for three of our product candidates, ABX-CBL, ABX-IL8 and ABX-EGF, which are continuing. In 1999, during the comparable period, we had clinical trials in progress for two of our product candidates, ABX-CBL and ABX-IL8. The costs of such trials include the clinical investigator site fees, monitoring costs and data management costs. Additionally, such costs include the costs of manufacturing the antibody used in clinical trials. In July and August 2000, we entered into separate agreements with Immunex and SangStat to share equally in the costs of developing and commercializing ABX-EGF and ABX-CBL, respectively. However, we expect clinical costs will increase in the future as we enter additional clinical trials for both new and existing product candidates. General and administrative expenses include compensation and other expenses related to finance and administrative personnel, professional services and facilities. General and administrative expenses increased to $1.8 million in the three months ended September 30, 2000 from $1.1 million in the comparable period in 1999 and to $5.2 million in the nine months ended September 30, 2000 from $3.4 million in the comparable period in 1999. The increase reflects increased personnel costs, including an accrual for incentive compensation, and additional investor relations costs. We expect personnel costs to increase further as we continue to build our organization. Amortization of intangible assets relates primarily to patents and certain royalty rights which were acquired through the acquisition of the Xenotech joint venture in December 1999. Equity from the Xenotech joint venture in 1999 reflects our percentage ownership of the net income from the joint venture, prior to our acquisition of 100% of the joint venture in December 1999. Interest expense consists of interest incurred in connection with equipment lease line financing and loan facilities. Interest expense decreased due to pay down of debt. 16 Liquidity and Capital Resources At September 30, 2000, we had cash, cash equivalents and marketable securities of $545.3 million. In November 2000, we completed a private placement in which we raised net proceeds of $221.0 million by selling 3,300,000 shares of our common stock to institutional accredited investors. Including our November 2000 sale of stock, our total cash, cash equivalents and marketable securities exceed $760.0 million. We invest our cash equivalents and marketable securities in highly liquid, interest bearing, investment grade and government securities in order to preserve principal. During the nine months ended September 30, 2000, net cash provided by investing activities was $502.0 million provided primarily from our follow-on public offering in which we raised net proceeds of $496.4 million by selling 9,936,000 shares of our common stock in February 2000. Additionally during this period, we received $0.7 million from Cell Genesys for the exercise of warrants and $4.9 million from the exercise of stock options and our employee stock purchase plan. In the first nine months of 1999 net cash provided by financing activities was $51.9 million, received primarily from a secondary offering and the sale of stock to Genentech. Net cash provided by operating activities was $6.3 million for the nine months ended September 30, 2000 and net cash used in operating activities was $12.6 million for the nine months ended September 30, 1999. In the nine months ended September 30, 2000, cash was provided by interest income of $16.0 million net of the increase in interest receivable of $6.4 million. Additionally in this period, customers provided cash of $26.7 million including $10.6 million recorded as net deferred revenue and $3.0 million from a net reduction in accounts receivable. Cash was used for operations in both periods primarily to fund research and development expenses and manufacturing costs related to the development of new products. Additionally, cash was used in the nine-month period ended September 30, 2000 for a deposit related to a supply agreement. Net cash used in investing activities was $412.5 million for the nine months ended September 30, 2000 and $36.5 million for the nine months ended September 30, 1999. The activity in both years reflects the purchasing of investments with the funds we received from follow-on public offerings earlier in both years. Additionally, in the nine months ended September 30, 2000, we invested $15.0 million in common stock of Immunogen and $3.4 million in capital expenditures. In March 2000, we were issued a stand-by letter of credit for $2.0 million from a commercial bank as a deposit on our new leased facility. The stand-by letter of credit is secured by an investment account, which must maintain a $2.0 million balance. Additionally, we have an agreement with a financing company under which we have financed purchases of about $2.0 million of our laboratory and office equipment. The lease term is 48 months and bears interest at rates ranging from 12.5% to 13.0%, which are based on the change in the five-year U.S. Treasury rate. We also had a construction financing line with a bank in the amount of $4.3 million that was used to finance construction of leasehold improvements at our current facility. The line was paid off in May 2000 and had an interest rate of prime plus one percent (9.5 % per annum at December 31, 1999). We plan to make significant expenditures to establish our own manufacturing facility and expand our research and development activities, including pre-clinical product development and clinical trials. We 17 may be required to make substantial expenditures if unforeseen difficulties arise in the course of our developing product candidates, manufacturing product candidates, performing pre-clinical development and clinical trials of such product candidates, obtaining necessary regulatory approvals or in other aspects of our business. Our future liquidity and capital requirements will depend on many factors, including: - - scope and results of pre-clinical testing and clinical trials; - - the retention of existing and establishment of further licensing and contractual agreements, if any; - - continued scientific progress in our research and development programs; - - size and complexity of these programs; - - cost of establishing our manufacturing capabilities, conducting commercialization activities and arrangements; - - time and expense involved in obtaining regulatory approvals; - - competing technological and market developments; - - time and expense of filing and prosecuting patent applications and enforcing patent claims; - - investment in, or acquisition of, other companies; - - product in-licensing; and - - other factors not within our control. We believe that our current cash balances, cash equivalents, marketable securities, including the proceeds from our November 2000 sale of stock, and the cash generated from our licensing and contractual agreements will be sufficient to meet our operating and capital requirements for at least two years. However, we may need additional financing within this time period. We may need to raise additional funds through public or private financing, licensing and contractual agreements or other arrangements. We cannot assure you that such additional funding, if needed, will be available on terms favorable to us. Furthermore, any additional equity financing may be dilutive to our shareholders, and debt financing, if available, may involve restrictive covenants. Licensing and other contractual agreements may require us to relinquish our rights to certain of our technologies, products or marketing territories. Our failure to raise capital when needed may harm our business, financial condition and results of operations. We have incurred operating losses in each of the last three years of operation, including net losses of approximately $35.9 million in 1997, $16.8 million in 1998, $20.5 million in 1999 and $4.3 million in the nine months ended September 30, 2000. As of September 30, 2000, we had an accumulated deficit of approximately $94.1 million. Our losses have resulted principally from costs incurred in performing research and development for our technology and antibody product candidates, costs associated with certain agreements with Japan Tobacco, costs related to the non-recurring cross-license and settlement charge in 1997 and from general and administrative costs associated with our operations. We expect to incur additional operating losses for the foreseeable future as a result of our expenditures for research and product development, including pre-clinical testing and clinical trials, and charges related to purchases of technology or other assets. We intend to invest significantly in our products prior to entering into licensing arrangements. This may increase our need for capital and will result in losses for several years. We expect the amount of such losses will fluctuate significantly from quarter to quarter as a result 18 of increases or decreases in our research and development efforts, the execution or termination of licensing arrangements, or the initiation, success or failure of clinical trials. As of December 31, 1999, we had federal net operating loss carryforwards of approximately $61.0 million. Our net operating loss carryforwards exclude losses incurred prior to the organization of Abgenix in July 1996. Further, the amounts associated with the cross-license and settlement that have been expensed for financial statement accounting purposes have been capitalized and are being amortized over a period of approximately fifteen years for tax purposes. The net operating loss and credit carryforwards will expire in the years 2011 through 2019, if not utilized. Utilization of the net operating losses and credits may be subject to a substantial annual limitation due to the "change in ownership" provisions of the Internal Revenue Code of 1986 and similar state provisions. The annual limitation may result in the expiration of net operating losses and credits before utilization. ADDITIONAL FACTORS THAT MIGHT AFFECT FUTURE RESULTS The following factors represent current challenges that we face which create risk and uncertainty. Failure to adequately overcome any of the following challenges, either singly or in combination, could harm our results of operations, business, or financial position. Risks Related to the Development and Commercialization of our Products Our XenoMouse technology may not produce safe, efficacious or commercially viable products. Our XenoMouse technology is a new approach to the generation of antibody therapeutic products. We have not commercialized any antibody products based on XenoMouse technology. Moreover, we are not aware of any commercialized, fully human antibody therapeutic products that have been generated from any technologies similar to ours. Our antibody product candidates are still at an early stage of development. Clinical trials have begun with respect to only three fully human antibody product candidates generated by XenoMouse technology. We cannot be certain that XenoMouse technology will generate antibodies against all the antigens to which it is exposed in an efficient and timely manner, if at all. Furthermore, XenoMouse technology may not result in any meaningful benefits to our current or potential customers or be safe and efficacious for patients. If XenoMouse technology fails to generate antibody product candidates that lead to the successful development and commercialization of products, our business, financial condition and results of operations will be materially harmed. Successful development of our products is uncertain. Our development of current and future product candidates is subject to the risks of failure inherent in the development of new pharmaceutical products and products based on new technologies. These risks include: - delays in product development, clinical testing or manufacturing; - unplanned expenditures in product development, clinical testing or manufacturing; - failure in clinical trials or failure to receive regulatory approvals; - emergence of superior or equivalent products; - inability to manufacture on our own, or through others, product candidates on a commercial scale; 19 - inability to market products due to third-party proprietary rights; - election by our customers not to pursue product development; - failure by our customers to develop products successfully; and - failure to achieve market acceptance. Because of these risks, our research and development efforts or those of our customers may not result in any commercially viable products. To date, our customers' right to obtain a product license has been exercised for only six product candidates. If a significant portion of these development efforts is not successfully completed, required regulatory approvals are not obtained or any approved products are not commercially successful, our business, financial condition and results of operations will be materially harmed. Clinical trials for our product candidates will be expensive and their outcome is uncertain. Conducting clinical trials is a lengthy, time-consuming and expensive process. Before obtaining regulatory approvals for the commercial sale of any products, we must demonstrate through pre-clinical testing and clinical trials that our product candidates are safe and effective for use in humans. We will incur substantial expense for, and devote a significant amount of time to, pre-clinical testing and clinical trials. Historically, the results from pre-clinical testing and early clinical trials have often not been predictive of results obtained in later clinical trials. A number of new drugs and biologics have shown promising results in clinical trials, but subsequently failed to establish sufficient safety and efficacy data to obtain necessary regulatory approvals. Data obtained from pre-clinical and clinical activities are susceptible to varying interpretations, which may delay, limit or prevent regulatory approval. In addition, regulatory delays or rejections may be encountered as a result of many factors, including changes in regulatory policy during the period of product development. As of November 9, 2000, three of our product candidates, ABX-CBL, ABX-IL8 and ABX-EGF, were in clinical trials. Patient follow-up for these clinical trials has been limited. To date, data obtained from these clinical trials has been insufficient to demonstrate safety and efficacy under applicable Federal Drug Administration, or FDA, guidelines. As a result, this data will not support an application for regulatory approval without further clinical trials. Clinical trials conducted by us or by third parties on our behalf may not demonstrate sufficient safety and efficacy to obtain the requisite regulatory approvals for ABX-CBL, ABX-IL8, ABX-EGF and/or any other potential product candidates. Regulatory authorities may not permit us to undertake any additional clinical trials for our product candidates. In addition, our other product candidates are in pre-clinical development, but we have not submitted investigational new drug applications nor begun clinical trials for these product candidates. Our pre-clinical or clinical development efforts may not be successfully completed, we may not file further investigational new drug applications and clinical trials may not commence as planned. Completion of clinical trials may take several years or more. The length of time generally varies substantially according to the type, complexity, novelty and intended use of the product candidate. Our commencement and rate of completion of clinical trials may be delayed by many factors, including: - inability to manufacture sufficient quantities of materials for use in clinical trials; 20 - slower than expected rate of patient recruitment; - inability to adequately follow patients after treatment; - unforeseen safety issues; - lack of efficacy during the clinical trials; or - government or regulatory delays. We have limited experience in conducting and managing clinical trials. We rely on third parties, including our customers, to assist us in managing and monitoring clinical trials. Our reliance on these third parties may result in delays in completing, or failing to complete, these trials if the third parties fail to perform under our agreements with them. Our product candidates may fail to demonstrate safety and efficacy in clinical trials. This failure may delay development of other product candidates and hinder our ability to conduct related pre-clinical testing and clinical trials. As a result of these failures, we may also be unable to obtain additional financing. Any delays in, or termination of, our clinical trials will materially harm our business, financial condition and results of operations. The clinical success of ABX-CBL is uncertain. We recently completed a multi-center Phase II trial for the treatment of graft versus host disease, or GVHD, with our mouse antibody, ABX-CBL. As of October 11, 2000, ABX-CBL had been administered to a total of only 191 patients for GVHD and organ transplant rejection indications. ABX-CBL was administered to a total of 85 of these patients by third parties prior to the time we obtained an exclusive license to ABX-CBL. We cannot rely on data obtained from patients studied prior to our obtaining an exclusive license to ABX-CBL to support the efficacy of ABX-CBL in an application for regulatory approval. 21 Data from 27 patients included in the Phase II study was submitted to the FDA. As an extension to the original Phase II trial protocol, we have enrolled an additional 32 patients. In December 1999, we initiated a multicenter randomized and controlled Phase II/III study comparing ABX-CBL to ATG(R). The study is designed to demonstrate statistically significant efficacy of a single dose level of ABX-CBL in comparison to a control group of patients receiving ATG(R). The results of the Phase II/ III trial may not be favorable or may not extend the findings of the original Phase II study. The FDA may view the result of our Phase III trial as insufficient and may require additional clinical trials. There are several issues that could adversely affect the clinical trial results, including the lack of a standard therapy for GVHD patients in the control group, unforeseen side effects, variability in the number and types of patients in the study and response rates required to achieve statistical significance in the study. In addition, our clinical trials are being conducted with patients who have failed conventional treatments and who are in the most advanced stages of GVHD. During the course of treatment, these patients can die or suffer adverse medical effects for reasons that may not be related to ABX-CBL. These adverse effects may affect the interpretation of clinical trial results. There is a risk that the FDA will not accept the results of the Phase II/III study or other elements of the product license application as being sufficient for approval to market. Additional clinical trials will be extensive, expensive and time-consuming. If ABX-CBL fails to receive regulatory approval, our business, financial condition and results of operations may be materially harmed. We currently rely on a sole source third-party manufacturer. We currently rely, and will continue to rely for at least the next two years, on a sole source third-party manufacturer to produce ABX-CBL, ABX-IL8 and ABX-EGF under good manufacturing practice regulations, for use in our clinical trials. Our third-party manufacturer has a limited number of facilities in which our product candidates can be produced and has limited experience in manufacturing ABX-CBL, ABX-IL8 and ABX-EGF in quantities sufficient for conducting clinical trials or for commercialization. We currently rely on our third-party manufacturer to produce our product candidates under good manufacturing practice regulations, which meet acceptable standards for our clinical trials. Third-party manufacturers often encounter difficulties in scaling up production, including problems involving production yields, quality control and assurance, shortage of qualified personnel, compliance with FDA regulations, production costs, and development of advanced manufacturing techniques and process controls. Our third-party manufacturer may not perform as agreed or may not remain in the contract manufacturing business for the time required by us to successfully produce and market our product candidates. If our third-party manufacturer fails to deliver the required quantities of our product candidates for clinical use on a timely basis and at commercially reasonable prices, and we fail to find a replacement manufacturer or develop our own manufacturing capabilities, our business, financial condition and results of operations will be materially harmed. Our own ability to manufacture is uncertain. We are in the planning stages of establishing our own pilot scale manufacturing facility for the manufacture of products for Phase I and Phase II clinical trials, in compliance with FDA good manufacturing practices. In May 2000, we signed a long-term lease for a building to be built to contain this pilot scale facility. Construction schedules for this facility may take longer than expected, and the planned and actual construction costs of building and qualifying the facility for regulatory compliance may be higher than expected. The process of manufacturing antibody products is complex. We have no experience in the clinical or commercial scale manufacturing of ABX-CBL, ABX-IL8 and ABX-EGF, or any other antibody products. Such antibody products will also need to be manufactured in a facility and by a process which complies with FDA and other regulations. It may take a substantial period of time to begin producing antibodies in compliance with such regulations. Our manufacturing operations will be subject to ongoing, periodic unannounced inspection by the FDA and state agencies to ensure compliance with good manufacturing practices. If we are unable to establish and maintain a manufacturing facility within our planned time and cost parameters, the development and sales of our products and our financial performance may be materially harmed. We also may encounter problems with the following: - production yields; - quality control and assurance; - shortages of qualified personnel; - compliance with FDA regulations; - production costs; and - development of advanced manufacturing techniques and process controls. 22 We are currently evaluating our options for Phase III clinical trial supplies and commercial production of our antibody products, which include use of third-party manufacturers, establishing our own commercial scale manufacturing facility or entering into a manufacturing joint venture relationship with a third party. We are aware of only a limited number of companies on a worldwide basis who operate manufacturing facilities in which our product candidates can be manufactured under good manufacturing practice regulations, a requirement for all pharmaceutical products. It would take a substantial period of time for a contract facility which has not been producing antibodies to begin producing antibodies under good manufacturing practice regulations. We cannot assure you that we will be able to contract with any of these companies on acceptable terms, if at all. In addition, we and any third-party manufacturer will be required to register manufacturing facilities with the FDA and other regulatory authorities. The facilities will then be subject to inspections confirming compliance with FDA good manufacturing practice or other regulations. If we or any of our third-party manufacturers fail to maintain regulatory compliance, our business, financial condition and results of operations will be materially harmed. We will need to find third parties to license and develop many of our product candidates. Our strategy for the development and commercialization of antibody therapeutic products depends, in large part, upon the formation of collaboration agreements with third parties. Potential third parties include pharmaceutical and biotechnology companies, academic institutions and other entities. We must enter into these agreements to successfully develop and commercialize product candidates. These agreements are necessary in order for us to: - access proprietary antigens for which we can generate fully human antibody products; - fund our research and development activities; - fund pre-clinical development, clinical trials and manufacturing; - seek and obtain regulatory approvals; and - successfully commercialize existing and future product candidates. Only a limited number of fully human antibody product candidates have been generated pursuant to our collaboration agreements, and only three antibody product candidates generated with XenoMouse technology have entered clinical testing. We cannot assure you that any of these product candidates will result in commercially successful products. Current or future collaboration agreements may not be successful. If we fail to maintain our existing collaboration agreements or to enter into additional agreements, our business, financial condition and results of operations will be materially harmed. Our dependence on licensing and other agreements with third parties subjects us to a number of risks. These agreements may not be on terms favorable to us, and collaborators typically are afforded significant discretion in electing whether to pursue any of the planned activities. We cannot control the amount and timing of resources our collaborators may devote to the product candidates, and collaborators may not perform their obligations as expected. Additionally, business combinations or significant changes in a collaborator's business strategy may adversely affect a collaborator's willingness or ability to complete its obligations under the arrangement. Even if we fulfill our obligations under an agreement, typically our collaborators can terminate the agreement at any time following proper written notice. If any of our collaborators were to terminate or breach our 23 agreement, or otherwise fail to complete its obligations in a timely manner, our business, financial condition and results of operations may be materially harmed. If we are not able to establish further collaboration agreements or any or all of our existing agreements are terminated, we may be required to seek new collaborators or to undertake product development and commercialization at our own expense. Such an undertaking may: - limit the number of product candidates that we will be able to develop and commercialize; - reduce the likelihood of successful product introduction; - significantly increase our capital requirements; and - place additional strain on our management's time. Existing or future collaborators may pursue alternative technologies, including those of our competitors. Disputes may arise with respect to the ownership of rights to any technology or products developed with any current or future collaborator. Lengthy negotiations with potential new collaborators or disagreements between us and our collaborators may lead to delays or termination in the research, development or commercialization of product candidates or result in time-consuming and expensive litigation or arbitration. If our collaborators pursue alternative technologies or fail to develop or commercialize successfully any product candidate to which they have obtained rights from us, our business, financial condition and results of operations may be materially harmed. We do not have marketing and sales experience. We do not have marketing, sales or distribution capability. For certain products, we may establish an internal marketing and sales force. We intend to enter into arrangements with third parties to market and sell most of our products. We may not be able to enter into marketing and sales arrangements with others on acceptable terms, if at all. To the extent that we enter into marketing and sales arrangements with other companies, our revenues, if any, will depend on the efforts of others. These efforts may not be successful. If we are unable to enter into third-party arrangements, then we must develop a marketing and sales force, which may need to be substantial in size, in order to achieve commercial success for any product candidate approved by the FDA. We may not successfully develop marketing and sales experience or have sufficient resources to do so. If we do develop such capabilities, we will compete with other companies that have experienced and well-funded marketing and sales operations. If we fail to establish successful marketing and sales capabilities or fail to enter into successful marketing arrangements with third parties, our business, financial condition and results of operations will be materially harmed. We are subject to extensive government regulations and we may not be able to obtain regulatory approvals. Our product candidates under development are subject to extensive and rigorous domestic government regulation. The FDA regulates, among other things, the development, testing, manufacture, safety, efficacy, record-keeping, labeling, storage, approval, advertising, promotion, sale and distribution of biopharmaceutical products. If our products are marketed abroad, they also are subject to extensive regulation by foreign governments. None of our product candidates has been approved for sale in the United States or any foreign market. The regulatory review and approval process, which includes pre-clinical studies and clinical trials of each product candidate, is lengthy, expensive and uncertain. Securing FDA approval requires the submission of extensive pre-clinical and clinical data and supporting information to the FDA for each indication to establish the product candidates' safety and efficacy. The approval process takes many years, requires the expenditure of substantial resources, involves 24 post-marketing surveillance, and may involve ongoing requirements for post-marketing studies. Delays in obtaining regulatory approvals may: - adversely affect the successful commercialization of any drugs that we or our customers develop; - impose costly procedures on us or our customers; - diminish any competitive advantages that we or our customers may attain; and - adversely affect our receipt of revenues or royalties. Certain material changes to an approved product such as manufacturing changes or additional labeling claims are subject to further FDA review and approval. Any required approvals, once obtained, may be withdrawn. Compliance with other regulatory requirements may not be maintained. Further, if we fail to comply with applicable FDA and other regulatory requirements at any stage during the regulatory process, we or our third-party manufacturers may be subject to sanctions, including: - delays; - warning letters; - fines; - product recalls or seizures; - injunctions; - refusal of the FDA to review pending market approval applications or supplements to approval applications; - total or partial suspension of production; - civil penalties; - withdrawals of previously approved marketing applications; and - criminal prosecutions. We expect to rely on our customers to file investigational new drug applications and generally direct the regulatory approval process for many of our products. Our customers may not be able to conduct clinical testing or obtain necessary approvals from the FDA or other regulatory authorities for any product candidates. If we fail to obtain required governmental approvals, our customers will experience delays in or be precluded from marketing products developed through our research. In addition, the commercial use of our products will be limited. Delays and limitations may materially harm our business, financial condition and results of operations. We and our third-party manufacturers also are required to comply with the applicable FDA current good manufacturing practice regulations. 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 are subject to inspection by the FDA. These facilities must be approved before we can use them in commercial manufacturing of our products. We or our third-party manufacturers may not be able to comply with the applicable good manufacturing practice requirements and other FDA regulatory requirements. If we or our third-party manufacturers fail to comply, our business, financial condition and results of operations will be materially harmed. 25 Market acceptance of our products is uncertain. Our product candidates may not gain market acceptance among physicians, patients, healthcare payors and the medical community. We may not achieve market acceptance even if clinical trials demonstrate safety and efficacy, and the necessary regulatory and reimbursement approvals are obtained. The degree of market acceptance of any product candidates that we develop will depend on a number of factors, including: - 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 payors; and - marketing and distribution support for our product candidates. Physicians will not recommend therapies using our products until such time as clinical data or other factors demonstrate the safety and efficacy of such procedures as compared to conventional drug and other treatments. Even if the clinical safety and efficacy of therapies using our antibody products is established, physicians may elect not to recommend the therapies for any number of other reasons, including whether the mode of administration of our antibody products is effective for certain indications. For example, antibody products are typically administered by infusion or injection, which requires substantial cost and inconvenience to patients. Our product candidates, if successfully developed, will compete with a number of drugs and therapies manufactured and marketed by major pharmaceutical and other biotechnology companies. Our products may also compete with new products currently under development by others. Physicians, patients, third-party payors and the medical community may not accept and utilize any product candidates that we or our customers develop. If our products do not achieve significant market acceptance, our business, financial condition and results of operations will be materially harmed. Risks Related to our Finances We are an early stage company. You must evaluate us in light of the uncertainties and complexities present in an early stage biopharmaceutical company. Our product candidates are in early stages of development. We will require significant additional investment in research and development, pre-clinical testing and clinical trials, regulatory and sales and marketing activities to commercialize current and future product candidates. Our product candidates, if successfully developed, may not generate sufficient or sustainable revenues to enable us to be profitable. 26 We have a history of losses. We have incurred net losses in each of the last five years of operation, including net losses of approximately $8.3 million in 1995, $7.1 million in 1996, $35.9 million in 1997, $16.8 million in 1998, $20.5 million in 1999 and $4.3 million in the nine months ended September 30, 2000. As of September 30, 2000, our accumulated deficit was approximately $94.1 million. Our losses to date have resulted principally from: - research and development costs relating to the development of our XenoMouse technology and antibody product candidates; - costs associated with certain agreements with Japan Tobacco; - costs related to a cross-license and settlement agreement relating to our intellectual property portfolio; and - general and administrative costs relating to our operations. We expect to incur additional losses for the foreseeable future as a result of increases in our research and development costs, including costs associated with conducting pre-clinical development and clinical trials, and charges related to purchases of technology or other assets. We intend to invest significantly in our products prior to entering into licensing agreements. This may increase our need for capital and will result in losses for several years. We expect that the amount of operating losses will fluctuate significantly from quarter to quarter as a result of increases or decreases in our research and development efforts, the execution or termination of licensing and contractual agreements, or the initiation, success or failure of clinical trials. Our future profitability is uncertain. Prior to June 1996, our business was owned by Cell Genesys, Inc. and operated as a business unit. Since that time, we have funded our research and development activities primarily from: - initial contributions from Cell Genesys; - private placements of our capital stock; - the initial public offering of our common stock; - the follow-on public offering of our common stock in 1999; - the follow-on public offering of our common stock in February 2000; - a private placement of our common stock in November 2000; - revenues generated from our licensing and contractual agreements; - equipment leaseline financings; and - loan facilities. We expect that substantially all of our revenues for the foreseeable future will result from payments under licensing and contractual agreements and interest income. To date, payments under licensing and contractual agreements have been in the form of option fees, reimbursement for research and development expenses, license fees and milestone payments. Payments under our existing and any future customer agreements will be subject to significant fluctuation in both timing and amount. Our revenues may not be indicative of our future performance or of our ability to continue to achieve such milestones. Our revenues and results of operations for any period 27 may also not be comparable to the revenues or results of operations for any other period. We may not be able to: - enter into further licensing and contractual agreements; - successfully complete pre-clinical development or clinical trials; - obtain required regulatory approvals; - successfully develop, manufacture and market product candidates; or - generate additional revenues or profitability. If we fail to achieve any of the above goals, our business, financial condition and results of operations will be materially harmed. We may require additional financing. We will continue to expend substantial resources for the expansion of research and development, including costs associated with conducting pre-clinical development and clinical trials. We will be required to expend substantial funds in the course of completing required additional development, pre-clinical testing and clinical trials of and regulatory approval for product candidates. Our future liquidity and capital requirements will depend on many factors, including: - the scope and results of pre-clinical development and clinical trials; - the retention of existing and establishment of further licensing and contractual agreements, if any; - continued scientific progress in our research and development programs; - the size and complexity of these programs; - the cost of establishing manufacturing capabilities and conducting commercialization activities and arrangements; - the time and expense involved in obtaining regulatory approvals, if any; - competing technological and market developments; - the time and expense of filing and prosecuting patent applications and enforcing patent claims; - investment in, or acquisition of, other companies; - product in-licensing; and - other factors not within our control. We believe that our cash and cash equivalents, short-term investments and cash generated from our customer agreements will be sufficient to meet our operating and capital requirements for at least two years. However, we may need additional financing within this time period. We may need to raise additional funds through public or private financings, licensing and contractual agreements or other arrangements. Additional funding may not be available to us on favorable terms, if at all. Furthermore, any additional 28 equity financing would be dilutive to our shareholders, and debt financing, if available, may involve restrictive covenants. Contractual arrangements may require us to relinquish our rights to certain of our technologies, product candidates or marketing territories. If we fail to raise additional funds when needed, our business, financial condition and results of operations will be materially harmed. Risks Related to our Intellectual Property Our patent position is uncertain and our success depends on our proprietary rights. Our success depends in part on our ability to: - obtain patents; - protect trade secrets; - operate without infringing upon the proprietary rights of others; and - prevent others from infringing on our proprietary rights. We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our proprietary rights are covered by valid and enforceable patents or are effectively maintained as trade secrets. We solely own two issued patents in the United States, one granted patent in Europe, three granted patents in Japan and have several pending patent applications in the United States and abroad relating to XenoMouse technology. Our wholly-owned subsidiary, Xenotech, owns two issued U.S. patents, one Australian patent and several pending U.S. and foreign patent applications related to methods of treatment of bone disease in cancer patients. In addition, we have four issued U.S. patents and several pending patent applications in the United States and abroad that are jointly owned with Japan Tobacco relating to antibody technology or genetic manipulation. We attempt to protect our proprietary position by filing U.S. and foreign patent applications related to our proprietary technology, inventions and improvements that are important to the development of our business. However, the patent position of biopharmaceutical companies involves complex legal and factual questions, and, therefore, enforceability cannot be predicted with certainty. Patents, if issued, may be challenged, invalidated or circumvented. Thus, any patents that we own or license from third parties may not provide any protection against competitors. Our pending patent applications, those we may file in the future, or those we may license from third parties, may not result in patents being issued. Also, patent rights may not provide us with adequate proprietary protection or competitive advantages against competitors with similar technologies. The laws of certain foreign countries do not protect our intellectual property rights to the same extent as do the laws of the United States. In addition to patents, we rely on trade secrets and proprietary know-how. We seek protection, in part, through confidentiality and proprietary information agreements. These agreements may not provide meaningful protection or adequate remedies for our technology in the event of unauthorized use or disclosure of confidential and proprietary information, and, in addition, the parties may breach such agreements. Also, our trade secrets may otherwise become known to, or be independently developed by, our competitors. Furthermore, others may independently develop similar technologies or duplicate any technology that we have developed. We may face challenges from third parties regarding the validity of our patents and proprietary rights. Research has been conducted for many years in the antibody field. This has resulted in a substantial number of issued patents and an even larger number of pending patent applications. Patent applications in the United States are, in most cases, maintained in secrecy until patents are issued. The publication of discoveries in the scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries were made. Our commercial success depends significantly on our ability to operate without infringing the patents and other proprietary rights of third parties. Our technologies may unintentionally infringe the patents or violate other proprietary rights of third parties. In the event of such infringement or violation, we and our customers may be prevented from 29 pursuing product development or commercialization. Such a result will materially harm our business, financial condition and results of operations. In March 1997, we entered into a cross-license and settlement agreement with GenPharm International Inc. to avoid protracted litigation. Under the cross-license, we licensed on a non-exclusive basis certain patents, patent applications, third-party licenses and inventions pertaining to the development and use of certain transgenic rodents, including mice, that produce fully human antibodies that are integral to our products and business. Our business, financial condition and results of operations will be materially harmed if any of the parties breaches the cross-license agreement. We have one granted European patent relating to XenoMouse technology that is currently undergoing opposition proceedings within the European Patent Office and the outcome of this opposition is uncertain. Glaxo Wellcome Inc. has a family of patents which it is asserting against Genentech in ongoing litigation. If any of the claims of these patents are finally determined in the litigation to be valid and if they can be asserted by Glaxo to be infringed by ABX-EGF, then we may need to obtain a license should one be available. Should a license be denied or unavailable on commercially reasonable terms, our commercialization of ABX-EGF could be impeded in any territories in which these patents were in force. Genentech owns a U.S. patent that relates to inhibiting the growth of tumor cells involving an anti-EGF receptor antibody in combination with a cytotoxic factor. If the claims of the patent are valid, we may be required to obtain a license to Genentech's patent to label and sell ABX-EGF for some or all such combination indications. Should a license be denied or unavailable on commercially reasonable terms, our commercialization of ABX-EGF could be impeded in the United States. ImClone Systems, Inc. has announced that the United States Patent and Trademark Office has issued a notice of allowability of a patent covering a composition of matter of any EGFr monoclonal antibody that inhibits the binding of EGF to its receptor in combination with any anti-neoplastic agent, as well as the therapeutic use of such combinations. In addition, other third parties have or may receive other patents relating to EGFr monoclonal antibodies, their manufacture or their use. The scope and validity of any such patent may materially impede our planned activities. The biotechnology and pharmaceutical industries have been characterized by extensive litigation regarding patents and other intellectual property rights. The defense and prosecution of intellectual property suits, United States Patent and Trademark Office interference proceedings and related legal and administrative proceedings in the United States and internationally involve complex legal and factual questions. As a result, such proceedings are costly and time-consuming to pursue and their outcome is uncertain. Litigation may be necessary to: - enforce patents that we own or license; 30 - protect trade secrets or know-how that we own or license; or - determine the enforceability, scope and validity of the proprietary rights of others. If we become involved in any litigation, interference or other administrative proceedings, we will incur substantial expense and the efforts of our technical and management personnel will be significantly diverted. An adverse determination may subject us to loss of our proprietary position or to significant liabilities, or require us to seek licenses that may not be available from third parties. We may be restricted or prevented from manufacturing and selling our products, if any, in the event of an adverse determination in a judicial or administrative proceeding or if we fail to obtain necessary licenses. Costs associated with these arrangements may be substantial and may include ongoing royalties. Furthermore, we may not be able to obtain the necessary licenses on satisfactory terms, if at all. These outcomes will materially harm our business, financial condition and results of operations. Risks Related to our Industry We face intense competition and rapid technological change. The biotechnology and pharmaceutical industries are highly competitive and subject to significant and rapid technological change. We are aware of several pharmaceutical and biotechnology companies that are actively engaged in research and development in areas related to antibody therapy. These companies have commenced clinical trials of antibody products or have successfully commercialized antibody products. Many of these companies are addressing the same diseases and disease indications as us or our customers. Also, we compete with companies that offer antibody generation services to companies that have antigens. These competitors have specific expertise or technology related to antibody development. These companies include GenPharm International, Inc., a wholly-owned subsidiary of Medarex, Inc., Medarex's joint venture partner, Kirin Brewing Co., Ltd., Cambridge Antibody Technology Group plc, Protein Design Labs, Inc. and MorphoSys AG. Some of our competitors have received regulatory approval or are developing or testing product candidates that may compete directly with our product candidates. For example, SangStat Medical Corp. and Protein Design Labs market organ transplant rejection products that may compete with ABX-CBL, which is in clinical trials. In addition, MedImmune, Inc. has a potential antibody product candidate in clinical trials for graft versus host disease that may compete with ABX-CBL. We are also aware that several companies, including Genentech, Inc., have potential product candidates that may compete with ABX-IL8, which is in clinical trials. Furthermore, we are aware that ImClone Systems, Inc., Medarex, AstraZeneca and OSI Pharmaceuticals, Inc., have potential antibody and small molecule product candidates in clinical development that may compete with ABX-EGF, which is also in clinical trials. Many of these companies and institutions, either alone or together with their customers, have substantially greater financial resources and larger research and development staffs than we do. In addition, many of these competitors, either alone or together with their customers, have significantly greater experience than we do in: - developing products; - undertaking pre-clinical testing and human clinical trials; and - obtaining FDA and other regulatory approvals of products. 31 Accordingly, our competitors may succeed in obtaining patent protection, receiving FDA approval or commercializing products before us. If we commence commercial product sales, we will be competing against companies with greater marketing and manufacturing capabilities, areas in which we have limited or no experience. We also face, and will continue to face, competition from academic institutions, government agencies and research institutions. There are numerous competitors working on products to treat each of the diseases for which we are seeking to develop therapeutic products. In addition, any product candidate that we successfully develop may compete with existing therapies that have long histories of safe and effective use. Competition may also arise from: - other drug development technologies and methods of preventing or reducing the incidence of disease; - new small molecules; or - other classes of therapeutic agents. Developments by competitors may render our product candidates or technologies obsolete or non-competitive. We face and will continue to face intense competition from other companies for agreements with pharmaceutical and biotechnology companies for establishing relationships with academic and research institutions, and for licenses to proprietary technology. These competitors, either alone or with their customers, may succeed in developing technologies or products that are more effective than ours. We face uncertainty over reimbursement and healthcare reform. In both domestic and foreign markets, sales of our product candidates will depend in part upon the availability of reimbursement from third-party payors. Such third-party payors include government health administration authorities, managed care providers, private health insurers and other organizations. These third-party payors are increasingly challenging the price and examining the cost effectiveness of medical products and services. In addition, significant uncertainty exists as to the reimbursement status of newly approved healthcare products. We may need to conduct post-marketing studies in order to demonstrate the cost-effectiveness of our products. Such studies may require us to provide a significant amount of resources. Our product candidates may not be considered cost-effective. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on our investment in product development. Domestic and foreign governments continue to propose and pass legislation designed to reduce the cost of healthcare. Accordingly, legislation and regulations affecting the pricing of pharmaceuticals may change before our proposed products are approved for marketing. Adoption of such legislation could further limit reimbursement for pharmaceuticals. If the government and third-party payors fail to provide adequate coverage and reimbursement rates for our product candidates, the market acceptance of our products may be adversely affected. If our products do not receive market acceptance, our business, financial condition and results of operations will be materially harmed. Other Risks Related to our Company We acquired immgenics pharmaceuticals inc., a Vancouver-based biotechnology company in November 2000. we may experience difficulty in the integration of this acquisition, or any future acquisition, with the operations of our business. 32 In early November, we acquired all of the voting stock of ImmGenics Pharmaceuticals Inc., a Canadian biotechnology company that develops and intends to commercialize antibody-based therapeutic and diagnostic products for the treatment and diagnosis of a variety of diseases, for an aggregate consideration of approximately $77.5 million payable in a special class of ImmGenics non-voting shares that may be exchanged into our common stock. We have a limited history of operating the business of our company and ImmGenics on a consolidated basis, and we have no experience operating a business outside of the United States. We may have difficulty integrating ImmGenics' research and development operations with our own. Difficulty managing the integration of ImmGenics could result from many factors, some of which are beyond our control, including the following: - the geographic distance between our Fremont, California headquarters and our acquired Vancouver, British Columbia office; - potential differences in research and development protocols between ImmGenics and ourselves; and - the potential loss of personnel from our acquired operations. In the future, we may from time to time seek to expand our business through additional corporate acquisitions. Our acquisition of companies and businesses and expansion of operations, including the recent acquisition of ImmGenics, involve risks such as the following: - the potential inability to identify target companies best suited to our business plan; - the potential inability to successfully integrate acquired operations and businesses and to realize anticipated synergies, economies of scale or other expected value; - incurrence of expenses attendant to transactions that may or may not be consummated; and - difficulties in managing and coordinating operations at multiple venues, which, among other things, could divert our management's attention from other important business matters. In addition, our acquisition of companies and businesses and expansion of operations, including the recent acquisition of ImmGenics, may result in dilutive issuances of equity securities, the incurrence of additional debt, large one-time write-offs and the creation of goodwill or other intangible assets that could result in amortization expense. 33 We depend on key personnel and must continue to attract and retain key employees and consultants. We are highly dependent on the principal members of our scientific and management staff. For us to pursue product development, marketing and commercialization plans, we will need to hire additional qualified scientific personnel to perform research and development. We will also need to hire personnel with expertise in clinical testing, government regulation, manufacturing, marketing and finance. Attracting and retaining qualified personnel will be critical to our success. We may not be able to attract and retain personnel on acceptable terms given the competition for such personnel among biotechnology, pharmaceutical and healthcare companies, universities and non-profit research institutions. If we lose any of these persons, or are unable to attract and retain qualified personnel, our business, financial condition and results of operations may be materially harmed. In addition, we rely on members of our Scientific Advisory Board and other consultants to assist us in formulating our research and development strategy. All of our consultants and the members of our Scientific Advisory Board are employed by other entities. They may have commitments to, or advisory or consulting agreements with, other entities that may limit their availability to us. If we lose the services of these advisors, the achievement of our development objectives may be impeded. Such impediments may materially harm our business, financial condition and results of operations. We have implemented a stockholder rights plan and are subject to other anti-takeover provisions. In June 1999, our board of directors adopted a stockholder rights plan, which was amended in November 1999. The stockholder rights plan provides for a dividend distribution of one preferred share purchase right on each outstanding share of our common stock. Each right entitles stockholders to buy 1/1000th of a share of our Series A participating preferred stock at an exercise price of $120.00. Each right will become exercisable following the tenth day after a person or group, other than Cell Genesys or its affiliates, successors or assigns, announces an acquisition of 15% or more of our common stock, or announces commencement of a tender offer, the consummation of which would result in ownership by the person or group of 15% or more of our common stock. In the case of Cell Genesys, or its affiliates, successors or assigns, which beneficially owned 11.89% of our outstanding common stock as of September 30, 2000, each right will become exercisable following the tenth day after it announces the acquisition of more than 25% of our common stock, or announces commencement of a tender offer, the consummation of which would result in ownership by Cell Genesys, or its affiliates, successors or assigns, of more than 25% of our common stock. We will be entitled to redeem the rights at $0.01 per right at any time on or before the close of business on the tenth day following acquisition by a person or group of 15% or more, or in the case of Cell Genesys, or its affiliates, successors or assigns, more than 25%, of our common stock. 34 The stockholder rights plan and certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws may have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of us. This could limit the price that certain investors might be willing to pay in the future for our common stock. Certain provisions of our amended and restated certificate of incorporation and amended and restated bylaws allow us to: - issue preferred stock without any vote or further action by the stockholders; - eliminate the right of stockholders to act by written consent without a meeting; - specify procedures for director nominations by stockholders and submission of other proposals for consideration at stockholder meetings; and - eliminate cumulative voting in the election of directors. We are subject to certain provisions of Delaware law which could also delay or make more difficult a merger, tender offer or proxy contest involving us. In particular, Section 203 of the Delaware General Corporation Law prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years unless certain conditions are met. The stockholder rights plan, the possible issuance of preferred stock, the procedures required for director nominations and stockholder proposals and Delaware law could have the effect of delaying, deferring or preventing a change in control of us, including, without limitation, discouraging a proxy contest or making more difficult the acquisition of a substantial block of our common stock. The provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock. We face product liability risks and may not be able to obtain adequate insurance. The use of any of our product candidates in clinical trials, and the sale of any approved products, may expose us to liability claims resulting from such use or sale of our products. These claims might be made directly by consumers, healthcare providers or by pharmaceutical companies or others selling such products. We may experience financial losses in the future due to product liability claims. We have obtained limited product liability insurance coverage for our clinical trials, and insurance coverage limits are $5.0 million per occurrence and $5.0 million in the aggregate. We intend to expand our insurance coverage to include the sale of commercial products if marketing approval is obtained for product candidates in development. We may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses. If a successful product liability claim or series of claims is brought against us for uninsured liabilities or in excess of insured liabilities, our business, financial condition and results of operations may be materially harmed. Our operations involve hazardous materials. Our research and manufacturing activities involve the controlled use of hazardous materials. We cannot eliminate the risk of accidental contamination or injury from these materials. In the event of an accident or environmental discharge, we may be held liable for any resulting damages, which may exceed our financial resources and may materially harm our business, financial condition and results of operations. 35 We do not intend to pay cash dividends on our common stock. We intend to retain any future earnings to finance the growth and development of our business and we do not plan to pay cash dividends on our common stock in the foreseeable future. Our stock price is highly volatile. The market price and trading volume of our common stock are volatile, and we expect such volatility to continue for the foreseeable future. For example, during the period between September 30, 1999 and September 30, 2000, our common stock closed as high as $99.75 per share and as low as $9.32 per share. This may impact your decision to buy or sell our common stock. Factors affecting our stock price include: - fluctuations in our operating results; - announcements of technological innovations or new commercial therapeutic products by us or our competitors; - published reports by securities analysts; - progress with clinical trials; - government regulation; - changes in reimbursement policies; - developments in patent or other proprietary rights; - developments in our relationship with customers; - public concern as to the safety and efficacy of our products; and - general market conditions. ITEM 3 - Quantitative and Qualitative Disclosures about Market Risk. The objective of our investment activities is to preserve principal, while at the same time maximizing yields without significantly increasing risk. To achieve this objective, we invest in highly liquid and high quality debt securities. Our investments in debt securities are subject to interest rate risk. To minimize the exposure due to an adverse shift in interest rates, we invest in short term securities and maintain an average maturity of one year or less. A hypothetical 1.0% per annum increase in interest rates would result in an approximate $1.0 million decrease in the fair value of our debt securities, classified as available-for-sale securities, at September 30, 2000. The Company is exposed to equity price risk on strategic investments in CuraGen Corporation and Immunogen. The Company typically does not attempt to reduce or eliminate its market exposure on these securities. Assuming a 10% adverse change in the market price of the CuraGen and Immunogen stock, the fair value of these equity investments would decrease in value by approximately $7,163,900, based upon the value of the stock as of September 30, 2000. This estimate is not necessarily indicative of future performance and actual results may differ materially. 36 PART II ITEM 1 - Legal Proceedings Not applicable. ITEM 2 - Changes in Securities and Use of Proceeds Changes in Securities On August 23, 2000, our stockholders approved an amendment to our certificate of incorporation to increase our number of authorized shares from 100,000,000 to 220,000,000 shares. The amendment became effective on August 25, 2000, the date that we filed a Certificate of Amendment to our Amended and Restated Certificate of Incorporation with the Secretary of State of the State of Delaware. Use of Proceeds Not applicable. Recent Sales of Unregistered Securities Not applicable. ITEM 3 - Defaults upon Senior Securities Not applicable. ITEM 4 - Submission of Matters to Vote of Security Holders A special meeting of stockholders was held on August 23, 2000. A description of the matter and tabulation of votes follows: 1. To amend the Company's Certificate of Incorporation to increase the authorized number of shares of Common Stock from 100,000,000 to 220,000,000 shares: Votes ---------------------------------- For Against Abstain ------------ ---------- -------- 66,917,976 2,720,675 0 There were no broker nonvotes. ITEM 5 - Other Information ACQUISITION OF IMMGENICS PHARMACEUTICALS INC. On November 3, 2000, we completed the acquisition of ImmGenics Pharmaceuticals Inc. by acquiring all of its voting securities through a wholly-owned subsidiary incorporated in the province of Nova Scotia, Canada, for the sole purpose of this acquisition, for an aggregate consideration of approximately $77.5 million payable in shares exchangeable into our common stock. The amount of consideration paid was determined in an arms-length negotiation between the parties. At closing, former stockholders of ImmGenics were issued non-voting special shares of ImmGenics on a one-for-one basis and former option holders of ImmGenics were issued options to purchase our common stock. These special non-voting special shares will be exchangeable into the number of shares of our common stock determined by an exchange ratio based on the five-day average of the closing trading price of our common stock immediately preceding the effective date of the registration statement covering the common stock issuable upon the exchange. We have undertaken to file a registration statement to cover our common stock issuable upon the exchange by former ImmGenics securityholders of their special shares of ImmGenics and the exercise of the options by former ImmGenics option holders. ImmGenics is a Vancouver-based biotechnology company founded in 1993 and has developed a proprietary technology which may increase the effectiveness and speed of antibody product discovery efforts. ImmGenics' technology involves screening antibodies directly from antibody-producing B cells rather than from hybridoma cell lines. This technology provides a larger pool of candidates than are available with traditional hybridoma technology. ImmGenics' technology provides access to the complete immune response for the identification of antibodies with the desired functional properties and highest affinities. The foregoing descriptions of the acquisition are qualified in their entirety to the texts of the agreements we entered into in connection with the acquisition, copies of which are attached hereto as exhibits. The financial statements and pro forma financial information filed herewith are as follows: 37 AUDITORS' REPORT To the Directors of IMMGENICS PHARMACEUTICALS INC. We have audited the balance sheets of IMMGENICS PHARMACEUTICALS INC. as at August 31, 2000 and 1999 and the statements of loss and deficit and cash flows for each of the years in the three year period ended August 31, 2000. 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 auditing standards generally accepted in Canada. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these financial statements present fairly, in all material respects, the financial position of the company as at August 31, 2000 and 1999 and the results of its operations and its cash flows for each of the years in the three year period ended August 31, 2000 in accordance with accounting principles generally accepted in Canada. As required by the Company Act (British Columbia), we report that, in our opinion, these principles have been applied on a consistent basis. /s/ ERNST & YOUNG LLP Chartered Accountants Vancouver, Canada October 6, 2000 38 IMMGENICS PHARMACEUTICALS INC. Incorporated under the laws of British Columbia BALANCE SHEETS (IN CANADIAN DOLLARS)
AS AT AUGUST 31 ------------------------- 2000 1999 ----------- ----------- ASSETS CURRENT Cash and cash equivalents................................... $ 3,358,790 $ 486,699 Short-term investments...................................... 6,526,357 1,932,627 Accounts receivable......................................... 74,908 33,640 Investment tax credit receivable............................ 1,152,925 680,659 Prepaid expenses............................................ 21,515 16,653 ----------- ----------- TOTAL CURRENT ASSETS........................................ 11,134,495 3,150,278 ----------- ----------- Capital assets [NOTE 4]..................................... 774,422 682,483 Technology license [NOTE 5]................................. 10,357 26,177 ----------- ----------- $11,919,274 $ 3,858,938 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT Accounts payable and accrued liabilities.................... 796,047 441,417 Convertible debenture, current portion [NOTE 6]............. 709,388 -- ----------- ----------- TOTAL CURRENT LIABILITIES................................... 1,505,435 441,417 ----------- ----------- Convertible debenture [NOTE 6].............................. -- 579,046 ----------- ----------- TOTAL LIABILITIES........................................... 1,505,435 1,020,463 ----------- ----------- Commitments [NOTE 9] SHAREHOLDERS' EQUITY Share capital [NOTE 7] Common shares............................................. 2,906,680 1,333,346 Class A preferred shares.................................. 3,706,988 3,704,010 Class B preferred shares.................................. 3,616,353 -- Contributed surplus......................................... 5,442,229 313,264 Deficit..................................................... (5,258,411) (2,512,145) ----------- ----------- TOTAL SHAREHOLDERS' EQUITY.................................. 10,413,839 2,838,475 ----------- ----------- $11,919,274 $ 3,858,938 =========== ===========
See accompanying notes 39 IMMGENICS PHARMACEUTICALS INC. STATEMENTS OF LOSS AND DEFICIT (IN CANADIAN DOLLARS)
YEAR ENDED AUGUST 31 --------------------------------------- 2000 1999 1998 ----------- ----------- ----------- REVENUE Contract research income............................... $ 153,461 $ 101,366 $ -- Government grants...................................... 36,650 7,200 28,268 Interest income........................................ 256,843 81,135 8,961 ----------- ----------- ----------- 446,954 189,701 37,229 ----------- ----------- ----------- EXPENSES Research and development [NOTE 12]..................... 1,583,471 817,824 275,569 General and administrative [NOTE 13]................... 1,175,888 593,880 210,064 Other expenses [NOTE 8]................................ 277,369 -- -- Accretion of convertible debt [NOTE 6]................. 156,492 130,410 -- ----------- ----------- ----------- 3,193,220 1,542,114 485,633 ----------- ----------- ----------- LOSS FOR THE YEAR...................................... (2,746,266) (1,352,413) (448,404) Deficit, beginning of year............................. (2,512,145) (1,159,732) (711,328) ----------- ----------- ----------- DEFICIT, END OF YEAR................................... $(5,258,411) $(2,512,145) $(1,159,732) =========== =========== ===========
See accompanying notes 40 IMMGENICS PHARMACEUTICALS INC. STATEMENTS OF CASH FLOWS (IN CANADIAN DOLLARS)
YEAR ENDED AUGUST 31 ------------------------------------- 2000 1999 1998 ----------- ----------- --------- OPERATING ACTIVITIES Loss for the year....................................... $(2,746,266) $(1,352,413) $(448,404) Items not involving cash: Amortization.......................................... 238,764 121,140 11,223 Unrealized foreign exchange gain...................... (26,150) -- -- Accretion of convertible debt......................... 156,492 130,410 -- Net change in non-cash working capital items relating to operations: Accounts receivable................................... (41,268) (29,355) (4,285) Investment tax credit receivable...................... (442,266) (479,538) (13,900) Prepaid expenses...................................... (4,862) (10,373) 6,278 Accounts payable and accrued liabilities.............. 253,122 225,389 103,084 ----------- ----------- --------- CASH USED IN OPERATING ACTIVITIES....................... (2,612,434) (1,394,740) (346,004) ----------- ----------- --------- INVESTING ACTIVITIES Acquisition of capital assets........................... (243,375) (842,032) (4,429) Funds from (purchase of) short-term investments......... (4,593,730) (1,796,799) 392,913 Other................................................... -- -- (21,682) ----------- ----------- --------- CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES......... (4,837,105) (2,638,831) 366,802 ----------- ----------- --------- FINANCING ACTIVITIES Issuance of Common shares, net of issue costs........... 1,573,334 -- -- Issuance of preferred shares, net of issue costs........ 8,748,296 3,704,010 -- Issuance of convertible debenture....................... -- 761,900 -- ----------- ----------- --------- CASH PROVIDED BY FINANCING ACTIVITIES................... 10,321,630 4,465,910 -- ----------- ----------- --------- NET INCREASE IN CASH AND CASH EQUIVALENTS FOR THE YEAR.................................................. 2,872,091 432,339 20,798 Cash and cash equivalents, beginning of year............ 486,699 54,360 33,562 ----------- ----------- --------- CASH AND CASH EQUIVALENTS, END OF YEAR.................. $ 3,358,790 $ 486,699 $ 54,360 =========== =========== =========
See accompanying notes 41 IMMGENICS PHARMACEUTICALS INC. NOTES TO FINANCIAL STATEMENTS AUGUST 31, 2000 (IN CANADIAN DOLLARS) 1. DESCRIPTION OF BUSINESS ImmGenics Pharmaceuticals Inc. (the "Company") was incorporated on June 10, 1993 under the laws of the Province of British Columbia. The Company conducts research and development relating to methods for the generation of monoclonal antibodies or proteins. The Company has devoted a substantial part of its efforts towards raising capital, research and development of the Company's products. To date the Company has not earned significant revenue and is considered to be in the development stage. Accordingly, the Company will require for the foreseeable future, ongoing capital infusions in order to continue its operations, fund its research and development activities, and ensure orderly realization of its assets at their carrying values. 2. SIGNIFICANT ACCOUNTING POLICIES These financial statements have been prepared in accordance with accounting principles generally accepted in Canada. A reconciliation of amounts presented in accordance with United States accounting principles is detailed in note 15. Because a precise determination of many assets and liabilities depends on future events, the preparation of financial statements necessarily involves the use of management's estimates and approximations. Actual results could differ from those estimates. A summary of significant accounting policies are as follows: CASH AND CASH EQUIVALENTS The Company considers all highly liquid financial instruments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents are recorded at cost, which approximates market value. Included in cash and cash equivalents are amounts denominated in U.S. dollars totalling $1,856,553. SHORT-TERM INVESTMENTS Short-term investments, which comprise of U.S. and Canadian money market funds, corporate bonds and treasury bills with maturities to May 24, 2001 and average interest rates of 6.2% [1999 - 4.94%] are recorded at the lower of amortized cost and market. The carrying value of these instruments approximates their market value. Included in short term investments are investments denominated in U.S. dollars totalling $3,923,111. RESEARCH AND DEVELOPMENT COSTS Research costs are expensed in the year incurred. Development costs are expensed in the year incurred unless the Company believes a development project meets generally accepted accounting criteria for deferral and amortization. No development costs have been deferred to date. TECHNOLOGY LICENSE The costs of acquiring technology are capitalized at cost and amortized on a straight line basis over a period of five years. 42 IMMGENICS PHARMACEUTICALS INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) AUGUST 31, 2000 (IN CANADIAN DOLLARS) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Management reviews the intellectual property for impairment whenever events or changes in circumstances indicate that full recoverability is questionable. Management measures any potential impairment by comparing the carrying value to the undiscounted amounts of expected future cash flows. CAPITAL ASSETS Capital assets are recorded at acquisition cost less accumulated amortization and related investment tax credits. Amortization has been provided over the estimated useful lives of the assets using the following methods: Computer equipment................... 30% declining balance Computer software.................... 2 years straight line Research equipment................... 5 years straight line Furniture and equipment.............. 20%-30% declining balance Leasehold improvements............... Term of lease
FINANCIAL INSTRUMENTS The fair values of the financial instruments, including cash and cash equivalents, accounts receivable, investment tax credit receivable, and accounts payable and accrued liabilities, approximate their carrying values due to their short term nature. Short-term investments are carried at cost plus accrued interest, which approximates market values. The fair value of the convertible debenture has been determined using the discounted cash flows model [note 6]. INVESTMENT TAX CREDITS The benefits of investment tax credits for scientific research and development expenditures are recognized in the year the qualifying expenditure is made providing there is reasonable assurance of recoverability. The investment tax credit reduces the carrying cost of expenditures and capital assets related to research and development. As a Canadian controlled private corporation the Company has been eligible for refundable investment tax credits. In the event the Company is no longer a Canadian controlled private corporation, it will qualify for investment tax credits as a reduction of taxes payable. DEBT AND EQUITY The Company has chosen to present debt and equity in accordance with their legal form, in accordance with the provisions for private companies permitted in CICA Section 3860 "FINANCIAL INSTRUMENTS--DISCLOSURE AND PRESENTATION." REVENUE RECOGNITION Contract research income and research related government grants are non-refundable and recorded as revenue in the year the related research expenditures are incurred pursuant to the terms of the agreements. 43 IMMGENICS PHARMACEUTICALS INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) AUGUST 31, 2000 (IN CANADIAN DOLLARS) 2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) FOREIGN CURRENCY TRANSLATION Cash and other monetary assets and liabilities representing amounts owing to or by the Company have been translated into Canadian dollars at the rate of exchange prevailing at year end. Other assets and liabilities and revenues and expenses are translated at the rate prevailing when they were acquired or incurred. Exchange gains and losses resulting from the translation of foreign currency transactions are included in the determination of loss for the year, except for long-term monetary items which are deferred and amortized into income. FUTURE INCOME TAXES Future income taxes are recognized for the future income tax consequences attributable to differences between the carrying values of assets and liabilities and their respective income tax bases. Future income tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. The effect on future income tax assets and liabilities of a change in rates is included in earnings in the period that includes the enactment date. Future income tax assets are recorded in the financial statements if realization is considered more likely than not. STOCK BASED COMPENSATION The Company grants stock options to executive officers and directors, employees and consultants pursuant to a stock option plan described in note 7(d). No compensation expense is recognized for these plans when Common shares or stock options are issued. Any consideration received on exercise of stock options is credited to share capital. 3. CHANGE IN ACCOUNTING PRINCIPLE Effective September 1, 1999, the Company adopted the new recommendations of The Canadian Institute of Chartered Accountants with respect to accounting for income taxes under the liability method. The change has been applied retroactively and, as permitted the comparative financial statements have not been restated. The change in accounting policy did not result in any adjustment in the current year or to opening deficit. Before the adoption of the new recommendations, income tax expense was determined using the deferral method of tax allocation. 44 IMMGENICS PHARMACEUTICALS INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) AUGUST 31, 2000 (IN CANADIAN DOLLARS) 4. CAPITAL ASSETS
ACCUMULATED NET BOOK COST AMORTIZATION VALUE ---------- ------------ -------- AUGUST 31, 2000 Computer equipment......................... $ 90,271 $ 27,086 $ 63,185 Computer software.......................... 8,076 4,170 3,906 Research equipment......................... 756,221 187,544 568,677 Furniture and equipment.................... 181,919 51,700 130,219 Leasehold improvements..................... 70,151 61,716 8,435 ---------- -------- -------- $1,106,638 $332,216 $774,422 ========== ======== ======== AUGUST 31, 1999 Computer equipment......................... 50,016 8,632 41,384 Computer software.......................... 4,302 1,076 3,226 Research equipment......................... 558,270 55,827 502,443 Furniture and equipment.................... 138,656 17,096 121,560 Leasehold improvements..................... 40,511 26,641 13,870 ---------- -------- -------- $ 791,755 $109,272 $682,483 ========== ======== ========
Capital assets are recorded net of investment tax credits recorded during the year ended August 31, 2000 of $30,000 [1999--$76,387]. 5. TECHNOLOGY LICENSE
2000 1999 -------- -------- Technology license, cost................................ $ 79,098 $ 79,098 Accumulated amortization................................ (68,741) (52,921) -------- -------- $ 10,357 $ 26,177 ======== ========
6. CONVERTIBLE DEBENTURE Pursuant to an investment agreement, during the year ended August 31, 1999, the Company issued a US $500,000 interest free convertible debenture together with 200,000 warrants entitling the holder to purchase 200,000 Class A preferred shares at an exercise price of US $0.01 per share. During the year ended August 31, 2000, the repayment terms of the debenture were amended by the inclusion of an additional event requiring repayment [see (iii) below]. The debenture is repayable at the earliest of (i) November 4, 2000 (ii) the date the Company completes an Initial Public Offering of its Common shares or (iii) the date the Company completes a merger, amalgamation, arrangement, compromise, or takeover bid, (the "Expiry Date"). The debenture is convertible at the option of the holder into either Class A preferred shares or Class A preferred share purchase warrants at a conversion rate of US 45 IMMGENICS PHARMACEUTICALS INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) AUGUST 31, 2000 (IN CANADIAN DOLLARS) 6. CONVERTIBLE DEBENTURE (CONTINUED) $1.4552 per share or warrant, subject to adjustments from time to time to reflect the capital reorganizations and share issuances, up until the Expiry Date. Each Class A preferred share purchase warrant entitles the holder to purchase until the Expiry Date one Class A preferred share at a price of US $0.01 per share. At August 31, 2000 the fair market value of the convertible debenture is approximately $725,000 [August 31, 1999--$690,000]. Accordingly, for accounting purposes the Company has segregated the convertible debenture into two component parts; a liability component of $448,636 and an equity component reflected in contributed surplus representing the share purchase warrants of $313,264. The issue discount on the liability component is amortized to income over the term of the convertible debenture. During the year ended August 31, 2000, the 200,000 share purchase warrants were exercised for gross proceeds of $2,978 (US $2,000). Concurrently with the issuance of the convertible debenture, the convertible debenture holder was issued a right to acquire an additional 200,000 warrants in the event the Company failed to complete an equity financing of a certain dollar amount, or additional warrants to acquire up to 30% of the outstanding share capital in the event certain milestones were not achieved. Pursuant to the issuance of the Class B preferred shares the Company amended the investment agreement to terminate this requirement to issue an additional 200,000 warrants. 7. SHARE CAPITAL [a] AUTHORIZED 100,000,000 Common shares without par value 100,000,000 Class A preferred shares without par value 100,000,000 Class B preferred shares with a par value of $1 each During the year ended August 31, 2000, the authorized capital was increased by the creation of 100,000,000 Class B preferred shares with a par value of $1 each. [b] RIGHTS CLASS A PREFERRED SHARES The Class A preferred shares are voting and entitled to non-cumulative dividends of US $0.14552 per share after payment of dividends on the Class B preferred shares. The Class A preferred shares are convertible into Common shares at the holder's option on a one-for-one basis, subject to an adjustment to reflect capital reorganizations and share issuances. Mandatory conversion on the same basis as above, of the Class A preferred shares will occur at the time the Company completes an underwritten public offering of Common shares raising net proceeds to the Company of at least $15,000,000 at a minimum share price of $7.00 per Common share on a specified stock exchange or upon completion of a merger, amalgamation, arrangement, compromise, or takeover bid or any other transaction resulting in the sale or liquidation of substantially all of the assets of the Company. 46 IMMGENICS PHARMACEUTICALS INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) AUGUST 31, 2000 (IN CANADIAN DOLLARS) 7. SHARE CAPITAL (CONTINUED) In the event of any liquidation, dissolution or winding up of the Company, the holders of Class A preferred shares will be entitled to receive, after the payment of US $1.65913 per Class B preferred share plus any declared and unpaid dividends on the Class B preferred shares, but in preference to holders of Common shares, their paid-in amount plus any declared and unpaid dividends. During the year ended August 31, 2000, in conjuction with the issuance of the Class B preferred shares, the Company amended certain terms of the rights and restrictions of the Class A preferred shares to remove the right by the shareholders to require the Company to redeem all or any part of such Class A Preferred shares. CLASS B PREFERRED SHARES The Class B preferred shares are voting and entitled to non-cumulative dividends of US $0.165913 per share in preference and priority to any payment of dividends on the Class A preferred shares and Common shares. The Class B preferred shares are convertible into Common shares at the holder's option on a one-for-one basis, subject to an adjustment from time to time to reflect capital reorganizations and share issuance. Mandatory conversion of the Class B preferred shares will occur at the time the Company completes an underwritten public offering of Common shares raising net proceeds to the Company of at least $15,000,000 at a minimum share price of $7.00 per Common share on a specified stock exchange, or upon completion of a merger, amalgamation, arrangement, compromise, or takeover bid resulting in the sale or liquidation of substantially all of the assets of the Company. In the event of any liquidation, dissolution or winding up of the Company, the holders of the Class B preferred shares will be entitled to receive, in preference to the Class A preferred and holders of Common shares, their paid-in amount plus any declared and unpaid dividends. 47 IMMGENICS PHARMACEUTICALS INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) AUGUST 31, 2000 (IN CANADIAN DOLLARS) 7. SHARE CAPITAL (CONTINUED) [c] ISSUED AND OUTSTANDING
NUMBER AMOUNT --------- ---------- COMMON SHARES BALANCE, AUGUST 31, 1997 AND 1998........................... 6,807,566 $1,287,113 Issued for technology license [NOTE 7(e)]................... 18,654 46,233 Issued pursuant to anti-dilution agreements [NOTE 7(f)]..... 122,696 -- Issued pursuant to an amending agreement [NOTE 7(f)]........ 10,000 -- --------- ---------- BALANCE, AUGUST 31, 1999.................................... 6,958,916 1,333,346 Issued for cash pursuant to private placements.............. 506,794 1,608,300 Issued for cash on exercise of stock options [NOTE 7(d)].... 226,600 3,575 Issued pursuant to anti-dilution agreements [NOTE 7(f)]..... 144,227 -- Share issue costs........................................... -- (38,541) --------- ---------- Balance, August 31, 2000.................................... 7,836,537 $2,906,680 ========= ==========
NUMBER AMOUNT --------- ---------- CLASS A PREFERRED SHARES BALANCE, AUGUST 31, 1998.................................... -- $ -- Issued for cash pursuant to private placement............... 1,718,000 3,764,010 Share issue costs........................................... -- (60,000) --------- ---------- BALANCE, AUGUST 31, 1999.................................... 1,718,000 3,704,010 Issued for cash on exercise of warrants [NOTE 6]............ 200,000 2,978 --------- ---------- BALANCE, AUGUST 31, 2000.................................... 1,918,000 $3,706,988 ========= ==========
NUMBER AMOUNT --------- ---------- CLASS B PREFERRED SHARES BALANCE, AUGUST 31, 1999.................................... -- $ -- Issued for cash pursuant to private placement............... 3,616,353 3,616,353 --------- ---------- BALANCE, AUGUST 31, 2000.................................... 3,616,353 $3,616,353 ========= ==========
The excess of the net proceeds over par value from the issuance of the Class B preferred shares during the year ended August 31, 2000 of $5,128,965 has been credited to contributed surplus. Share issue costs amounting to $188,682 have been charged to contributed surplus. 48 IMMGENICS PHARMACEUTICALS INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) AUGUST 31, 2000 (IN CANADIAN DOLLARS) 7. SHARE CAPITAL (CONTINUED) [d] STOCK OPTIONS Options are granted to executive officers and directors, employees and consultants by way of discretionary grants approved by the board of directors, and are allocated pursuant to a Stock Option Plan (1996), for which 1,900,000 common shares have been reserved for issuance.
NUMBER OF WEIGHTED OPTIONED AVERAGE COMMON SHARES EXERCISE PRICE ------------- -------------- BALANCE, AUGUST 31, 1997 AND 1998................. 659,000 $1.05 Options granted................................... 361,700 2.22 --------- ----- BALANCE, AUGUST 31, 1999.......................... 1,020,700 1.46 Options granted................................... 559,900 2.47 Options exercised................................. (1,600) 2.22 Options forfeited................................. (26,000) 2.22 --------- ----- BALANCE, AUGUST 31, 2000.......................... 1,553,000 $1.81 ========= =====
At August 31, 2000 there are 1,553,000 [1999 - 1,020,700] stock options outstanding pursuant to the Stock Option Plan (1996) as follows:
NUMBER NUMBER OUTSTANDING EXERCISABLE EXERCISE AUGUST 31, AUGUST 31, EXPIRY DATE PRICE 2000 2000 - ----------- -------- ----------- ----------- March 27, 2006................................ $1.05 609,000 609,000 January 7, 2009............................... 2.22 25,600 25,600 February 25, 2009............................. 2.22 100,000 100,000 March 29, 2009................................ 2.22 200,000 200,000 June 9, 2009.................................. 1.05 50,000 50,000 June 9, 2009.................................. 2.22 8,500 8,500 September 17, 2009............................ 2.22 3,600 3,600 February 24, 2010............................. 2.55 2,600 2,600 July 13, 2010................................. 2.47 553,700 71,000 --------- --------- 1,553,000 1,070,300 ========= =========
During the year ended August 31, 2000, the Company extended the expiry date for 500,300 stock options with exercise prices ranging from $1.05 to $2.55 and expiry dates from March 27, 2001 to March 27, 2006, by an additional 5 years. The revised expiry dates are reflected in the above table. In addition, during the year ended August 31, 2000 the Company granted 600,000 stock options to purchase Common shares to an officer of the Company with an exercise price of $0.0001 and expiry date of November 1, 2004, outside of the Stock Option Plan (1996). 150,000 options vested upon granting of the stock options and 9,375 options vest monthly thereafter. As at August 31, 2000, 375,000 options remain outstanding of which 9,375 are exercisable. 49 IMMGENICS PHARMACEUTICALS INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) AUGUST 31, 2000 (IN CANADIAN DOLLARS) 7. SHARE CAPITAL (CONTINUED) At the time a director, officer or employee ceases to be a director, officer or employee of the Company, any unexercised share purchase options held by them will expire within 30 days. [e] COMMITMENT TO ISSUE SHARES Pursuant to a license agreement dated May 9, 1994 the Company was obligated to issue to the licensor Common shares equal to 1.5% of shares issued until the aggregate value of the consideration received from share issuances reached $3 million. At August 31, 1998 the Company was obligated to issue 6,805 Common shares at a deemed value of $19,928. During the year ended August 31, 1999 the Company issued the 6,805 Common shares and a further 11,849 Common shares at a deemed value of $26,305 in respect of its obligation under the license agreement, which have been capitalized as costs of the technology license [note 5]. No further shares are required to be issued pursuant to the agreement. [f] DILUTION In October 1998, the Company entered into anti-dilution and amending agreements with holders of 116,666 and 100,000 common shares, such that in the event the Company issues common or Class A preferred shares of the Company for less than $3.00 and $4.00 per share respectively, prior to an initial public offering, the shareholders would receive additional common shares equal to the original issuance proceeds divided by the subsequent issue price less the original number of common shares issued. Pursuant to the issuance of Class A preferred shares during the year ended August 31, 1999, the Company issued 122,696 common shares to fulfill its obligation under these agreements. As a result of the issuance of these anti-dilution shares, the effective share price for the shares mentioned above is $2.21 per share. Also, the holder of 6,666 of the total 116,666 common shares lost any further anti-dilution rights after the issuance of the dilutive Class A shares. Pursuant to a private placement agreement dated April 1997, the Company issued a further 10,000 Common shares during the year ended August 31, 1999, to fulfill its obligation under this agreement. The agreement provided that the Company would issue these shares to the subscriber if within eighteen months of closing of the offering the Company could not obtain a receipt for a preliminary prospectus. No further shares are issuable under this agreement. In November 1999, the Company entered into an anti-dilution agreement with individuals who acquired 457,069 Common shares, through private placements in 1999 such that in the event the Company issues any class of common shares of the Company for less than $3.25 per share, the shareholders would receive additional Common shares equal to the original issuance proceeds divided by the subsequent issue price less the original number of Common shares issued. Pursuant to the issuance of Class B preferred shares during the year ended August 31, 2000, the Company issued 144,227 Common shares to fulfill its obligation under this agreement. No further shares are issuable under this agreement. 8. OTHER EXPENSES Direct and incremental costs incurred in respect of the proposed sale of the Company [note 16] have been expensed as other expenses. 50 IMMGENICS PHARMACEUTICALS INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) AUGUST 31, 2000 (IN CANADIAN DOLLARS) 9. COMMITMENTS [i] The Company has entered into rental agreements for laboratory and office space which extend to June 30, 2001. The future minimum payments under these leases are $202,087. [ii] The Company entered into an agreement related to the sale of the Company [see note 16] in August 2000. Pursuant to the agreement the Company paid a fee of US $50,000 and is required to pay additional fees of US $350,000, plus a transaction fee equal to a percentage of the consideration for the sale of the business subject to a minimum of US $1 million. The agreement expires in August 2001. [iii] The Company entered into a purchase agreement with a supplier for research equipment in October 2000. Pursuant to the agreement the Company is committed to pay approximately $440,000 (US $300,000). 10. RELATED PARTY TRANSACTIONS During the year ended August 31, 2000, the Company paid consulting fees of $5,518 [1999--$nil; 1998--$24,500] to directors of the Company. 11. INCOME TAXES As at August 31, 2000 the Company has non-capital loss carryforwards available to reduce taxable income that expire as follows: 2002........................................................ $ 42,000 2003........................................................ 27,000 2004........................................................ 122,000 2005........................................................ 200,000 2006........................................................ 395,000 2007........................................................ 1,276,000 ---------- $2,062,000 ==========
In addition, the Company has scientific research and experimental development expenditures of approximately $3,688,000 available for carryforward indefinitely and unclaimed investment tax credits of $167,000 which may be used to reduce future taxable income and income taxes, respectively, otherwise payable. However, as a result of the potential acquisition of the Company subsequent to year end [note 16(a)], the non-capital losses, any unclaimed investment tax credits and scientific research and experimental development expenditures noted above will be restricted by Canadian tax law and may not be available for use in future years. The potential income tax benefits relating to these loss carryforwards, temporary differences and tax credits have not been recognized in the accounts as their realization did not meet the requirements of "more likely than not" under the liability method of tax allocation. In prior periods the Company had concluded the realization of the loss carryforwards and tax credits under the deferral method of tax allocation did not meet the virtual certainty and reasonable assurance test. Accordingly, no future tax assets have been recognized as at August 31, 2000 and September 1, 1999. 51 IMMGENICS PHARMACEUTICALS INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) AUGUST 31, 2000 (IN CANADIAN DOLLARS) 12. RESEARCH AND DEVELOPMENT EXPENSES
2000 1999 1998 ---------- ---------- --------- Salaries and benefits..................... $ 991,062 $ 502,894 $ -- Contract research agreements.............. -- 283,939 384,651 Laboratory supplies....................... 835,770 294,201 -- Consulting................................ 90,465 125,561 -- Patent costs.............................. 88,008 10,792 5,093 Amortization.............................. 145,166 79,975 10,559 ---------- ---------- --------- 2,150,471 1,297,362 400,303 Less: investment tax credits.............. (567,000) (479,538) (124,734) ---------- ---------- --------- $1,583,471 $ 817,824 $ 275,569 ========== ========== =========
13. GENERAL AND ADMINISTRATIVE EXPENSES
2000 1999 1998 ---------- -------- -------- Salaries and benefits....................... $ 286,832 $126,667 $ -- Rent........................................ 187,135 135,577 85,899 Professional fees........................... 68,908 69,309 66,000 Legal fees.................................. 90,443 74,675 29,185 Office and miscellaneous.................... 190,139 94,764 23,175 Foreign exchange loss....................... 91,463 -- -- Travel and meetings......................... 167,370 51,723 5,141 Amortization................................ 93,598 41,165 664 ---------- -------- -------- $1,175,888 $593,880 $210,064 ========== ======== ========
14. SEGMENT DISCLOSURES AND MAJOR CUSTOMERS The Company operates in one business segment with all of its assets and operations located in Canada. All of the Company's revenues are generated in Canada. During the years ended August 31, 2000 and 1999 all contract research income was earned from one customer in the United States. As a result of this contract, 59% [19%--1999] of total receivables is due from this one customer. 15. RECONCILIATION OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES The Company prepares its financial statements in accordance with accounting principles generally accepted in Canada ("Canadian GAAP"), which, as applied in these financial statements, conform in 52 IMMGENICS PHARMACEUTICALS INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) AUGUST 31, 2000 (IN CANADIAN DOLLARS) 15. RECONCILIATION OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED) all material respects to those accounting principles generally accepted in the United States ("US GAAP"), except as follows: [a] STOCK-BASED COMPENSATION For reconciliation purposes to US GAAP, the Company has elected to follow the intrinsic value approach of Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES (APB 25) in accounting for its employee stock options. Under APB 25, when the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. During the year ended August 31, 2000, $578,883 [1999 and 1998--$nil] in compensation expense would be recognized for employee stock options granted below the fair price of the underlying stock on the date of grant. The Company would recognize additional compensation expense over future vesting periods of $903,057. On July 13, 2000, the expiry dates for certain fully vested stock options were extended by an additional five years. Under FASB Interpretation No. 44 to APB 25, compensation expense equal to the excess intrinsic value of the award on the date of the modification over the original intrinsic value of the award is recognized at the date of modification. During the year ended August 31, 2000 $305,167 in compensation expense would be recognized. Under US GAAP, stock based compensation to non-employees must be recorded at the fair value of options granted. This compensation, determined using an option pricing model, is expensed over the vesting periods of each option grant. For purposes of reconciliation to US GAAP, all options are vested as at year end, thus the total compensation expense in the current year is $172,000 [1999 and 1998--nil]. [b] TECHNOLOGY LICENSE Under US GAAP, amounts paid for a technology license used solely in research and development activities and with no alternative future use, would be expensed. [c] FINANCIAL INSTRUMENTS [i] Under US GAAP, the Company's Class A retractable preferred shares would be considered mezzanine equity in 1999 and accordingly would be shown outside of shareholders' equity. With the amendment to the rights and restrictions of these shares in 2000, they would be reclassified into shareholders' equity under US GAAP. [d] RECENT PRONOUNCEMENTS [i] The United States Securities and Exchange Commission has issued Staff Accounting Bulletin 101, REVENUE RECOGNITION IN FINANCIAL STATEMENTS (SAB101). This pronouncement is effective for the Company's year ending August 31, 2001. The Company has not yet determined the impact of SAB101 on its financial statements and its current revenue recognition policies. [ii] The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (SFAS 133), as 53 IMMGENICS PHARMACEUTICALS INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) AUGUST 31, 2000 (IN CANADIAN DOLLARS) 15. RECONCILIATION OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (CONTINUED) amended by SFAS 138. SFAS 133 will be effective for the Company's August 31, 2001 year end. The Company has not determined the impact, if any, of this pronouncement on its financial statements. [e] SUMMARY OF EFFECT ON FINANCIAL STATEMENTS The impact of significant US GAAP variations on the Balance Sheets are as follows:
2000 1999 ----------- ----------- Technology license.......................................... $ -- $ -- Total assets................................................ 11,908,917 3,832,761 Mezzanine equity, Class A preferred shares.................. -- 3,704,010 Share capital............................................... 16,728,300 1,646,610 Deficit..................................................... (6,324,818) (2,538,322)
The impact of significant US GAAP variations on the Statements of Loss are as follows:
2000 1999 1998 ----------- ----------- --------- Loss for the year, Canadian GAAP......................... $ 2,746,266 $(1,352,413) $(448,404) Adjustment for stock based compensation --non-employees........................................ (172,000) -- -- --employees intrinsic value............................ (578,883) -- -- --employees extension of expiry date................... (305,167) -- -- Adjustment for technology license expense................ 15,820 (13,774) 10,559 ----------- ----------- --------- Loss and comprehensive loss for the year, US GAAP........ $(3,786,496) $(1,366,187) $(437,845) =========== =========== =========
16. SUBSEQUENT EVENTS The following events occurred subsequent to August 31, 2000: [a] The Company has entered into an Acquisition Agreement with Abgenix, Inc. dated September 25, 2000 (the "Acquisition"). The Acquisition will be carried out under a Plan of Arrangement whereby Abgenix, Inc. will effectively exchange approximately US $77 million of Abgenix common stock for all outstanding Common shares and securities convertible into Common shares of the Company. The Plan of Arrangement is subject to the approval of the Company's shareholders and court approval. [b] On September 19, 2000, the Company granted options to acquire 59,000 Common shares with an exercise price of $2.47 per share and an expiry date of September 19, 2010. 54 UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS OF ABGENIX AND IMMGENICS The merger of Abgenix and ImmGenics closed on November 6, 2000. The following unaudited pro forma condensed combined financial statements give effect to the merger using the purchase method of accounting and include the pro forma adjustments described in the accompanying notes. The following Unaudited Pro Forma Condensed Combined Statement of Operations of Abgenix and ImmGenics for the year ended December 31, 1999 and the nine-month period ended September 30, 2000 are based on the historical financial statements of Abgenix and ImmGenics after giving effect to the merger with ImmGenics under the purchase method of accounting and the assumptions and adjustments described in the accompanying Notes to the Unaudited Pro Forma Condensed Combined Financial Statements of Abgenix and ImmGenics. The Unaudited Pro Forma Condensed Combined Financial Statements of Abgenix and ImmGenics should be read in conjunction with the historical financial statements of Abgenix and ImmGenics, included elsewhere in this prospectus. The Unaudited Pro Forma Condensed Combined Statements of Operations of Abgenix and ImmGenics are presented as if the combination had taken place on January 1, 1999. The Unaudited Pro Forma Condensed Combined Statement of Operations for the year ended December 31, 1999 combines the year ended December 31, 1999 for Abgenix and the twelve months ended November 30, 1999 for ImmGenics. The Unaudited Pro Forma Condensed Combined Statement of Operations for the nine months ended September 30, 2000 combines the nine months ended September 30, 2000 for Abgenix and the nine months ended August 31, 2000 for ImmGenics. The Unaudited Pro Forma Condensed Combined Balance Sheet is presented to give effect to the proposed merger as if it occurred on September 30, 2000 and combines the balance sheet of Abgenix as of September 30, 2000 and ImmGenics as August 31, 2000. The pro forma information does not purport to be indicative of the results that would have been reported if the above transactions had been in effect for the period presented or which may result in the future. In October 2000, Abgenix acquired Intraimmune Therapies, Inc. The Unaudited Pro Forma Condensed Combined Financial Statements of Abgenix and ImmGenics do not include this acquisition since it is not significant to Abgenix. 55 UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET AS OF SEPTEMBER 30, 2000
PRO FORMA PRO FORMA ABGENIX IMMGENICS ADJUSTMENTS COMBINED ------- --------- ----------- --------- (IN THOUSANDS) ASSETS CURRENT ASSETS: Cash and cash equivalents........................ $107,516 $ 2,283 $ (585) $109,214 Marketable securities............................ 437,825 4,435 -- 442,260 Interest and other receivables................... 7,482 784 -- 8,266 Accounts receivable.............................. 1,126 -- -- 1,126 Prepaid expenses and other current assets........ 9,269 66 -- 9,335 -------- ------- ------- -------- TOTAL CURRENT ASSETS........................... 563,218 7,568 (585) 570,201 Property and equipment, net........................ 7,585 526 -- 8,111 Long-term investment............................... 71,639 -- -- 71,639 Intangible assets, net............................. 44,261 -- 64,333 108,594 Deposits and other assets.......................... 703 -- -- 703 -------- ------- ------- -------- $687,406 $ 8,094 $63,748 $759,248 ======== ======= ======= ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable................................. $ 5,603 $ 541 $ -- $ 6,144 Deferred revenue................................. 14,405 -- -- 14,405 Accrued product development costs................ 233 -- -- 233 Accrued employee benefits........................ 1,524 -- -- 1,524 Other accrued liabilities........................ 1,418 -- -- 1,418 Current portion of long-term debt................ 447 483 (483) 447 -------- ------- ------- -------- TOTAL CURRENT LIABILITIES...................... 23,630 1,024 (483) 24,171 Deferred rent...................................... 406 -- -- 406 STOCKHOLDERS' EQUITY: Preferred stock.................................. -- 4,862 (4,862) -- 77,488 483 (585) Common stock..................................... 683,317 2,747 (2,747) 760,703 Additional paid-in capital....................... 32,849 3,650 (3,650) 32,849 Deferred compensation............................ (325) -- (1,267) (1,592) Accumulated other comprehensive income........... 41,627 134 (134) 41,627 (4,818) Accumulated deficit.............................. (94,098) (4,323) 4,323 (98,916) -------- ------- ------- -------- TOTAL STOCKHOLDERS' EQUITY..................... 663,370 7,070 64,231 734,671 -------- ------- ------- -------- $687,406 $ 8,094 $63,748 $759,248 ======== ======= ======= ========
56 UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1999
PRO FORMA PRO FORMA ABGENIX IMMGENICS ADJUSTMENTS COMBINED -------- --------- ----------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues: Contract revenue................................. $ 12,285 $ 86 $ -- $ 12,371 Interest income.................................. 3,045 66 -- 3,111 -------- ------- ------- -------- Total revenues................................. 15,330 152 -- 15,482 Costs and expenses: Research and development......................... 21,106 619 633 22,358 General and administrative....................... 5,164 707 -- 5,871 Equity in income from the Xenotech joint venture........................................ (546) -- -- (546) Non-recurring termination fee.................... 8,667 -- -- 8,667 Amortization of intangible assets................ -- -- 4,338 4,338 Interest expense and other....................... 438 103 -- 541 -------- ------- ------- -------- Total costs and expenses....................... 34,829 1,429 4,971 41,229 -------- ------- ------- -------- Loss before income taxes........................... (19,499) (1,277) (4,971) (25,747) Foreign income tax expense....................... 1,000 -- -- 1,000 -------- ------- ------- -------- Net loss........................................... $(20,499) $(1,277) $(4,971) $(26,747) ======== ======= ======= ======== Net loss per share................................. $ (0.35) $ (0.45) ======== ======== Shares used in computing net loss per share........ 58,148 802 58,950
57 UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2000
PRO FORMA PRO FORMA ABGENIX IMMGENICS ADJUSTMENTS COMBINED -------- --------- ----------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Revenues: Contract revenue.................................. $13,077 $ 116 $ -- $13,193 Interest income................................... 22,334 156 -- 22,490 ------- ------- ------- ------- Total revenues.................................. 35,411 272 -- 35,683 Costs and expenses: Research and development.......................... 31,910 1,224 317 33,451 General and administrative........................ 5,152 999 -- 6,151 Amortization of intangible assets................. 2,330 -- 3,254 5,584 Interest expense and other........................ 317 77 -- 394 ------- ------- ------- ------- Total costs and expenses........................ 39,709 2,300 3,571 45,580 ------- ------- ------- ------- Net loss............................................ $(4,298) $(2,028) $(3,571) $(9,897) ======= ======= ======= ======= Net loss per share.................................. $ (0.05) $ (0.12) ======= ======= Shares used in computing net loss per share......... 78,799 802 79,601
58 NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS OF ABGENIX, INC. AND IMMGENICS 1. BASIS OF PRO FORMA PRESENTATION In November 2000, the Company acquired ImmGenics Pharmaceuticals Inc. in an all-stock transaction, to be treated as a purchase. As part of the acquisition, ImmGenics special shares were issued to former shareholders of common and preferred shares and debenture holders of ImmGenics. The ImmGenics special shares are convertible into common shares of Abgenix. The Pro Forma Condensed Combined Financial Statements assumes the effective registration, prior to February 11, 2001, of the Abgenix common stock to be issued in exchange for the ImmGenics special shares. Should the registration statement not be declared effective by that time, the holders of the ImmGenics special shares may have the right to put those shares to Abgenix for cash. Abgenix will issue approximately $76.9 million of its common stock and stock options for all of ImmGenics' voting securities and stock options. This value includes the value of the common stock and an estimate of the fair value of the stock options to be issued. Estimated costs and expenses of the acquisition are $0.6 million. The Company will be required to exchange common stock in a ratio determined based on the average closing market price of the Company's common stock for the five trading days prior to the date the registration statement becomes effective. Assuming an average market value of $85.00, the exchange ratio will approximate one share of the Company's share for seventeen shares of ImmGenic's shares. Accordingly the number of the Company's common shares issued will approximate 802,000 shares and the number of the Company's stock options to be issued in exchange for ImmGenic's stock options will be approximately 120,000. The actual number of common stock and stock options issued will depend on the date the registration statement becomes effective and the final calculation of the average closing market price. An independent valuation specialist performed a preliminary allocation of the total purchase price of ImmGenics among the acquired assets. The income approach was used to develop the value for the existing technology and the in-process research and development. The income approach incorporates the calculation of the present value of future economic benefits such as cash earnings, cost savings, and tax deductions. The cost approach was utilized to value the assembled workforce. The cost approach measures the benefits related to an asset by the cost to reconstruct or replace it with another of like utility. The purchase price allocation, which is preliminary and therefore subject to change is as follows (in thousands):
ANNUAL USEFUL AMOUNT AMORTIZATION LIVES -------- ------------ -------- Purchase Price Allocation: Tangible net assets....................................... $ 7,070 n/a n/a Intangible assets acquired: Existing technology..................................... 33,264 2,217 15 years Assembled workforce..................................... 185 62 3 years Goodwill................................................ 30,884 2,059 15 years Deferred compensation..................................... 1,267 633 2 years In-process research and development....................... 4,818 n/a n/a ------- ------ Total estimated purchase price allocation............... $77,488 $4,971 ======= ======
59 NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS OF ABGENIX, INC. AND IMMGENICS (CONTINUED) 1. BASIS OF PRO FORMA PRESENTATION (CONTINUED) INTANGIBLE ASSETS The estimated value of the above intangible assets acquired is included in the pro forma adjustments in the combined balance sheet as of September 30, 2000. The related amortization, on a straight-line basis over the useful lives as indicated above, is included in the pro forma adjustments in the pro forma condensed combined statements of operations. The intangible assets acquired consist of the following: Existing Technology and Assembled Workforce--The technology is comprised of ImmGenics' proprietary technology, the Selected Lymphocyte Antibody Method (SLAM) technology, patented in the United States with applications outstanding in Canada and Europe. This technology is technologically feasible and has been licensed to customers. The assembled workforce is comprised of 27 employees, primarily scientists, with specific experience and knowledge of the ImmGenics' SLAM technology and other technologies in process. The combined allocated value of these two intangible assets is $33.4 million. Deferred compensation--This represents a portion of the estimated intrinsic value of unvested ImmGenics stock options assumed by Abgenix in the merger agreement to the extent that service is required after the closing date of the merger in order to vest. Abgenix expects to amortize the value assigned to deferred compensation of approximately $1.3 million over the remaining vesting period of approximately 2 years. Goodwill--This represents the excess of the purchase price of an investment in an acquired business over the fair value of the underlying net identifiable assets. Approximately $30.9 million will be amortized on a straight-line basis over its estimated remaining useful life of 15 years. IN-PROCESS RESEARCH AND DEVELOPMENT Due to their non-recurring nature, the in-process research and development attributed to the ImmGenics transaction has been excluded from the pro forma statements of operations. ImmGenics' primary in-process research and development activities focus on two efforts as follows:
PERCENT EXPECTED PROJECT COMPLETED TECHNOLOGY LIFE - ------- --------- --------------- Death inducing antibodies............................ 57% 15 years Agonist antibodies................................... 31% 15 years
The income approach was utilized to value this technology which incorporates the present value of future economic benefits such as cash earnings, cost savings, and tax deductions. The rate utilized to discount the net cash flows to their present value was 40% and was based on several studies which examine the rates of return venture capitalists require on their investments. The estimates used in valuing in-process research and development were based upon assumptions believed to be reasonable but which are inherently uncertain and unpredictable. Assumptions may be incomplete or inaccurate, and no assurance can be given that unanticipated events and circumstances will not occur. Accordingly, actual results may vary from the projected results. Any such variance may result in a material adverse effect on ImmGenic's financial condition and results of operations. 60 NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS OF ABGENIX, INC. AND IMMGENICS (CONTINUED) 1. BASIS OF PRO FORMA PRESENTATION (CONTINUED) The value assigned to each acquired in-process research and development project as of the date of this proxy statement-prospectus were as follows (in thousands):
Death inducing antibodies................................... $3,036 Agonist antibodies.......................................... 1,782 ------ Total acquired in-process research and development.......... $4,818 ======
2. PRO FORMA ADJUSTMENTS The Unaudited Pro Forma Condensed Combined Statement of Operations give effect to the allocation of the total purchase cost to the assets and liabilities of ImmGenics based on their respective fair values and to amortization over the respective useful lives of amounts allocated to intangible assets. The pro forma adjustments on the Unaudited Pro Forma Condensed Combined Balance Sheet reflect: - the use of cash associated with the estimated direct costs of the acquisition, - the assumed conversion of ImmGenics debt and preferred stock to common stock, - deferred compensation arising from the intrisic value of ImmGenics employee stock options assumed in the acquisition, and - expense associated with the estimated acquired in-process research and development charge. The pro forma combined provision for income taxes does not reflect the amounts that would have resulted had the Company and ImmGenics filed consolidated income tax returns during the periods presented. 3. PRO FORMA NET LOSS PER SHARE The pro forma basic and dilutive net loss per share are based on the weighted average number of shares of the Company's common stock outstanding during each period adjusted to give effect to shares assumed to be issued had the acquisition taken place at the beginning of the period presented. Dilutive securities including the replacement ImmGenics options are not included in the computation of pro forma diluted net loss per share as their effect would be anti-dilutive. 61 PRIVATE PLACEMENT OF 3,300,000 SHARES OF OUR COMMON STOCK On November 1, 2000, we issued a press release announcing the definitive purchase agreements we entered into for the sale of approximately 3,300,000 shares of newly-issued common stock to selected accredited investors for approximately $230 million of gross proceeds. This private placement financing was consummated on November 6, 2000. The purchase price is $70.00 per share. In addition to newly issued common stock sold by us, approximately 750,000 shares of our common stock were sold by a selling stockholder, Cell Genesys, Inc. in the private placement. The shares of common stock sold in the private placement have not been registered under the Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration, or an applicable exemption from registration. In connection with this private placement, we have undertaken to file a registration statement to cover the shares sold in the private placement. We intend to use net proceeds from the private placement for product development, equity investments in contract parties, acquisition of technologies and businesses, expansion of laboratories and manufacturing facilities and for working capital and general corporate purposes. The foregoing descriptions of the private placement are qualified in their entirety to the texts of the stock purchase agreements we entered into in connection with the private placement, a form of which is attached hereto as an exhibit. ITEM 6 - Exhibits and Reports on Form 8-K (a) Exhibits 62 Exhibit No. Caption ----------- ------- 23.1 Consent of Ernst & Young LLP, Independent Auditors 27.1 Financial Data Schedule 99.1 Acquisition Agreement dated as of September 25, 2000 among Abgenix, Inc., Abgenix Canada Corporation and ImmGenics Pharmaceuticals Inc. 99.2 Plan of Arrangement under Section 252 of the Company Act (British Columbia), including provisions attaching to the ImmGenics special shares, approved by the Supreme Court of British Columbia. 99.3 Voting, Exchange and Cash Put Trust Agreement dated as of November 3, 2000 among Abgenix, Inc., ImmGenics Pharmaceuticals Inc. and CIBC Mellon Trust Company. 99.4 Support Agreement dated as of November 3, 2000 among Abgenix, Inc., Abgenix Canada Corporation and ImmGenics Pharmaceuticals Inc. 99.5 Form of Stock Purchase Agreement between Abgenix, Inc. and the purchasers in the private placement in November 2000. ------------ (b) Reports on Form 8-K - On August 28, 2000 a Form 8-K was filed relating to the vote by our stockholders to approve and adopt an amendment to the Abgenix, Inc. Amended and Restated Certificate of Incorporation to increase the total number of authorized shares of the Corporation's common stock, par value $0.0001 per share ("Common Stock"), from One Hundred Million (100,000,000) to Two Hundred Twenty Million (220,000,000). On August 25, 2000, a Certificate of Amendment was filed with the Delaware Secretary of State to effect the increase. - On October 26, 2000 a Form 8-K was filed relating to the press release announcing a definitive agreement whereby Abgenix, Inc. will acquire ImmGenics Pharmaceuticals Inc. for an aggregate consideration of approximately $77.5 million payable in shares of common stock of Abgenix, Inc. 63 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: November 13, 2000 ABGENIX, INC. (Registrant) /s/ R. Scott Greer -------------------------------------------- R. Scott Greer President and Chief Executive Officer (Principal Executive Officer) /s/ Kurt Leutzinger -------------------------------------------- Kurt Leutzinger Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 64 INDEX TO EXHIBITS EXHIBITS 23.1 Consent of Ernst & Young LLP, Independent Auditors 27.1 Financial Data Schedule 99.1 Acquisition Agreement dated as of September 25, 2000 among Abgenix, Inc., Abgenix Canada Corporation and ImmGenics Pharmaceuticals Inc. 99.2 Plan of Arrangement under Section 252 of the Company Act (British Columbia), including provisions attaching to the ImmGenics special shares, approved by the Supreme Court of British Columbia. 99.3 Voting, Exchange and Cash Put Trust Agreement dated as of November 3, 2000 among Abgenix, Inc., ImmGenics Pharmaceuticals Inc. and CIBC Mellon Trust Company. 99.4 Support Agreement dated as of November 3, 2000 among Abgenix, Inc., Abgenix Canada Corporation and ImmGenics Pharmaceuticals Inc. 99.5 Form of Stock Purchase Agreement between Abgenix, Inc. and the purchasers in the private placement in November 2000. 65 EX-23.1 2 a2030181zex-23_1.txt EXHIBIT 23.1 Exhibit 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements on Form S-8 pertaining to the 1996 Incentive Stock Plan, the 1998 Employee Stock Purchase Plan, the 1998 Director Option Plan, and the 1999 Nonstatutory Stock Option Plan, of Abgenix, Inc., of our report dated October 6, 2000 with respect to the financial statements of ImmGenics Pharmaceuticals Inc., included in this Quarterly Report on Form 10-Q of Abgenix, Inc. for the period ended September 30, 2000. Vancouver, Canada /s/ Ernst & Young LLP November 9, 2000. Chartered Accountants EX-27.1 3 a2030181zex-27_1.txt EXHIBIT 27.1
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED BALANCE SHEETS AND THE STATEMENTS OF OPERATIONS AS OF AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 107,516 437,825 8,608 0 0 563,218 11,914 4,329 687,406 23,630 0 0 0 683,317 (19,947) 687,406 0 13,077 0 0 39,392 0 317 (4,298) 0 (4,298) 0 0 0 (4,298) (0.05) (0.05)
EX-99.1 4 a2030181zex-99_1.txt EXHIBIT 99.1 ACQUISITION AGREEMENT THIS ACQUISITION AGREEMENT (this "Agreement"), dated as of September 25, 2000 (the "Execution Date"), between Abgenix, Inc., a Delaware corporation ("Parent"), Abgenix Canada Corporation, an unlimited liability company organized and existing under the laws of the Province of Nova Scotia ("Abgenix Canada"), and ImmGenics Pharmaceuticals Inc., a corporation organized and existing under the laws of the Province of British Columbia (the "Company"). The parties enter into this Agreement on the basis of the following facts, understandings and intentions: A. The Company is engaged in the business of research and development relating to the generation of monoclonal antibodies, proteins and other biological materials and derivatives thereof. B. The Board, after pursuing and considering a number of strategic alternatives, has determined that the Acquisition and the Arrangement is fair to the Members and is in the best interests of the Company and the Members, and wishes Parent to acquire all of the voting securities of the Company on the terms and conditions set forth in this Agreement (the "Acquisition"). C. Parent is prepared to purchase all of the voting securities of the Company pursuant to an arrangement under the BC Act, subject to the terms and conditions of this Agreement. D. Certain Members of the Company, who in the aggregate own not less than seventy-five percent (75%) of the outstanding shares of Company Capital Stock (on an "as-converted" basis and assuming the full exercise of all outstanding Company Options) as of the Execution Date, have entered into the Shareholder Voting Agreement and Irrevocable Proxy with Parent dated as of the Execution Date, and shall enter into the Escrow Agreement on or prior to the Closing Date, in which they agree, among other things, to provide a limited indemnity to Parent against certain losses resulting from certain breaches of this Agreement by the Company and to establish an escrow fund as security therefor. NOW, THEREFORE, in consideration of the mutual covenants and promises of the parties, the parties hereto agree as follows: 1. DEFINITIONS 1.1 Definitions. The following capitalized terms used throughout this Agreement shall have the following meanings: "1933 Act" means the United States Securities Act of 1933, as amended. "1934 Act" means the United States Securities Exchange Act of 1934, as amended. "Abgenix Canada" has the meaning assigned it in the introductory paragraph. "Acquisition" has the meaning assigned it in the Recitals hereto. 1 "Acquisition Proposal" has the meaning assigned it in Section 3.2(a). "Agreement" means this agreement. "Ancillary Agreements" means the Shareholder Voting Agreement and Irrevocable Proxy, the Support Agreement, the Voting, Exchange and Cash Put Trust Agreement, the Option Replacement Agreement, the Escrow Agreement and the Plan of Arrangement. "Applicable Corporate Laws" has the meaning specified in Section 2.1(g). "Applicable Securities Laws" has the meaning specified in Section 2.1(g). "Applicable Regulatory Approvals" means the Authorizations of Governmental Entities or self-regulatory organizations set forth in Schedule 1.1 hereto. "Arrangement" means the arrangement proposed under Section 252 of the BC Act referred to in the Plan of Arrangement and attached hereto as Exhibit A, and any amendments thereto or variations thereof made in accordance with its terms, the terms of this Agreement and the Special Resolution. "Authorization" means with respect to any Person, any order, permit, approval, waiver, license, ruling, consent, exception or similar authorization (including the lapse, without objection, of a prescribed time under a statute or regulation that states that a transaction may be implemented if a prescribed time lapses following the giving of notice without an objection being made) of any Governmental Entity having jurisdiction over such Person. "BC Act" means the Company Act (British Columbia). "Board" means the Board of Directors of the Company. "Budget 2001" means the budget of the Company attached to Section 3.1 of the Company Disclosure Schedule. "Closing Date" shall mean the date that is two (2) business days following the satisfaction or waiver of the conditions set forth in this Agreement, or such other date as the parties hereto shall mutually agree in writing. "Closing Time" means 10:00 a.m. (Vancouver time) on the Closing Date. "Company" has the meaning assigned it in the introductory paragraph. "Company Capital Stock" means, collectively, the Company Common Shares, Company Class A Shares and Company Class B Shares. "Company Class A Shares" means the Class A preferred shares without par value in the capital of the Company outstanding from time to time. "Company Class B Shares" means the Class B preferred shares with a par value of CDN$1.00 per share in the capital of the Company outstanding from time to time. "Company Common Shares" means the common shares without par value in the capital of the Company outstanding from time to time. 2 "Company Consents and Waivers" has the meaning assigned it in Section 2.2(b)(vi). "Company Convertible Debenture" means that certain debenture convertible into 343,595 shares of Company Class A Shares held on the Execution Date by Corixa Corporation. "Company Disclosure Schedule" has the meaning assigned it in Section 5. "Company Fully Diluted Shares" shall be the aggregate number of Company Special Shares outstanding as of the Closing Date, plus the aggregate number of Company Common Shares that would have been purchasable upon exercise of all Company Options that are vested as of the Closing Date (after giving effect to the acceleration of such Company Options contemplated hereby) were such Company Options not replaced in accordance with the terms of the Option Replacement Agreement. "Company Optionholder" means any holder of a Company Option. "Company Options" means outstanding options to purchase Company Common Shares. "Company Plan" means the ImmGenics 1996 Stock Option Plan, as amended. "Company Special Shares" means the special shares of the Company to which will be attached the rights, privileges, restrictions and conditions set forth in the Special Resolution. "Confidentiality Agreement" means the Confidentiality Agreement between the Company and Parent dated August 18, 2000. "Court" means the Supreme Court of British Columbia. "Effective Date" means the date on which the Final Order is accepted for filing by the Registrar of Companies for British Columbia under the BC Act giving effect to the Arrangement. "Effective Time" means the time of filing the certified Final Order effecting the Arrangement, which is expected to be approximately 9:00 a.m. (Vancouver time) on the Effective Date. "Employee Benefit Plan" means any employee benefit or compensation plan, program, agreement or arrangement whether written or unwritten, including any profit-sharing, deferred compensation, bonus, change in control, stock option, stock purchase, pension, retirement, severance, welfare, fringe benefit, vacation, sick leave, sabbatical, parenting, medical, dental, hospitalization, life or other insurance or incentive plan, program, agreement or arrangement offered or sponsored by the Company covering the employees or former employees of the Company in their capacities as such. "Environmental Laws" means all applicable Laws and all agreements with Governmental Entities relating to public health and occupational safety as they relate to the environment, or the handling, storage, disposal and discharge of Hazardous Substances, or the protection of the environment, and all Authorizations issued pursuant to such Environmental Laws. "Environmental Permits" has the meaning assigned it in Section 5.16. "Escrow Agreement" means the Escrow Agreement substantially in the form attached hereto as Exhibit B to be entered into on or prior to the Closing Date by the Principal Members, the Company, Parent and the Escrow Agent party thereto, concerning the limited indemnification of Parent against 3 certain losses resulting from certain breaches of this Agreement by the Company and the establishment of an escrow fund as security therefor. "Exchange Ratio" means the ratio of Abgenix Common Stock issuable on exchange of each Company Special Share that will be issued for each Company Common Share pursuant to the Recapitalization which will be determined on the SEC Effective Date. The "Exchange Ratio" shall be equal to the Purchase Price per Share, divided by the Parent Stock Price. "Execution Date" has the meaning assigned it in the introductory paragraph. "Fairness Opinion" means the opinion of SG Cowen Securities Corporation as to the fairness of the consideration of the Acquisition from a financial point of view to the Members. "Final Order" means the order of the Court approving the Arrangement. "Governmental Entity" means any (a) multinational, federal, provincial, state, regional, municipal, local or other government, governmental or public department, regulatory body, court or tribunal, domestic or foreign, (b) any subdivision, arbitral body, commission, board, bureau, agency or authority of any of the foregoing, or (c) any quasi-governmental or private body exercising any regulatory, expropriation or taxing authority under or for the account of any of the foregoing. "Hazardous Substance" means any pollutant, contaminant, waste of any nature, hazardous substance, hazardous material, toxic substance, dangerous substance or dangerous good as defined or identified in or regulated by any Environmental Laws. "Information Circular" means the notice of special meeting and information circular, including all schedules thereto, prepared by management of the Company and approved by the Board and sent to Members in connection with the solicitation of proxies by management of the Company for use at the Meeting. "Intellectual Property Rights" means, with respect to an entity, patents and applications for patents, trademarks, trade names, trade secrets, service marks, and copyrights, and applications therefor, inventions, technology, engineering or other processes, object code, products and processes under development, databases, drawings, designs, formulae, prototypes, proprietary know-how or information, other confidential information, or other rights or materials with respect thereto owned or used by such entity, together with all antecedent derivative works, or in which such entity has any rights or Licenses to use in the business of such entity. "Interim Order" means the order of the Court providing for, among other things, the calling, holding and conduct of the Meeting and the application for the Final Order as contemplated under the Plan of Arrangement. "Knowledge of the Company" or "the Company's knowledge" or other words of similar import mean the actual knowledge of any of directors and officers of the Company, after due inquiry. "Laws" means all statutes, regulations, statutory rules, orders, decisions, written policies or guidelines, general principles of common law, and terms and conditions of any grant of approval, permission, authority or license of any Governmental Entity or self-regulatory authority, including NASDAQ, and the term "applicable" with respect to such Laws and in the context that refers to one or more Persons, means that such Laws apply to such Person or Persons or its or their business, 4 undertakings, property or securities and emanate from a Governmental Entity or self-regulatory authority having jurisdiction over the Person or Persons or its or their business, undertakings, property or securities. "Licenses" means licenses, sublicenses, agreements, permissions, undertaking and understandings pursuant to which any third party is licensed or authorized to use any Intellectual Property Rights of a party hereto or pursuant to which a party hereto is authorized to use the Intellectual Property Rights of any third party (but not including material transfer agreements or confidentiality agreements that would not otherwise by themselves constitute a License, or any off-the-shelf shrink wrap licenses). "Material Adverse Effect" or "Material Adverse Change" means any material adverse effect on or change in the business, affairs, operations, assets (whether tangible or intangible, including licenses, permits, rights, privilege or other Intellectual Property Rights, whether contractual or otherwise), capitalization, or financial condition, of the specified entity or on the ability of such entity to consummate the transactions contemplated by this Agreement and the Ancillary Agreements; provided, however, that none of the following shall be deemed either alone or in combination to constitute, and none of the following shall be taken into account in determining whether there has been or will be, a Material Adverse Effect or Material Adverse Change on an entity: (a) any change in the market price or trading volume of such entity's stock other than such change that is a result of an event or a fact that would constitute a Material Adverse Effect or Material Adverse Change; (b) any failure by such entity to meet internal projections, budgets or forecasts; (c) any adverse change, event or effect, attributable or relating to the announcement or pendency of this Agreement, the Acquisition or the Arrangement; other than with respect to Intellectual Property Rights; (d) any adverse change, event or effect attributable or relating to conditions affecting the industry or industry sector in which such entity participates, or the U.S. or Canadian economy as a whole; (e) any adverse change, event or effect attributable or relating to (i) customary and usual out-of-pocket fees and expenses (including legal, accounting, investment banking and other fees and expenses) incurred in connection with the transactions contemplated by this Agreement, or (ii) the payment of any amounts due to, or the provision of any other benefits to, any officers or employees under such employment contracts, non-competition agreements, employee benefit plans, severance arrangements or other arrangements as set forth in Sections 5.11 and 5.13 of the Company Disclosure Schedule; (f) any adverse change, event or effect attributable or relating to compliance with the terms of, or the taking of any action required by, this Agreement or the taking of any action consented to in writing by the other parties to this Agreement; (g) any adverse change, event or effect attributable or relating to actions required to be taken under applicable Laws applicable as of the Execution Date, or, to the extent permitted under this Acquisition Agreement, such contracts or agreements as set forth in Section 5.7 of the Company Disclosure Schedule. "Meeting" means the special meetings of the securityholders of the Company, including any adjournment or postponements thereof, to be convened to consider and, if thought advisable, to pass the Special Resolution. "Members" means the shareholders of the Company. "NASDAQ" means the Nasdaq National Market. "Ordinary Shares" means the ordinary shares of the Company to be issued pursuant to the Recapitalization and which has the rights, privileges, restrictions and conditions set forth in the Special Resolution. "Option Replacement Agreement" means an agreement substantially in the form attached hereto as Exhibit C to be entered into among Parent and the Company in connection with the Recapitalization. 5 "Parent" has the meaning assigned it in the introductory paragraph. "Parent Common Stock" means the common stock, par value $0.0001 per share, of Parent. "Parent Consents and Waivers" has the meaning assigned it in Section 2.2(c)(iv). "Parent Disclosure Schedule" has the meaning assigned it in Section 4. "Parent Material Adverse Effect" or "Parent Material Adverse Change" means a material adverse effect on or change or material delay in the ability of Parent to consummate the transactions contemplated by this Agreement and the Ancillary Agreements, including its obligations under Section 2.4(d), (e) and (f) hereof, or any event that would cause the delisting of the Parent Common Stock from NASDAQ. "Parent Plan" shall mean the Abgenix 1999 Non-statutory Stock Option Plan, as amended. "Parent Special Voting Share" means the share of Parent Special Voting Preferred Stock having substantially the rights, privileges, restrictions and conditions described in the Voting, Exchange and Cash Put Trust Agreement. "Parent Stock Price" shall be equal to the average of the closing prices of one share of Parent Common Stock, as quoted on NASDAQ, for the five (5) trading days ending on the day immediately preceding the SEC Effective Date. "Patent Disclosure Agreement" means the agreement dated September 12, 2000 entered into by the Company and Parent, among others, relating to the review of the intellectual property of the Company. "Person" includes any individual, firm, partnership, joint venture, venture capital fund, limited liability company, unlimited liability company, association, trust, trustee, executor, administrator, legal personal representative, estate, group, body corporate, corporation, unincorporated association or organization, Governmental Entity, syndicate or other entity, whether or not having legal status. "Plan of Arrangement" means the plan of arrangement proposed under Section 252 of the BC Act in the form attached as Exhibit A to this Agreement, as amended, modified or supplemented from time to time in accordance herewith and any order of the Court. "Principal Members" means the Members of the Company who have entered into the Shareholder Voting Agreement and Irrevocable Proxy and who will enter into the Escrow Agreement. "Purchase Price per Share" means Seventy-five million United States dollars (US$75,000,000), plus the aggregate exercise price of all vested Company Options to be replaced on the Closing Date, and then divided by the number of Company Fully-Diluted Shares as of the Closing Date. "Recapitalization" means the capital reorganization to be effected pursuant to the Plan of Arrangement. "Registration Statement" has the meaning assigned to it in Section 2.4(d). "Replacement Options" means the options to purchase shares of Parent Common Stock issued in exchange for the Company Options. 6 "SEC" means the Unites States Securities and Exchange Commission. "SEC Effective Date" means the date on which the Registration Statement becomes effective. "Shareholder Voting Agreement and Irrevocable Proxy" means the Shareholder Voting Agreement and Irrevocable Proxy made and entered into as of the Execution Date, by certain principal shareholders concerning the voting of their shares of Company Capital Stock and Company Convertible Debentures to effect the Recapitalization, the Arrangement and the Acquisition. "Special Resolution" means the special resolution to effect the Recapitalization and the Arrangement passed by 75% of the following: (i) persons entitled to vote as holders of Company Common Shares and holders of Company Options, (ii) holders of Company Class A Shares, (iii) holders of Company Class B Shares, and (iv) holders of Company Convertible Debentures, in each case present and voting at the Meeting. "Support Agreement" means the support agreement substantially in the form attached hereto as Exhibit D to be entered into among the Company, Parent, and Abgenix Canada. "Tax" has the meaning assigned it in Section 5.17. "Trustee" means the trustee or any successor trustee as determined in accordance with the Voting, Exchange and Cash Put Trust Agreement. "Voting, Exchange and Cash Put Trust Agreement" means the voting, exchange and cash put trust agreement substantially in the form attached as Exhibit E to be entered into among Parent, Abgenix Canada, the Company and the Trustee. 1.2 Accounting Matters. Unless otherwise stated, all accounting terms used in this Agreement regarding the Company shall have the meanings attributable thereto under Canadian generally accepted accounting principles and all determinations of an accounting nature regarding the Company required to be made shall be made in a manner consistent with Canadian generally accepted accounting principles. Unless otherwise stated herein, all accounting terms used in this Agreement regarding Parent shall have the meanings attributable thereto under United States generally accepted accounting principles and all determinations of an accounting nature required to be made regarding Parent shall be made in a manner consistent with United States generally accepted accounting principles. 2. THE ACQUISITION 2.1 The Acquisition. The parties agree to effect the transaction pursuant to the Arrangement, pursuant to which the Company shall recapitalize its share capital so that all holders of shares of Company Capital Stock and the holder of the Company Convertible Debenture shall become holders of Company Special Shares and the Company shall create a new class of Ordinary Shares to be acquired by Abgenix Canada at US$1.00 payable in cash. (a) Under the Arrangement, on the Closing Date (i) the vesting date of all outstanding Company Options under the Company Plan (except for Company Options granted to employees hired after the Execution Date) shall accelerate by 7 twelve (12) full months and they otherwise shall continue to vest in accordance with their terms at the same rate as prior to the Closing Date, (ii) all other Company Options shall accelerate and/or vest in accordance with their terms, and (iii) the period of exercisability for all Company Options shall be extended by the number of days between the Closing Date and the SEC Effective Date. The Company Plan shall be terminated on the Closing Date and references to the Company Plan in existing option agreements shall be deemed to refer to the Parent Plan. (b) Pursuant to the Option Replacement Agreement, on the Closing Date, Parent shall grant new options (the "Replacement Options") to acquire shares of Parent Common Stock to all Company Optionholders in replacement for each Company Option, whether or not vested and whether or not granted under the Company Plan. No Company Options shall be exercisable during the period between the Closing Date and the SEC Effective Date. On and after the SEC Effective Date, (i) each Replacement Option will be exercisable for that number of whole shares of Parent Common Stock equal to the number of Company Common Shares that were issuable upon exercise of such Company Option immediately prior to the Closing Date, multiplied by the Exchange Ratio, plus cash in lieu of any fractional shares of Parent Common Stock determined in accordance with Section 2.1(i), and (ii) the per share exercise price for the shares of Parent Common Stock issuable upon exercise of such Replacement Option will be equal to the quotient determined by dividing the exercise price per Company Common Share at which such Company Option was exercisable immediately prior to the Closing Date by the Exchange Ratio, rounded up to the nearest whole cent. Parent shall take all corporate actions necessary to reserve for issuance a sufficient number of shares of Parent Common Stock for delivery upon exercise of Replacement Options on the terms set forth in the Option Replacement Agreement. (c) Parent may elect, in its sole discretion, to make the Acquisition itself, or through Abgenix Canada. In the event that Abgenix Canada makes the Acquisition, the term "Parent" as used herein shall include, as appropriate, Abgenix Canada, provided, however, Parent shall be liable to the Company for any default in performance by Abgenix Canada to the extent Abgenix Canada cannot or does not meet its obligations. (d) The Arrangement shall be effected in accordance with all Applicable Corporate Laws and shall be subject only to the conditions set forth in this Agreement. Each of the parties to this Agreement shall use its reasonable best efforts to consummate the Acquisition, subject only to the terms and conditions of this Agreement. Each of the parties to this Agreement shall use its reasonable best efforts to obtain all of the Applicable Regulatory Approvals, waivers and consents required for consummation of the Acquisition and to satisfy the conditions precedent to the Acquisition to the extent they are within its power. (e) The matters described in this Agreement shall be initiated on an expeditious basis and each party shall, and shall use its reasonable best efforts to cause third parties to, meet the schedules and time frames set forth in this Agreement, including reaching agreement as to the form and substance of the legal opinions referenced in Sections 2.2(b)(xiv) and 2.2(c)(v) within fifteen (15) days after the Execution 8 Date. Each of the parties to this Agreement shall use its reasonable best efforts to cause the conditions specified in Section 2.2 to be satisfied within the time periods required thereby, and all matters described in this Agreement shall be carried out in a cooperative manner and the parties will keep each other informed as to progress. (f) The Company shall consult with Parent and its counsel and allow each of them to fully participate in the preparation of all documentation to be sent to the Members, or to any other Person in obtaining any Applicable Regulatory Approvals and any other consents and waivers required for consummation of the Acquisition. All such documentation, including the Information Circular and the Special Resolution, shall be in form and substance reasonably satisfactory to Parent. Each party shall, in a timely and expeditious manner, subject to the Confidentiality Agreement and the Patent Disclosure Agreement, provide to the other parties to this Agreement all information as may be reasonably requested by the other or required by applicable law with respect to such party and its businesses and properties for inclusion in the Information Circular, or in any amendments or supplements to the Information Circular, which information shall comply in all material respects with all applicable legal requirements on the date of mailing of the Information Circular and shall not contain any material misrepresentation or material omission (as defined under Applicable Securities Laws) and the parties supplying such information shall indemnify and save harmless the other parties and the directors and other officers of the other parties from and against any and all claims, suits, actions, causes of actions, liabilities, damages, costs, charges and expenses of every nature and kind whatsoever for which the other parties, their respective directors or officers may become liable by virtue of such information containing a misrepresentation, provided that such information is included in the Information Circular in the form approved by the supplying party, and this indemnity shall survive the filing of the certified Final Order. (g) The Company shall ensure that the Information Circular to be sent to the Members in connection with the Meeting contains all information that is required to be included therein in accordance with all applicable Laws, including all applicable corporate Laws, including the BC Act ("Applicable Corporate Laws") and all state, provincial, United States, Canadian and other foreign applicable securities Laws ("Applicable Securities Laws") and, without limiting the generality of the foregoing, provides its securityholders with information in sufficient detail to permit them to form a reasoned judgment concerning the Acquisition and the Plan of Arrangement. (h) To the extent that a Member not resident in Canada does not provide a certificate issued pursuant to Section 116 of the Income Tax Act (Canada) with a certificate limit acceptable to Parent, Abgenix Canada and the Company, as applicable, shall be authorized to withhold any amounts that it may be required to remit to the Receiver General pursuant to Subsection 116[5] of the Income Tax Act (Canada). (i) As promptly as practicable, but in no event more than two (2) business days, after the SEC Effective Date, Parent shall notify each Member in writing of the occurrence of the SEC Effective Date and the Parent Stock Price. On and after 9 the SEC Effective Date, each Company Special Share shall be exchangeable, in accordance with their terms, the Support Agreement, and the Voting, Exchange and Cash Put Trust Agreement for that fraction of a share of Parent Common Stock equal to the Exchange Ratio. No fraction of a share of Parent Common Stock will be issued upon exchange of Company Special Shares, but in lieu thereof each holder of Company Special Shares who would otherwise be entitled to receive a fraction of a share of Parent Common Stock (after aggregating all fractional shares of Parent Common Stock that otherwise would be received by such holder) shall, upon such exchange receive from the Company an amount of cash (rounded to the nearest whole cent), without interest, equal to the product of (x) such fraction, multiplied by (y) the Parent Stock Price. 2.2 Conditions Precedent to Closing. (a) Mutual Conditions Precedent. The respective obligations of the parties hereto to complete the transactions contemplated by this Agreement shall be subject to the satisfaction, on or before the Closing Date, of the following conditions precedent, each of which may only be waived by the mutual written consent of Parent and the Company: (i) the Final Order, in a form reasonably satisfactory to the parties to this Agreement, shall have been obtained and shall have been accepted for filing by the Registrar of Companies under the BC Act at or before 4:30 p.m. (Vancouver time), December 1, 2000, or such other date as may be mutually agreed upon by the parties to this Agreement in writing, and shall not have been set aside or modified in a manner reasonably unacceptable to such parties on appeal or otherwise; (ii) all Applicable Regulatory Approvals shall have been obtained; (iii) there shall not be in force any order or decree from a Governmental Entity of competent jurisdiction restraining or enjoining the consummation of the transactions contemplated by this Agreement and there shall be no proceeding (other than an appeal made in connection with the Arrangement), of a judicial or administrative nature or otherwise, brought by a Governmental Entity in progress or threatened that relates to or results from the transactions contemplated by this Agreement that would, if successful, result in an order or ruling that would preclude completion of the transactions contemplated by this Agreement in accordance with the terms hereof or would materially alter the terms and conditions of this Agreement or the Arrangement, or would otherwise be inconsistent with the Applicable Regulatory Approvals which have been obtained; (iv) Parent shall have received the approval of NASDAQ for the listing of the shares of Parent Common Stock issuable pursuant to the terms of the Company Special Shares, the Support Agreement, and the Voting, Exchange and Cash Put Trust Agreement; (b) Additional Conditions Precedent to the Obligations of Parent and Abgenix Canada. The obligations of Parent and Abgenix Canada to complete the 10 transactions contemplated by this Agreement shall, in addition, be subject to the satisfaction, on or before the Closing Date, of the following conditions precedent. Such additional conditions are for the exclusive benefit of Parent and may be waived in writing by Parent, in whole or in part, in its sole discretion, at any time and from time to time: (i) (x) The representations and warranties made by the Company in this Agreement shall have been true, correct and complete in all respects as of the Execution Date, and shall be true, correct and complete in all respects as of the Closing Date as if made at the Closing Date (or, to the extent such representations and warranties speak as of an earlier date, they shall be true in all respects as of such earlier date) except in each case (A) as qualified by the Company Disclosure Schedule or as otherwise contemplated by this Agreement and (B) for such failures which in the aggregate have not had and would not reasonably be expected to have a Material Adverse Effect on the Company without giving effect to any update to the Company Disclosure Schedule, and without giving effect to any "Material Adverse Effect" or other materiality qualifications, or any similar qualifications, contained or incorporated directly or indirectly in such representations and warranties; provided, however, that such Material Adverse Effect qualifier shall be inapplicable with respect to the representations and warranties contained in Section 5.21, which individually shall have been true, complete and correct in all material respects as of the Execution Date and shall be true, complete and correct in all material respects on and as of the Closing Date; (y) all covenants of the Company under this Agreement, or any Ancillary Agreement to be performed by the Company on or before the Closing Date shall have been duly performed by the Company in all material respects; and (z) Parent shall have received a certificate of the Company addressed to Parent and dated the Closing Date, signed on behalf of the Company by its President and Chief Executive Officer together with one director of the Company, confirming the same as at the Closing Date; (ii) each of the representations and warranties of the Members which are set forth in the Shareholder Voting Agreement and Irrevocable Proxy shall be true, correct and complete in all material respects at the Closing Date, each of their covenants and obligations set forth in the Shareholder Voting Agreement and Irrevocable Proxy to be performed on or before the Closing Date shall have been duly performed in all material respects, other than any such failure to be true, correct and complete, or any such breach which does not have the effect, or could not reasonably be expected to have the effect, of enjoining, prohibiting, or imposing material limitations, damages or conditions on the purchase by, or the sale to, Parent of the Company or the right of Parent to own or exercise full rights of ownership as the sole voting Member, and the Shareholder Voting Agreement and Irrevocable Proxy shall not have been terminated; (iii) the Board shall not have withdrawn, modified or changed any of the recommendations or determinations set forth in Section 2.3, and Parent shall have received documentation to its reasonable satisfaction that any 11 notices, consents or approvals under any shareholder agreement, investment agreement, share purchase agreement, co-sale agreement, registration rights agreement, bonus warrant agreement, penalty warrant agreement, or any other similar agreement required to be obtained in connection with this Agreement, the Arrangement or the Acquisition shall have been obtained or each such agreement, if so requested by Parent in writing, shall have been terminated in its entirety; (iv) no claim, act, action, suit or proceeding, dispute or formal investigation shall have been threatened or taken before or by any Governmental Entity, and no claim, act, action, suit or proceeding, dispute or investigation shall have been taken by any elected or appointed public official or by any private Person, in Canada or elsewhere, and no law, regulation or policy shall have been enacted, promulgated or applied, whether or not having the force of law; (A) which, in the reasonable opinion of Parent, has the effect or could reasonably be expected to have the effect of enjoining, prohibiting or imposing material limitations, damages or conditions on the purchase by, or the sale to, Parent, of the Company or the right of Parent to own or exercise full rights of ownership as the sole voting Member; or (B) which, in the reasonable opinion of Parent, has had or could be expected to have a Material Adverse Effect on the Company; (v) in the opinion of Parent acting reasonably and in good faith, there shall not have occurred and would not reasonably be expected to occur any Material Adverse Change in the Company; (vi) all consents or waivers by third parties relating to the Acquisition listed on Schedule 2.2(b)(vi) ("Company Consents and Waivers") shall have been obtained; (vii) there shall not have occurred a Minimum Dissent Event. A "Minimum Dissent Event" shall mean holder(s) of 10% or more of the outstanding Company Common Shares (calculated on an "as-converted" basis and assuming the full exercise of all outstanding Company Options) have voted against the Special Resolution; (viii) such directors of the Company as Parent may specify shall have tendered their resignations to the Company, effective as of the Closing Time, and the Company shall have filled such vacancies with designees of Parent, effective as of the Closing Time; (ix) 80% of the employees listed in Schedule 2.2(b)(ix) attached hereto, shall remain employed by the Company and there shall not have been any resignation notice from more than 20% of the employees listed in Schedule 2.2(b)(ix) received by the Company; 12 (x) the Escrow Agreement shall have been duly executed and delivered and shall be in full force and effect and unmodified; (xi) the Company shall not have made any Tax election, changed any accounting method with respect to Taxes, filed any amended Return (other than those Returns filed in response to comments from the Canadian tax authorities in relation to claims for federal research and experimental development tax credit, provided that such Returns do not involve any Tax payment by the Company), or settled or compromised any proceeding with respect to a Tax liability; and (xiv) Parent shall have received a legal opinion in form and substance reasonably satisfactory to Parent from counsel for the Company covering the following matters: due incorporation, due execution, due authorization, no violation, capitalization before and after the Closing Date, due issuance and validity, the obtainment of the Interim Order and the Final Order, and the acceptance for filing thereof by the Registrar of Companies for British Columbia, and the enforceability of this Agreement and the Ancillary Agreements. Parent may not rely on the failure to satisfy any of the conditions precedent in Sections 2.2(a) or 2.2(b) as a basis for non-compliance by Parent with its obligations under this Agreement if the conditions precedent in Section 2.2 (a) or 2.2(b) would have been satisfied but for a material default by Parent in complying with its obligations under this Agreement. (c) Additional Conditions Precedent to the Obligations of the Company. The obligations of the Company to complete the transactions contemplated by this Agreement shall in addition be subject to the satisfaction, on or before the Closing Date, of the following conditions precedent. Such additional conditions are for the exclusive benefit of the Company and may be waived by the Company, in whole or in part, in its sole discretion, at any time and from time to time: (i) (x) The representations and warranties made by Parent and Abgenix Canada in this Agreement shall have been true, correct and complete in all respects as of the Execution Date, and shall be true, correct and complete in all respects as of the Closing Date as if made at the Closing Date (or, to the extent such representations and warranties speak as of an earlier date, they shall be true in all respects as of such earlier date) except in each case (A) as otherwise disclosed in the Parent Disclosure Schedule or as contemplated by this Agreement and (B) for such failures which in the aggregate have not had and would not reasonably be expected to have a Parent Material Adverse Effect (y) all covenants of Parent and Abgenix Canada under this Agreement or any Ancillary Agreement to be performed on or before the Closing Date shall have been duly performed by Parent and Abgenix Canada, as applicable, in all material respects, and (z) the Company shall have received a certificate of Parent and Abgenix Canada addressed to the Company and dated the Closing Date, signed on behalf of Parent and Abgenix Canada by two 13 authorized senior executive officers of Parent and Abgenix Canada, confirming the same as at the Closing Date; (ii) no claim, act, action, suit or proceeding, dispute or formal investigation shall have been threatened or taken before or by any Governmental Entity, and no claim, act, action, suit or proceeding, dispute or investigation shall have been taken by any elected or appointed public official or by any private Person, in Canada or elsewhere, and no law, regulation or policy shall have been enacted, promulgated or applied, whether or not having the force of law; (A) which, in the reasonable opinion of the Company, has the effect or could reasonably be expected to have the effect of enjoining, prohibiting or imposing material limitations, damages or conditions on the ability of the Members to own or exercise full rights of ownership as the holders of the Company Special Shares or to receive Parent Common Stock upon the exchange thereof pursuant to their terms, the Voting, Exchange and Cash Put Trust Agreement and the Support Agreement; (B) which, in the reasonable opinion of the Company, has had or could reasonably be expected to have a Parent Material Adverse Effect; (iii) in the opinion of the Company acting reasonably and in good faith, there shall not have occurred and would not be reasonably expected to occur a Parent Material Adverse Change; (iv) all consents or waivers by third parties required for the consummation of the Acquisition listed on Schedule 2.2(c)(iv) ("Parent Consents and Waivers") shall have been obtained; and (v) the Company shall have received a legal opinion in form and substance reasonably satisfactory to the Company from counsel for Parent covering the following matters: due incorporation, due execution, due authorization, no violation, due issuance and validity, and the enforceability of this Agreement and the Ancillary Agreements. The Company may not rely on the failure to satisfy any of the conditions precedents in Sections 2.2(a) or 2.2(c) as a basis for non-compliance by the Company with its obligations under this Agreement if the condition precedent in Sections 2.2(a) or 2.2 (c) would have been satisfied but for a material default by the Company in complying with its obligations under this Agreement. 2.3 Company Action. (a) The Company represents and warrants to Parent that the Board has received the Fairness Opinion to the effect that the consideration to be offered to its Members pursuant to the Acquisition is fair from a financial point of view to the Members and that the Board, upon review of the Fairness Opinion and consultation with its advisors, has determined unanimously that: 14 (i) the Acquisition and the Arrangement is fair to the Members and is in the best interests of the Company and the Members; (ii) the Board will recommend that Members vote in favor of the Arrangement; and (iii) this Agreement is in the best interests of the Company and the Members. (b) The Company represents that all members of its Board have advised it that they, in their capacity as Members of the Company, intend to vote all of their Company Capital Stock and Company Options in favor of the Special Resolution necessary to effect the Arrangement and the Company shall so represent in the Information Circular. (c) The Company covenants in favor of Parent that it shall: (i) as soon as reasonably practical, but in no event later than five (5) business days after the Execution Date, apply in a manner acceptable to Parent, acting reasonably, under Section 252 of the BC Act for the Interim Order; (ii) obtain from the holders of the Company Class A Shares, the Company Class B Shares and, if the Company Convertible Debenture shall not have been converted in accordance with its terms prior to the date of the Meeting to consider the Plan of Arrangement, from the Company Convertible Debenture by way of Special Resolution or otherwise as required by law consent to the Arrangement; (iii) as soon as practicable, but in no event later than thirty (30) calendar days after the issuance of the Interim Order, take all necessary actions to convene and hold the Meeting for the purpose of considering the Special Resolution (and for any other proper purpose as may be set out in the notice for such meeting); (iv) subject to obtaining any prior approvals as required by the Interim Order, within fifteen (15) calendar days after the Meeting, use its reasonable best efforts to proceed with and diligently pursue the application to the Court for the Final Order; (v) subject to obtaining the Final Order and the satisfaction or waiver of the other conditions herein contained in favor of each party, send to the Registrar of Companies for British Columbia a certified Final Order and such other documents as may be required in connection therewith under the BC Act to give effect to the Arrangement; (vi) execute and deliver the Option Replacement Agreement on or prior to the Closing Date; and (vii) use its reasonable best efforts to cause each holder of the Company Options as of the Closing Date to execute and deliver an agreement 15 substantially the same in substance as the Option Replacement Agreement. 2.4 Parent Action Parent covenants in favor of the Company that, it shall: (a) execute and deliver the Option Replacement Agreement on or prior to the Closing Date; (b) execute and deliver and cause Abgenix Canada to execute and deliver the Support Agreement on or prior to the Closing Date; (c) to issue to the Trustee the Parent Special Voting Share on or prior to the Closing Date; (d) within ten (10) days after the Closing Date, file a Registration Statement on Form S-1 (or Form S-3, as the case may be, (the "Registration Statement") with the SEC in order to register under the 1933 Act the shares of Parent Common Stock to be issued from time to time after the SEC Effective Date upon exchange of the Company Special Shares and shall use its reasonable best efforts to cause the Registration Statement; to become effective as soon as reasonably practicable thereafter and to maintain the effectiveness of such Registration Statement, to the extent permitted by law, for a period of four (4) years, or until no Company Special Shares shall be outstanding, whichever is earlier; provided, however, that notwithstanding anything in this Agreement or the Arrangement or any related agreement to the contrary, (a) Parent shall have the right at any time to substitute any other registration statement of Parent for the Registration Statement; in the event of such substitution, the term "Registration Statement" as used in this Agreement shall include such substitute registration statement, as appropriate); and (b) if Parent shall furnish to the holders of Company Special Shares at any time after fifteen (15) days after the SEC Effective Date, a certificate signed by the President or Chief Executive Officer of Parent stating that the Board of Directors of Parent has made the good faith determination that it is in the best interests of the Company to suspend the use of the Registration Statement (and the prospectus relating thereto), then the right of holders of the Company Special Shares to exchange their Company Special Shares for shares of Parent Common Stock shall be suspended, if any of the following events shall occur: (i) pending negotiations relating to, or the consummation of, a transaction or the occurrence of an event that requires additional disclosure of material information by the Parent in the Registration Statement (or the prospectus relating thereto) and which has not been so disclosed; (ii) a material corporate transaction is pending or has occurred, the disclosure of which should be set forth in the Registration Statement and the Board of Directors of Parent shall have determined in good faith that such disclosure would not be in the best interests of Parent and its stockholders; or (iii) the Board of Directors of Parent shall have determined in good faith that it is in the best interests of Parent to suspend the use of the Registration Statement; provided, however, that no suspension of the use of the Registration Statement pursuant to this Section 2.4(d) shall take place unless a similar suspension shall apply to all other registration statements covering Parent Common Stock. Upon the occurrence of any such suspension, Parent shall use 16 its reasonable best efforts to promptly amend or supplement the Registration Statement on a post-effective basis or to take such action as is necessary to make resumed use of the Registration Statement compatible with the Company's best interests, as applicable, so as to permit resumption of exchange of shares of Parent Common Stock for Company Special Shares pursuant to the Registration Statement as soon as possible. During any such period of suspension, Parent shall be under no obligation to process any exchange requests received but not completed prior to the suspension, and any time limits or deadlines for the completion of such exchange shall be tolled for the duration of the suspension; (e) as promptly as reasonably practicable after the Closing Date, if the Parent Common Stock to be issued from time to time after the Effective Date upon the exercise of the Replacement Options are not covered by an effective registration statement, file a registration statement on Form S-8 (or such other applicable form) in order to register under the 1933 Act such Parent Common Stock; and (f) execute, deliver, and cause Abgenix Canada to execute and deliver, the Voting, Exchange and Cash Put Trust Agreement, pursuant to which, among other things, the Trustee, if the SEC Effective Date has not occurred on or prior to the number of days after the Closing Date set forth below, from and after the following dates, shall have the right (on behalf of each holder of the Company Special Shares) to put up to the following percentages (inclusive of any prior puts by such holder) of such holder's initial number of Company Special Shares (including any Company Special Shares subject to the Escrow Agreement) to Parent for an amount of cash equal to the Purchase Price per Share, pursuant to the terms and conditions set forth in the Voting, Exchange and Cash Put Trust Agreement: Number of Calendar Days Maximum after the Closing Date Put 100 50% 145 75% 190 100% 2.5 Solicitation of Proxies. The Company shall solicit proxies in connection with the Arrangement. 2.6 Joint Public Announcement and Joint Press Release. All press releases or other public written communications of any sort by any of the parties to this Agreement relating to this Agreement or the Arrangement and the method of release for publication thereof shall be provided for review and comment by the other parties to this Agreement. Each party shall expeditiously comment on such written communication provided that the party issuing such written communication shall not be delayed if to do so would be contrary to any legal or regulatory requirements. Notwithstanding the above, the parties shall jointly issue a press release upon the execution of this Agreement. 17 2.7 Outstanding Stock Options. The Company agrees and represents that the Board has resolved, and has authorized and directed the Company to, subject to any required approval of any Governmental Entity, cause the (i) vesting of all outstanding option entitlements under the Company Plan (except those granted to an employee hired after the Execution Date) to accelerate by twelve (12) months prior to or concurrent with the Closing Date, (ii) the period of exercisability of all outstanding Company Options under the Company Plan to be extended by the number of days between the Closing Date and the SEC Effective Date, and (iii) the termination of the Company Plan on the Closing Date. 3. COVENANTS OF THE COMPANY 3.1 Ordinary Course of Business. The Company covenants and agrees that, during the period from the Execution Date and continuing until the earlier to occur of the termination of this Agreement or the Closing Time, unless Parent shall otherwise agree in writing or as otherwise expressly contemplated or permitted by this Agreement, the Company shall conduct its business only in, and not take any action except in, the usual, ordinary and regular course of business and consistent with past practice; to pay its debts and Taxes when due, in the ordinary course in substantially the same manner as previously paid, except for any debts or Taxes which are being contested in good faith by the Company, to pay or perform its other material obligations when due in the ordinary course in substantially the same manner as previously paid or performed, to maintain and keep its assets (including its Intellectual Property Rights), properties and equipment in good repair, working order and condition, in a manner consistent with past practices and in compliance with applicable agreements or contractual obligations, and to use its reasonable best efforts, consistent with past practices and policies, to preserve intact its present business organization and goodwill, and preserve its relationships with officers, employees and others having material business dealings with it. (a) Without limiting the generality of the foregoing and except as expressly contemplated by this Agreement, during the period from the Execution Date and continuing until the earlier to occur of the termination of this Agreement or the Closing Time, without the prior written consent of Parent or as otherwise expressly contemplated by this Agreement or by the Budget 2001, the Company shall not, directly or indirectly: (i) issue, sell, pledge, lease, convey, transfer, assign, license, hypothecate, dispose of, encumber or agree to issue, sell, pledge, lease, convey, transfer, assign, license, hypothecate, dispose of or encumber: (A) any additional securities of, or any options, warrants, calls, conversion privileges or rights of any kind to acquire any shares of, the Company (other than pursuant to the exercise of Company Options and convertible securities currently outstanding in accordance with their existing terms); provided, however, that the Company may (x) grant Company Options to such number of newly hired employees and consultants contemplated in the Budget 2001 or to employees and consultants hired not more than six (6) months prior to the Execution Date, in an aggregate amount not to exceed options to purchase 200,000 Company Common Shares and (y) effect 18 transfers of shares of Company Capital Stock by Members as permitted under and pursuant to the terms of this Agreement and the Ancillary Agreements; (B) any Intellectual Property Rights, other than specific-target licenses to antibody-based products granted under current or future codevelopment agreements or licenses granted under current or future material transfer agreements, in each case in such ordinary course of business and as mutually agreed to by Company and Parent, and provided that such agreements and licenses (a) shall not result in (i) more than three targets per licensee, (ii) any transfer of or grant of right to practice any technology, know-how, trade secret or proprietary process or procedures of the Company and (b) shall be on commercially reasonable terms and do not prejudice Parent's rights under this Agreement; or (C) except in the ordinary course of business, any other material tangible or intangible asset or property of the Company; (ii) amend or authorize to amend its memorandum, articles, by-laws or other Company organizational documents; (iii) alter, destroy, remove or otherwise fail to retain any books and records of the Company; (iv) split, combine or reclassify any outstanding Company Common Shares, Company Class A Shares or Company Class B Shares or declare, set aside or pay any dividends or other distributions payable in cash, stock, property or otherwise with respect to the Company Common Shares, Company Class A Shares or Company Class B Shares; (v) redeem, purchase or offer to purchase any Company Common Shares, Company Class A Shares or Company Class B Shares or other securities of the Company; (vi) reorganize, amalgamate, merge or otherwise continue the Company with any other Person, corporation, partnership or other business organization whatsoever; (vii) commence to undertake an expansion of its business facilities except as described in Section 3.1 of the Company Disclosure Schedule; (viii) acquire or agree to acquire (by merger, amalgamation, business combination, arrangement, acquisition of stock or assets or otherwise) any Person, or acquire or agree to acquire any material assets; (ix) guarantee the payment of any indebtedness or incur any indebtedness for money borrowed or issue or sell any non-convertible debt securities other than in accounts receivable incurred in the ordinary course of business or 19 indebtedness incurred in connection with the financing of working capital as contemplated in Budget 2001; (x) except in the usual, ordinary and regular course of business and consistent with past practice: (A) prepay, satisfy, discharge or settle any claims or liabilities (absolute, accrued, asserted, unasserted, contingent or otherwise) prior to the same being due, except such as have been reserved against in the financial statements of the Company, which are, individually or in the aggregate, material; (B) grant any waiver, exercise any option or relinquish any contractual rights which are, individually or in the aggregate, material; or (C) enter into any interest rate, currency or commodity swaps, hedges or other similar financial instruments; (xi) make any loans, advances or capital contributions to, or investments in, any other Person (including advances to employees), except that the Company may (x) make routine travel advances to employees in the ordinary course of business, (y) make loans to newly hired employees in connection with their relocation to the Vancouver, B.C. area which does not in any single case exceed CDN $10,000 and in the aggregate exceed CDN $40,000, and (z) invest its cash balances in short-term investment grade debt securities in accordance with past practices; (xii) make or rescind any material express or deemed election relating to Taxes, settle or compromise any material action relating to Taxes, amend any material Tax return except in each case in the ordinary course of business consistent with past practice or as required by law, or except as may be required by applicable law, make any change to any of its accounting methods with respect to Taxes (including its reporting of income or deductions, basis or its write-offs of accounts receivable); (xiii) fail to maintain its existing insurance coverage of all types in effect or, in the event any such coverage shall be terminated or lapse, to the extent available at reasonable cost, procure substantially similar substitute insurance policies which in all material respects are in at least such amounts and against such risks as are currently covered by such policies; (xiv) change its methods of accounting as in effect on May 31, 2000 or take any action, other than reasonable and usual actions in the ordinary course of business and consistent with past practice, with respect to accounting policies or procedures; (xv) modify, amend or terminate any of material contracts or waive, release or assign any material rights or claims; (xvi) take, or agree to commit to take, any action that would cause the representations and warranties of the Company contained herein, individually or in the aggregate, not to be true, correct and complete in all material respects, such that the condition to closing set forth in Section 2.2(b)(i)(x) would not be satisfied; (xvii) close, shut down, or otherwise eliminate any facility or office; 20 (xviii) make or commit to make any capital expenditures that exceeds US$25,000 per month, or make any cash disbursement exceeding US$50,000 for any single item or related series of items; (xix) initiate, compromise or settle any material litigation or arbitration proceeding; (xx) enter into an agreement, contract, commitment or arrangement to do any of the foregoing, or to authorize, recommend, propose or announce an intention to do any of the foregoing; (xxi) accelerate the vesting of any unvested stock options; (xxii) enter into or modify (or promise to enter into or modify) any employment or compensation or severance policies or arrangements with, or grant any bonuses, salary increases, severance or termination pay to, any officers or directors of the Company or modify any Employee Benefit Plan other than pursuant to agreements, policies or arrangements in effect (without amendment) on the Execution Date or and previously disclosed in writing to Parent or as otherwise described in Section 3.1 of the Company Disclosure Schedule; (xxiii) with respect to employees who are not officers or directors, take or promise to take any action other than in the ordinary, regular and usual course of business and consistent with past practice (none of which actions shall be unreasonable or unusual) with respect to the entering into or modifying of any employment or severance policies or arrangements or with respect to the grant of any bonuses, salary increases, stock options, pension benefits, retirement allowances, deferred compensation, severance or termination pay or any other form of compensation or profit sharing or with respect to any increase of benefits payable otherwise than pursuant to agreements, policies or arrangements in effect (without amendment) on the Execution Date and previously disclosed to Parent; or (xxiv) settle or compromise any claim in excess of Twenty Five Thousand Canadian dollars (CDN$25,000) brought by any present, former or purported holder of any securities of the Company in connection with the transactions contemplated by this Agreement or any Ancillary Agreements without the prior written consent of Parent. (b) the Company shall: (i) carry out the terms of the Interim Order and the Final Order applicable to it and to comply promptly with all requirements under Applicable Corporate Laws with respect to the transactions contemplated by this Agreement and by the Arrangement; (ii) promptly notify Parent orally and in writing of (A) any material adverse change in the Intellectual Property Rights, any Material Adverse Change of the Company and of the Company obtaining knowledge of any 21 material governmental or third party claims, complaints, investigations or hearings (or communications indicating that the same may be threatened), (B) of any event occurring subsequent to the Execution Date that would render any representation or warranty of the Company contained in this Agreement, if made on or as of the date of such event or the Closing Date, untrue, incorrect or incomplete in any material respect, and (C) of any breach by the Company of any covenant or agreement contained in this Agreement, such that the conditions to closing set forth herein would not be satisfied; (iii) confer on a regular basis with Parent with respect to operational matters; (iv) give notice to Parent with respect to any debt or Taxes which are being contested in good faith by the Company; (v) maintain a cash balance of at least Five Million Canadian dollars (CDN$5,000,000); and (vi) perform all obligations required to be performed by the Company under this Agreement, co-operate with Parent in connection therewith, and do all such other acts and things as may be necessary in order to consummate and make effective, as soon as reasonably practicable, the transactions contemplated in this Agreement and, without limiting the generality of the foregoing, the Company shall: (A) use its reasonable best efforts to obtain the approvals of holders of the Company Capital Stock, Company Options and Company Convertible Debenture to the Arrangement; (B) apply for and use its reasonable best efforts to obtain all Applicable Regulatory Approvals relating to the Company and, in doing so, to keep Parent reasonably informed as to the status of the proceedings related to obtaining the Applicable Regulatory Approvals; (C) apply for and use its reasonable best efforts to obtain the Interim Order and the Final Order prior to December 1, 2000; (D) use its reasonable best efforts to cause the Company to cease to be a reporting company under the BC Act on or prior to December 1, 2000; (E) defend all lawsuits or other legal, regulatory or other proceedings challenging or affecting this Agreement, any Ancillary Agreement or the consummation of the transactions contemplated hereby, including the Arrangement; (F) use its reasonable best efforts to have lifted or rescinded any injunction or restraining order or other order which may adversely affect the ability of the parties to consummate the transactions contemplated hereby; 22 (G) effect all necessary registrations, filings and submissions of information required by Governmental Entities from the Company; and (H) use its reasonable best efforts to obtain the Company Consents and Waivers and promptly inform Parent if any such waiver, consent or approval cannot be obtained. 3.2 Non-Solicitation. (a) The Company shall not, and shall not authorize or permit any of its officers, directors or employees or any investment banker, financial advisor, attorney, accountant or other representative or agent retained by it, directly or indirectly, (i) to solicit, initiate or encourage (including by way of furnishing non-public information), or take any other action intended to facilitate, the making of any proposal that constitutes, or may reasonably be expected to lead to, an offer by any third party (other than Parent) to acquire all or substantially all of the assets of the Company or any equity or other interest in the Company (a) representing more than ten percent (10%) of the voting capital stock of the Company or (b) by any Person that generates, manufactures, markets or distributes monoclonal antibodies for human therapeutic use (an "Acquisition Proposal") or (ii) to participate in any discussions or negotiations regarding an Acquisition Proposal. Without limiting the foregoing, it is understood that any violation of the restrictions set forth in the preceding provisions by any director or officer of the Company or any of its subsidiaries or any investment banker, financial advisor, attorney, accountant or other representative of the Company, acting on behalf of the Company, shall be deemed to be a material breach by the Company of this Agreement. (b) The Board shall not cause or allow the Company to enter into any letter of intent, agreement in principle, acquisition agreement or any other agreement with respect to any Acquisition Proposal. (c) Without limiting the obligation of the Company in Sections 3.2(a) and 3.2(b), the Company shall promptly (but in any event within two (2) days) advise Parent orally and in writing of any Acquisition Proposal received or any inquiry regarding the making of an Acquisition Proposal received by an officer or director of the Company, including any request for non-public information, the material terms and conditions (if applicable) of such request, other Acquisition Proposal or inquiry and, if known to the Company, a summary description of the business of the Person making such request, other Acquisition Proposal or inquiry and a statement as to whether such Person is publicly traded. 3.3 Access to Information. Subject to the Confidentiality Agreement and the Patent Disclosure Agreement between the Company and Parent, the Company shall afford Parent's officers, employees, counsel, accountants and other authorized representatives and advisors (the "Representatives") full access, at all reasonable times, on reasonable notice and on a reasonable basis without unreasonable disruption of the Company's business or operations, from the Execution Date and until the expiration of this Agreement, to its business, properties, books, contracts and records, without limitation, as well as to its management 23 personnel, and, during such period, the Company shall furnish promptly to Parent all information concerning its business, properties and personnel, without limitation, as Parent may reasonably request. 3.4 Structure of Transaction. Each party hereto shall use reasonable best efforts to cooperate with the other party hereto in structuring the Plan of Arrangement in a tax efficient manner, including, by completing to the satisfaction of Parent, an internal corporate reorganization provided that, no such cooperation shall be required where such structuring shall cause any breach of or default under this Agreement or any other material adverse tax consequences. The parties intend the Company Special Shares issued pursuant to the Plan of Arrangement to be issued in a transaction exempt from registration under the 1933 Act by reason of Section 3(a)(10) thereof and, when issued, such shares of Company Special Shares will not be subject to resale restriction imposed by the 1933 Act. 4. REPRESENTATIONS AND WARRANTIES OF PARENT AND ABGENIX CANADA Parent and Abgenix Canada hereby represent and warrant to the Company as follows, except to the extent as set forth with particularity as to each Section in the Parent Disclosure Schedule attached to this Agreement as Schedule 4 and except as previously disclosed pursuant to reports filed by Parent pursuant to the 1933 Act or the 1934 Act or the rules or regulations promulgated thereunder. The Parent Disclosure Schedule shall be arranged in paragraphs corresponding to the numbered and lettered paragraphs contained in this Agreement and the disclosure in any paragraph shall qualify other paragraphs in this Agreement only to the extent that such disclosure specifically references the fact that it also qualifies or applies to such other specified paragraphs or if it is reasonably apparent on the face of the disclosure that it is applicable to another Section of the Parent Disclosure Schedule. Any certificate signed by an officer of either Parent or Abgenix Canada and delivered to Company at or prior to the Closing pursuant to Section 2.2(c)(i)(X) shall be deemed to be a representation and warranty by such party to Company under this Agreement as to each and every matter stated. 4.1 Organization and Qualification. Parent is a corporation duly incorporated, validly existing and in good standing under the corporate laws of the State of Delaware and has the requisite corporate power and authority to carry on its business as it is now being conducted. Abgenix Canada is an unlimited liability company duly organized, validly existing and in good standing under the corporate laws of Nova Scotia and has the requisite corporate power and authority to carry on its business as it is now being conducted. 4.2 Authority. Each of Parent and Abgenix Canada have the requisite corporate power and authority to enter into this Agreement and each Ancillary Agreement to which it is a party and to carry out its respective obligations hereunder and thereunder. This Agreement and the Ancillary Agreements to which it is a party have been duly authorized by each of Parent and Abgenix Canada, and no other corporate proceedings on the part of either Parent or Abgenix Canada are or will be necessary to authorize this Agreement and the transactions contemplated hereby. This Agreement has been duly executed and delivered by each of Parent and Abgenix Canada and constitutes a legal, valid and binding obligation of each of Parent and Abgenix Canada enforceable against each of Parent and Abgenix Canada in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other laws relating to or affecting creditors' rights generally and to general principles of equity. 24 4.3 Regulatory Approvals. Other than in connection with or in compliance with the provisions of Applicable Corporate Laws, Applicable Securities Laws, Applicable Regulatory Approvals, (i) there is no legal impediment to Parent's or Abgenix Canada's consummation of the transactions contemplated by this Agreement, and (ii) no filing or registration with, or authorization, consent or approval of, any domestic or foreign public body or authority is required of Parent or Abgenix Canada in connection with the making or the consummation of the Acquisition, except for such filings or registrations which, if not made, or for such authorizations, consents or approvals which, if not received, would not have a material adverse effect on the financial condition of Parent and its subsidiaries taken as a whole or on the ability of Parent or Abgenix Canada to consummate the transactions contemplated hereby. 4.4 Capitalization. As of the Execution Date, the authorized share capital of Parent consists of 220,000,000 Shares of Parent Common Stock, of which, as of September 20, 2000, 81,520,244 Shares of Parent Common Stock are issued and outstanding. The Parent Common Stock to be issued in exchange for the Company Special Shares as contemplated by the Arrangement will, when issued in accordance with the provisions of the Company Special Shares set forth in the Plan of Arrangement, be validly issued, fully paid, and nonassessable, and, issued in compliance with all applicable federal and state securities laws. As of the Execution Date, the authorized share capital of Abgenix Canada consists of One Hundred Million (100,000,000) shares, one of which as of the Execution Date and as of the Closing Date, is and shall be issued to Parent. There are no options, warrants or other rights, agreements or commitments of any character whatsoever requiring the issuance, sale or transfer by Abgenix Canada of any securities of Abgenix Canada or any securities convertible into, or exchangeable or exercisable for, or otherwise evidencing a right to acquire, any securities of Abgenix Canada (including the Special Parent Voting Share). All outstanding shares of Abgenix Canada have been in accordance with their terms will be, duly authorized and validly issued, are fully paid and non-assessable. 4.5 SEC Filings; Parent Financial Statements. Except as disclosed on Section 4.5 of the Parent Disclosure Schedule, all forms, reports and documents filed by Parent with the SEC were prepared in all material aspects in accordance with the requirements of the 1933 Act or the 1934 Act, as the case may be, and the rules and regulations of the SEC thereunder. Each of the consolidated financial statements of Parent filed with the SEC, (i) comply as to form in all material respects with the published rules and regulations of the SEC with respect thereto, (ii) are prepared in accordance with GAAP applied on a consistent basis throughout the periods involved (except as may be indicated in the notes thereto or, in the case of unaudited interim financial statements, as may be permitted by the SEC under Form 10-Q, 8-K or any successor form under the 1934 Act) and (iii) fairly present the consolidated financial position of Parent and its subsidiaries as at the respective dates thereof and the consolidated results of Parent's operations and cash flows for the periods indicated, except that the unaudited interim financial statements may not contain footnotes and were or are subject to normal and recurring year-end adjustments. 4.6 No Violations. Neither the execution nor the delivery of this Agreement or the Ancillary Agreements by either Parent or Abgenix Canada, nor the consummation of the transactions contemplated hereby and by the Acquisition, nor compliance by each of Parent and Abgenix Canada with any of the provisions hereof will in any material aspect: violate, or result in a breach of any provision of, require any consent, approval under, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a 25 default) under any of the terms, conditions or provisions of (x) the governing documents of either Parent or Abgenix Canada or (y) any judgment, order, writ, decree, statute, rule, regulation, to which either Parent or Abgenix Canada is subject, or by which either Parent or Abgenix Canada is bound, in each case under (x) or (y) having a Parent Material Adverse Effect. 4.7 Absence of Parent Material Adverse Changes. Since June 30, 2000, and except as specified herein or in the Parent Disclosure Schedule, there has not occurred any Parent Material Adverse Change. 4.8 Litigation, etc. Except as disclosed in Section 4.8 of the Parent Disclosure Schedule, there are, at the Execution Date, no actions, proceedings, complaints, suits, grievances, claims, arbitrations or investigations pending, or to the knowledge of either Parent or Abgenix Canada threatened, affecting Parent or Abgenix Canada at law or in equity or before or by any federal, provincial, municipal or other governmental department, commission, board, bureau, agency or instrumentality, which action, suit, complaint, grievances, proceeding, claim, arbitration or investigation involves a possibility of any judgment against or liability of either Parent or Abgenix Canada which, if successful, would have a Parent Material Adverse Effect. 4.9 Ownership of Abgenix Canada; No Prior Activities. As of the Effective Date, all of the outstanding shares of Abgenix Canada are owned by Parent. As of the Effective Date, except for obligations and liabilities incurred in connection with its incorporation or organization and transactions contemplated by this Agreement or the Ancillary Agreements and any other agreements or arrangements contemplated by this Agreement, Abgenix Canada has not and will not have incurred, directly or indirectly, through any subsidiary or affiliate, any obligations or liabilities or engaged in any business activities of any type or kind whatsoever or entered into any agreements or arrangements with any Person. 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company hereby represents and warrants to Parent and Abgenix Canada as follows, except to the extent as set forth with particularity as to each Section in the Company Disclosure Schedule attached to this Agreement as Schedule 5. The Company Disclosure Schedule shall be arranged in paragraphs corresponding to the numbered and lettered paragraphs contained in this Agreement and the disclosure in any paragraph shall qualify other paragraphs in this Agreement only to the extent that such disclosure specifically references the fact that it also qualifies or applies to such other specified paragraphs or if it is reasonably apparent on the face of the disclosure that it is applicable to another Section of the Company Disclosure Schedule. Any certificate signed by an officer of the Company and delivered to Parent or Abgenix Canada at or prior to the Closing pursuant to Section 2.2(b)(i)(z) shall be deemed to be a representation and warranty by the Company to Parent and Abgenix Canada under this Agreement as to each and every matter stated. 5.1 Organization and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of British Columbia, and has the requisite corporate power and authority to carry on its business as it is now being conducted. The Company is duly registered to do business and is in good standing in each jurisdiction listed in Section 5.1 of the Company Disclosure Schedule, such jurisdictions being all of the 26 jurisdictions in which the character of its properties, owned or leased, or the nature of its activities makes such registration necessary, except where the failure to be so registered or in good standing would not have a Material Adverse Effect on the Company or on the ability of the Company to consummate the transactions contemplated hereby. Copies of the Company's constituent documents (including memorandum, articles, and other organizational agreements), together with all amendments to date (collectively, the "Company organizational documents") heretofore delivered to Parent are true, correct and complete as of the Execution Date and have not been amended or superseded. The minute books of the Company provided to Parent contain a complete summary of all meetings of the Board and Members since the time of incorporation of the Company up to the Execution Date and reflect all transactions referred to in such minutes accurately in all material respects. 5.2 Authority Relative to This Agreement. Subject to the approval of the Special Resolution by the Members, the Company has the requisite corporate power and authority to enter into this Agreement and to carry out its obligations hereunder. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by the Board, and no other corporate proceedings on the part of the Company are necessary to authorize this Agreement and the transactions contemplated hereby other than by Special Resolution and by each class of the Company Capital Stock in the manner required by the Company organizational documents and the BC Act. This Agreement has been duly executed and delivered by the Company and constitutes a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, subject only to applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other laws relating to or affecting creditors' rights generally and general principle of equity. 5.3 No Violations. (a) Provided that the Special Resolution and the Acquisition are approved by the Members, except as disclosed in Section 5.3 of the Company Disclosure Schedule, neither the execution nor the delivery of this Agreement by the Company, nor the consummation of the transactions contemplated hereby and by the Acquisition, nor compliance by the Company with any of the provisions hereof will: (i) violate, conflict with, or result in a breach of any provision of, require any consent, approval or notice under, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) or result in a right of termination, acceleration, suspension, revocation, impairment, forfeiture or nonrenewal of, or result in the creation of any lien, security interest, charge or encumbrance upon any of the properties or assets of the Company under any of the terms, conditions or provisions of (x) the Company organizational documents or (y) other than the agreements listed in the Company Disclosure Schedule, any note, bond, mortgage, indenture, loan agreement, deed of trust, agreement, judgment, order, writ, decree, statute, rule, regulation, lien, license, permit, franchise, authorization, approval, lease, contract or other instrument or obligation to which the Company is a party, or to which it or any of its properties or assets may be subject, or by which the Company is bound; or (ii) subject to compliance with the statutes and regulations referred to in Section 5.3(b), violate any judgment, ruling, order, writ, injunction, determination, award, decree, statute, ordinance, law, rule or regulation applicable to the Company or any of its properties or assets (except, in the case of each of clauses (i) and (ii) above, for such violations, conflicts, breaches, defaults, terminations, accelerations or creations of liens, security interests, charges or 27 encumbrances which, or any consents, approvals or notices which if not given or received, would not have any Material Adverse Effect on the Company); or (iii) cause the suspension or revocation of any authorization, consent, approval or license currently in effect which suspension or revocation would have a Material Adverse Effect on the Company, or (iv) result in any payment (including severance, unemployment compensation, golden parachute, bonus or otherwise) becoming due to any director or employee of the Company or increase any benefits otherwise payable under any Company benefit plan or result in the acceleration of time of payment or vesting of any such benefits, including the time of exercise of stock options, except as specifically provided in this Agreement. No prior notice, consent or waiver from any Person, other than the Company Consents and Waivers attached hereto as Schedule 2.2(b)(vi), is required to consummate the transactions contemplated in this Agreement and the Ancillary Agreements. (b) Other than in connection with or in compliance with the provisions of the laws listed in Section 5.3(b) of the Company Disclosure Schedule, (i) there is no legal impediment to the Company's consummation of the transactions contemplated by this Agreement; and (ii) no filing or registration with, or authorization, consent or approval of any Governmental Entity is required of the Company in connection with the making or the consummation of the Acquisition, except for (A) such filings or registrations which, if not made, or for such authorizations, consents or approvals which, if not received, would not have a Material Adverse Effect on the Company; (B) the Applicable Regulatory Approvals. Notwithstanding the generality of the foregoing, subject to the truth, correctness and completeness of the representations and warranties of Parent regarding its capitalization in Section 4.4 and SEC filings and financial statements in Section 4.5, the transactions contemplated by this Agreement and the Arrangement, either separately or combined, are not subject to pre-merger notification under Part IX of the Competition Act (Canada) or the Hart-Scott-Rodino Antitrust Improvement Act. 5.4 Compliance with Law. The Company is and has always been in compliance with all laws and regulations applicable to the operation of its business as currently conducted and proposed to be conducted, except where such non-compliance could not reasonably be expected to have a Material Adverse Effect on the Company. 5.5 Restrictions on Business Activities. Except as set forth in Section 5.5 of the Company Disclosure Schedule, there is no agreement, judgement, injunction, order or decree binding upon the Company, or any notice or claim that has or could reasonably be expected to have the effect of prohibiting, restricting or materially impairing any business practice of the Company, any acquisition of property by the Company or the conduct of business by the Company as currently conducted other than such agreements, judgments, injunctions, orders or decrees which would not, individually or in the aggregate, have a Material Adverse Effect on the Company. 28 5.6 Capitalization. Section 5.6 of the Company Disclosure Schedule sets forth the capitalization of the Company as of September 25, 2000. As of the Execution Date, the authorized share capital of the Company consists of 100,000,000 Company Common Shares, 100,000,000 Company Class A Shares and 100,000,000 Company Class B Shares, of which as of the Execution Date and, except for such issuances as permitted under Section 3.1(a)(i)(A) of this Agreement, as of the Closing Date, 7,836,537 Company Common Shares, 1,918,000 Company Class A Shares and 3,616,353 Company Class B Shares are issued and outstanding. In addition, the Company has issued a debenture in the aggregate principal amount of US$500,000 which is convertible into 343,595 Company Class A Shares. As of the Execution Date, 1,612,000 Company Common Shares are issuable upon exercise of outstanding Company Options at per-share exercise prices ranging from CDN$1.05 to CDN$2.55 for Company Options issued under the Company Plan and 375,000 Company Common Shares are issuable upon exercise of outstanding Company Options issued outside of the Company Plan at a per-share exercise price of CDN$0.0001. Except as set forth above, there are no options, warrants or other rights, agreements or commitments of any character whatsoever requiring the issuance, sale or transfer by the Company of any securities of the Company (including the Company Common Shares) or any securities convertible into, or exchangeable or exercisable for, or otherwise evidencing a right to acquire, any securities of the Company (including the Company Common Shares). All outstanding shares of the Company have been, and all shares issuable upon the exercise of outstanding stock options, in accordance with their terms will be, duly authorized and validly issued, are fully paid and non-assessable and have been approved by all requisite action by the Board and/or Members and in compliance with all Applicable Securities Laws. The Ordinary Shares and the Company Special Shares, upon their issuance pursuant to the Plan of Arrangement on or before the Closing Date, will have been duly authorized, validly issued, fully paid and non-assessable and will have been approved by all requisite action by the Board and/or Members and in compliance with all Applicable Corporate Laws and Applicable Securities Laws. On the Closing Date, there shall be no Company Common Shares or Company Class A Shares or Company Class B Shares outstanding, and the Ordinary Shares and the Company Special Shares shall be the only two outstanding classes of stock in the Company. The Ordinary Shares issued to Abgenix Canada shall be the only shares of voting securities in the capital stock of the Company, and there shall not exist any securities convertible into voting securities of the Company. 5.7 Material Agreements. (a) Section 5.7 of the Company Disclosure Schedule sets forth each written or oral agreements described in (i) through (xi) below to which it is a party and which has not been terminated in its entirety (each a "Material Contract"). True, correct and complete copies of such Material Contracts have been delivered to Parent or its representatives: (i) each agreement which involves performance of services or delivery of goods and/or materials by or to it of an amount or value in excess of US$60,000 in any given year; (ii) each note, debenture, other evidence of indebtedness, guarantee, loan, letter of credit, surety-bond or financing agreement or instrument or other contract for money borrowed, including any agreement or commitment for future loans, credit or financing; (iii) each agreement not in the ordinary course of business; 29 (iv) each licensing, royalty agreement or other contract with respect to Intellectual Property Rights, including agreements with current or former employees, consultants or contractors regarding the appropriation or the nondisclosure of Intellectual Property Rights (excluding any commercially available software, corporate system software and off-the-shelf shrink wrap license); (v) each agreement to which the Company is bound which in any manner purports to (A) restrict the Company's freedom to engage in any line of business or to compete with any other Person, or (B) assign to any other Person rights to any material invention, improvement or discovery; (vi) each joint venture, partnership agreement, limited liability company or other agreement (however named) involving a sharing of profits, losses, costs or liabilities by the Company with any other Person; (vii) each agreement containing covenants which in any way purport to restrict the Company's business activity or purport to limit the freedom of the Company to engage in any line of business, utilize its Intellectual Property Rights or to compete with any Person, excluding confidentiality agreements entered into in the ordinary course of business; (viii) each power of attorney which is currently effective and outstanding with respect to the voting or transfer of any of its securities; (ix) each agreement providing for capital expenditures after the Execution Date and not included in Budget 2001 in an aggregate amount in excess of US$25,000 per month; (x) each written warranty, guaranty or other similar undertaking with respect to contractual performance extended by it other than in the ordinary course of business; and (xi) each lease for real or personal property. Except as set forth in Section 5.7 of the Company Disclosure Schedule, all of the Material Contracts are (i) to the Company's knowledge in full force and effect and the Company is entitled to all rights and benefits thereunder, and (ii) represent the legally valid and binding obligations of the other parties thereto and are enforceable against such parties in accordance with their terms, except as enforceability may be subject to and limited by laws of general application relating to bankruptcy, insolvency and the relief of debtors, and rules of law governing specific performance, injunctive relief or other equitable remedies. The Company is not, nor to its knowledge is any other party thereto, in material breach or material default under such Material Contract. To the Company's knowledge no event has occurred and no other facts or circumstances exist that with notice or lapse of time or both would constitute a material breach or material default by any party thereto. Except as set forth in Section 5.7 of the Company Disclosure Schedule, to the Company's knowledge, no approval or consent of any Person who or which is a party to any Material Contract is needed in order that such agreements continue in full force and effect following consummation of the transactions contemplated herein and in the Plan of Arrangement. Except as set forth in Section 5.7 of the Company Disclosure Schedule, no material product liability or liability for breach of warranty on the part of it under any of the Material Contracts has been asserted or made and continues to be outstanding, against the Company. 30 5.8 Financial Statements. The audited balance sheets and statements of loss, deficit and cash flows for the fiscal years ended August 31, 1999 and 1998, were prepared in accordance with generally accepted accounting principles in Canada and present fairly, in all material respects, the financial position of the Company, the results of its operations and its cash flows for the fiscal years then ended. The unaudited balance sheets and statements of loss, deficit and cash flows for the nine months ended May 31, 2000 were prepared in accordance with generally accepted accounting principles in Canada and present fairly, in all material respects, the financial position of the Company, the results of its operations and its cash flows for such nine-month period subject to normal year-end adjustments. Except as disclosed in such financial statements, the Company had no material liabilities (whether actual, accrued or contingent, and whether direct or indirect) at such dates. 5.9 Transaction Fees. The Company has not retained, or entered into any contract, arrangement or understanding with, any financial adviser, broker, agent, finder or law firm, or paid or agreed to pay any financial adviser, broker, agent, finder or law firm on account of this Agreement or any transaction contemplated hereby, except that SG Cowen Securities Corporation has been retained as the Company's financial advisor in connection with certain matters including the transactions contemplated hereby and Blake, Cassels & Graydon LLP, Seed Intellectual Property Law Group PLLC and Wilson Sonsini Goodrich & Rosati, Professional Corporation, have been retained as legal counsel. A true and complete copy of the engagement letter between the Company and SG Cowen Securities Corporation has been provided to, and shall not be amended without the prior written consent of, Parent. The Company shall be solely responsible for the fees and costs of SG Cowen Securities Group and its counsel. 5.10 Absence of Changes. Since August 31, 1999, and except to the extent specifically described in Sections 5.7, 5.10 and 5.21 of the Company Disclosure Schedule, the Company has conducted its business only in the ordinary and normal course, no liability or obligation of any nature (whether absolute, accrued, contingent or otherwise) material to the Company has been incurred other than in the ordinary course of business, and there has not been any Material Adverse Change in the Company. Without limiting the generality of the preceding sentence, since May 31, 2000, there has not been (i) any material damage, destruction or loss, whether or not covered by insurance to the assets or properties of the Company, (ii) any waiver by the Company of a valuable right or of a material debt owed to it, (iii) any satisfaction or discharge of any lien, claim or encumbrance or payment of any obligation by the Company except in the ordinary course of business and that is not material to the assets, properties, financial condition, result of operation, or business of the Company as currently conducted or proposed to be conducted, (iv) any material change or amendment to a material contract or arrangement by which the Company or any of its assets or properties is bound, (v) any material change in any compensation arrangement or agreement with any officer, director or key employee, (vi) any sale, assignment or transfer of any Intellectual Property Rights, (vii) any mortgage, pledge, transfer of a security interest in, or lien created by the Company with respect to, any of its material properties or assets, or (viii) any agreement or commitment by the Company to do any of the foregoing items. 5.11 Employment and Labor Relations. (a) Section 5.11 of the Company Disclosure Schedule lists, as of August 31, 2000, the name, current annual compensation rate (including bonus and commissions), title, accrued bonus, accrued sick leave, accrued severance pay and accrued 31 vacation benefits of each present employee of the Company, employment, managerial, advisory, consulting and severance agreements involving employees or former employees of the Company or under which the Company may benefit or be bound, contingent or otherwise; and lists any employee handbook(s) (other than the employment agreements and Employee Benefit Plans otherwise listed on the Company Disclosure Schedule). Other than as disclosed in Section 5.7 or Section 5.11 of the Company Disclosure Schedule, as an employment agreement or as an Employee Benefit Plan, or as provided under the British Columbia Employment Standards Act, the Company is not a party to any employment agreement or Employee Benefit Plan, or to any written or oral policy, agreement, obligation or understanding which contains any specific agreement as to notice of termination or severance pay in lieu thereof or which cannot be terminated without cause and without further compensation. The Company has not and shall not enter into any other agreements or understandings with any of their directors, officers or employees creating rights in respect of loss or termination of office or employment in the event the Acquisition is successful, without the prior written consent of Parent other than as specifically contemplated hereby. The Company is not bound by or subject to (and none of its assets (including Intellectual Property Rights) or properties is bound by or subject to) any written or oral, expressed or implied, contract, commitment or arrangement including any collective agreement with any labor union, and no labor union has requested or sought or attempted or threatened to attempt to represent any of the employees, representatives or agents of the Company. Other than as set forth on Section 5.11 of the Company Disclosure Schedule, the Company is not aware that any officer or key employee intends to terminate their employment or services with the Company. (b) Except as set forth in Section 5.11 of the Company Disclosure Schedule, (i) there has not been for a period of thirty-six (36) consecutive months prior to the Execution Date, nor is there existing or threatened any strike, slowdown, picketing or work stoppage with respect to the Company, and (ii) the Company has not engaged in any unfair labor practices and no unfair labor practice complaint or arbitration proceeding is pending or, threatened against the Company. No trade union has applied to have the Company declared a related or successor employer pursuant to applicable labor relations legislation. Except as disclosed in Section 5.11 of the Company Disclosure Schedule, no notice has been received by the Company of any complaint filed by any of the employees employed by the Company against the Company claiming that the Company has violated applicable labor relations legislation, human rights legislation, pay equity legislation, employment standards legislation or any other employment-related legislation or common law and no such complaint is threatened against the Company, nothing has occurred which would reasonably be expected to lead to such a claim or complaint against the Company. (c) Except as set forth in Section 5.11 of the Company Disclosure Schedule, to the Company's knowledge, there are no outstanding assessments, penalties, fines, levies, charges, surcharges, other amounts due or owing pursuant to any applicable workplace safety and insurance, health and safety and labor standards legislation in respect of the Company and the Company has not been reassessed in any material respect under such legislation during the past three (3) years; and 32 (ii) no audit of the Company is currently being performed pursuant to any applicable workplace safety and insurance legislation. (d) The Company has paid in full to its employees all wages, salaries, commissions, bonuses, benefits under the Employee Benefit Plans and other compensation due and payable to or on behalf of such employees and all amounts due or accrued due for vacation pay are reflected in the Company's financial statements. All accruals for premiums for employment insurance and Canada pension plan shall be reflected on the Company's financial statements. (e) Except as disclosed in Section 5.11 of the Company Disclosure Schedule, no employee is on short term disability leave, long term disability leave, extended absence, pregnancy or parental leave, or receiving benefits pursuant to the applicable workplace safety and insurance legislation or on any other leave. Section 5.11 of the Company Disclosure Schedule sets out each person's expected return to work date. 5.12 United States Relationship. The level of ownership by U.S. holders of Company Capital Stock (on an "as converted" basis) does not exceed ten percent (10%) of the total number of outstanding Company Capital Stock (on an "as converted" basis). The term "U.S. holder" means any Person whose address appears on the records of the Company, any voting or other trustee, any depository, any share transfer agent or any Person acting in a similar capacity on behalf of the Company, as being located in the United States. 5.13 Employee Benefit Plans. (a) Except as disclosed in Section 5.13(a) of the Company Disclosure Schedule, the Company has no Employee Benefit Plans and has made no promises with respect to increased benefits under such plans or otherwise. (b) No employment agreement or Employee Benefit Plan is subject to the Employee Retirement Income Security Act of 1974, as amended. (c) Each Employee Benefit Plan has been operated in material compliance with its terms and complies in all material respects with all applicable Laws and its obligations in respect of each Employee Benefit Plan in accordance with its terms. (d) No actions, suits, claims or investigations by any Person (other than routine claims for benefits in the ordinary course) are pending, or to the Company's knowledge threatened, with respect to any Employee Benefit Plan, and, to the Company's knowledge, there are no facts which could give rise to any such actions, suits or claims or investigations (other than routine claims for benefits in the ordinary course). (e) Except as set forth in Section 5.13 of the Company Disclosure Schedule, which includes the total dollar amounts of any such required payments and any penalties relating thereto, all contributions, insurance premiums, taxes and any other payments (including any past amounts or repayment obligations under any expatriate tax equalization plan, program or arrangement) required with respect 33 to any Employee Benefit Plan have or will have been paid as of the Closing Date. As of the most recent valuation date, there are no unfunded benefit liabilities on either a going-concern or solvency basis with respect to any Employee Benefit Plan that is required, in accordance with its terms or by Law, to be funded and nothing has occurred since the date of the last valuation which would have an Material Adverse Effect on the Company. (f) Parent has been provided with true, correct and complete copies of each Employee Benefit Plan as currently in effect (including the plan document, trust agreement and other funding or insurance instruments, if any, relating thereto) and copies of all other material documents, contracts, agreements or arrangements and governmental filings relating to all such Employee Benefit Plans or to employees or former employees of the Company. (g) Each Employee Benefit Plan and related funding arrangement that is intended to qualify for tax-favored status qualifies for such status, and, to the extent an approval process is available, has been approved for such status by the appropriate government authority (or has been submitted for such approval within the applicable time period), and nothing has occurred and no condition exists that is likely to cause the loss or denial of such tax-favored status. (h) Except as provided under British Columbia employment standards legislation or as set forth in Section 5.13 of the Company Disclosure Schedule or as otherwise required pursuant to this Agreement, each Employee Benefit Plan (including any such plan covering former employees of the Company) may be amended or terminated by the Company or Parent without incurring any liability thereto on or at any time after the Closing Date. (i) Except as provided under British Columbia employment standards legislation or as set forth in Section 5.13 of the Company Disclosure Schedule, no employee or former employee of the Company shall accrue or receive additional benefits, service or accelerated rights to payment of benefits or become entitled to severance, termination allowance or similar payments under any Employee Benefit Plan or employment agreement covering employees or former employees of the Company as a result of the transactions contemplated by this Agreement. (j) None of the Employee Benefit Plans (other than pension plans) provides benefits to retired employees of the Company or their beneficiaries or dependents. 5.14 Books and Records. The corporate records and minute books of the Company have been maintained in accordance with all applicable statutory requirements and are complete and accurate in all material respects. Without limiting the generality of the foregoing, the books, records and accounts of the Company, in all material respects, (i) have been maintained in accordance with good business practices on a basis consistent with prior years, (ii) are stated in reasonable detail and accurately and fairly reflect the transactions and dispositions of the assets and the issuances of securities of the Company (iii) accurately and fairly reflect the basis for the Company's financial statements. The Company has devised and maintains a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorization; and (ii) transactions are recorded as necessary (A) to permit preparation of financial statements in conformity with Canadian generally 34 accepted accounting principles or any other criteria applicable to such statements and (B) to maintain accountability for assets. 5.15 Litigation, etc. Except as disclosed in Section 5.15 of the Company Disclosure Schedule, there are, at the Execution Date, no actions, suits, proceedings, claims, arbitrations or investigations pending, or to the knowledge of the Company threatened, affecting the Company at law or in equity or before or by any federal, provincial, municipal or other governmental department, commission, board, bureau, agency or instrumentality, which action, suit, proceeding, claim, arbitration or investigation involves a possibility of any judgment against or liability of the Company which, if successful, would have a Material Adverse Effect on the Company. Neither the Company nor its assets and properties, is subject to any outstanding judgment, order, writ, injunction or decree that has had or is reasonably likely to have a Material Adverse Effect on the Company or that could reasonably be expected to prevent or materially delay consummation of the transactions contemplated by this Agreement or the Arrangement. 5.16 Environmental. Except for any matters that, individually or in the aggregate, would not have a Material Adverse Effect on the Company: (a) all operations of the Company have been conducted, and are now, in compliance with all Environmental Laws; (b) the Company is in possession of, and in compliance with, all permits, authorizations, certificates, registrations, approvals and consents necessary under Environmental Laws to own, lease and operate its properties and to conduct its businesses as it is now being conducted or as proposed to be conducted (collectively the "Environmental Permits"); and (c) except as set forth in Section 5.16 (c) of the Company Disclosure Schedule, the Company is not aware of, and is not subject to: (i) any Environmental Laws which require or may require any work, repairs, construction, change in business practices or operations, or expenditures, including capital expenditures for facility upgrades, environmental investigation and remediation expenditures, or any other such expenditures; (ii) any Environmental Laws which require or may require any work, repairs, construction, change in business practices or operations, or expenditures, including capital expenditures for facility upgrades, environmental investigation and remediation expenditures, or any other such expenditures; (iii) has not received any written demand or written notice with respect to liability, by contract or operation of applicable Laws, under Environmental Laws applicable to the Company or any predecessor entities, divisions or any formerly owned, leased or operated properties or assets of the foregoing, including liability with respect to the presence, release or discharge of Hazardous Substances; 35 (iv) any changes in the terms or conditions of any Environmental Permits or any renewal, modification, revocation, reissuance, alteration, transfer or amendment of such Environmental Permits, or any review by, or approval of, any Governmental Entity of such Environmental Permits that are required in connection with the execution or delivery of this Agreement, the consummation of the transactions contemplated hereby or the continuation of business of the Company following such consummation; or (v) is not aware of any circumstances which could cause any Environmental Permit revoked, modified or rendered non-renewable upon payment of the Permit Fee. 5.17 Tax Matters. (a) For purposes of this Agreement, the following definitions shall apply: (i) "Tax" or "Taxes" shall mean all taxes, however denominated, including any interest, penalties or other additions that may become payable in respect thereof, imposed by any federal, territorial, state, local or foreign government or any agency or political subdivision of any such government, which taxes shall include, without limiting the generality of the foregoing, all income, capital, or profits taxes (including, but not limited to, federal income and capital taxes and provincial income and capital taxes), payroll and employee withholding taxes, unemployment insurance, social insurance taxes, sales and use taxes, goods and services taxes, ad valorem taxes, excise taxes, franchise taxes, gross receipts taxes, business license taxes, occupation taxes, real and personal property taxes, stamp taxes, environmental taxes, transfer taxes, workers' compensation and other governmental charges, and other obligations of the same or of a similar nature to any of the foregoing, which the Company is required to pay, withhold or collect. (ii) "Returns" shall mean all reports, estimates, declarations of estimated tax, information statements and returns relating to, or required to be filed in connection with, any Taxes, including any schedule or attachment thereto, and including any amendment thereof. (b) All Returns required to be filed by or on behalf of the Company have been duly filed on a timely basis and such Returns are true, complete and correct in all material respects. Except as disclosed in Section 5.17 of the Company Disclosure Schedule, all Taxes shown to be payable on the Returns or on subsequent assessments with respect thereto have been paid in full on a timely basis, and no other Taxes are payable by the Company with respect to items or periods covered by such Returns. The Company has withheld and paid all Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, stockholder or other third party. (c) The unpaid Taxes of the Company as of the Execution Date do not exceed the accruals for Taxes in the Company's books and records, as determined in 36 conformity with generally accepted accounting principles applicable in Canada as of the Execution Date. (d) For all periods ending on and after August 31, 1995, Parent has been furnished by the Company true, correct and complete copies of (i) all relevant portions of income tax audit reports, statements of deficiencies, closing or other agreements received by the Company or on behalf of the Company relating to Taxes, and (ii) all required federal and provincial income or franchise tax Returns for the Company. (e) Except as disclosed in Section 5.17 of the Company Disclosure Schedule, no deficiencies exist or have been asserted with respect to Taxes of the Company. Except as disclosed in writing to Parent prior to the Execution Date, the Company is not a party to any action or proceeding for assessment or collection of Taxes, nor has such event been asserted or to the knowledge of the Company threatened against the Company or any of its assets. No waiver or extension of any statute of limitations is in effect with respect to Taxes or Returns of the Company. Except as disclosed in Section 5.17 of the Company Disclosure Schedule, the Returns of the Company have never been audited by a government or taxing authority, nor is any such audit in process, pending or to the knowledge of the Company, threatened which resulted in or could result in a reassessment of Taxes owing by the Company. The Company is not a party to any Tax allocation or sharing agreement, and has no liability for the Taxes of any Person under any provision of Canadian or foreign law, or as a transferee or successor, by contract, or otherwise. (f) Other than as disclosed in Section 5.17 of the Company Disclosure Schedule, the Company has provided adequate accruals in its financial statements for the year ended August 31, 1999 (or such amounts are fully funded) for all pension or other employee benefit obligations of the Company arising under or relating to each of the pension or retirement income plans or other employee benefit plans or agreements or policies maintained by or binding on the Company. 5.18 Disclosure. No representation or warranty of the Company contained in this Agreement or in any other document, certificate or written statement furnished to Parent by or on behalf of the Company for use in connection with the transactions contemplated by this Agreement contains any untrue statement of a material fact or omits to state a material fact (known to the Company, in the case of any document not furnished by it) necessary in order to make the statements contained herein or therein not misleading in light of the circumstances in which the same were made. To the Company's knowledge, there exists no facts (other than matters of a general economic nature) that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect and that have not been disclosed herein or in such other documents, certificates and statements furnished to Parent for use in connection with the transactions contemplated hereby. 5.19 Reporting Issuer Status. The Company is not a "reporting issuer" in any province or territory of Canada. 37 5.20 Subsidiaries. The Company has no subsidiaries. 5.21 Intellectual Property. (a) Part I of Section 5.21(a) of the Company Disclosure Schedule (the "Intellectual Property Disclosure Schedule") sets forth a true, correct and complete list of all of the Company's patents, filed patent applications, trademarks, tradenames and all Licenses of the Company. True, correct and complete copies of all such Licenses have been delivered to Parent. Except as disclosed in Part II of Section 5.21(a) of the Company Disclosure Schedule, all such Licenses (i) are in full force and effect and unmodified, and the Company is entitled to all rights and benefits thereunder, without qualification or limitation, and (ii) represent the legally valid and binding obligations of the other parties thereto and are enforceable against such parties in accordance with their terms, subject only to applicable bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other laws relating to or affecting creditors' rights generally and general principles of equity. The Company is not, nor, to the knowledge of the Company, is any other party thereto, in material breach or material default under such Licenses. To the knowledge of the Company, no event has occurred and no other facts or circumstances exist that with notice or lapse of time or both would constitute a material breach or material default by any party to any License. Except for Licenses set forth in Part III of Section 5.21(a) of the Company Disclosure Schedule, no approval or consent of any Person is needed or required in order that the Company's Licenses continue in full force and effect following consummation of the transactions contemplated in this Agreement and in the Plan of Arrangement. Except as set forth in Part IV of Section 5.21(a) of the Company Disclosure Schedule, no material product liability or liability for breach of warranty on the part of it under any License has been asserted or made and continues to be outstanding, against the Company. Without limiting the preceding sentence, there has not been any actual or alleged "Decline in Performance" (nor have there been any facts or circumstances that with notice or lapse of time or both would constitute a "Decline in Performance") or grant or request for "Sublicense," as such terms are defined in the Corixa Collaborative Research and Development Agreement dated November 4, 1998, as amended. (b) The Company has secured valid written assignments from all officers, agents, employee, former employee or consultant of the Company, without limitation, who contributed to the creation or development of the Company's Intellectual Property Rights, of the rights to such contributions that the Company does not already own by operation of law and no such officers, agents, employee, former employee or consultant retains, nor, to the Company's knowledge, has any of them transferred or conveyed to any Person, any interest or right in relation to the Intellectual Property Rights of the Company, and the Company has provided true, correct and complete copies of such assignment to Parent and has attached all forms thereof used by the Company in Section 5.21(b) of the Company Disclosure Schedule. (c) Except as set forth in Section 5.21(c) of the Company Disclosure Schedule, the Company, to its knowledge, owns or possesses or has obtained valid and 38 enforceable licenses or other rights to use all Intellectual Property Rights which are necessary or useful and actually used in the conduct of the Company's business as conducted as of the effective date of the Patent Disclosure Agreement. Except as set forth in Section 5.21(c) of the Company Disclosure Schedule, the Company has the rights to use, sell, license, sublicense, assign, transfer, convey or dispose of the Intellectual Property Rights which are necessary or useful and actually used in the conduct of the Company's business as conducted as of the effective date of the Patent Disclosure Agreement, and the products, processes and materials covered thereby, except as the rights of the Company may be limited in accordance with the contractual terms of the Licenses identified in Part I of 5.21 (a) of the Company Disclosure Schedule. (d) Except as set forth in Section 5.21(d) of the Company Disclosure Schedule, pursuant and subject to the limitations of the Patent Disclosure Agreement, as applicable, the Company has provided representatives of Parent with access to the ImmGenics Patent Portfolio and the ImmGenics Technologies (each as defined therein) and provided Schwegman, Lundberg, Woessner & Kluth, P.A., with access to the ImmGenics Cell Culture Technology (as defined therein). Except as provided in Section 5.21(d) of the Company Disclosure Schedule, none of the information described in the preceding sentence or provided pursuant to the Patent Disclosure Agreement is untrue or incorrect in any material respect or omits any material fact or information related thereto. (e) To the knowledge of the Company after due inquiry by the Company of its patent advisor(s), except as set forth in Part I of Section 5.21(e) of the Company Disclosure Schedule, neither the Company nor the operations of the Company as conducted on or before the effective date of the Patent Disclosure Agreement conflict with or infringe, and no one has asserted to the Company that such operations conflict with or infringe any Intellectual Property Rights owned, possessed or used by any third party. Except as set forth in Part II of Section 5.21(e) of the Company Disclosure Schedule, there are no claims, disputes, actions, proceedings, suits or appeals pending against the Company with respect to any Intellectual Property Rights, and, to the knowledge of the Company, none has been threatened against the Company. Except as set forth in Parts I or II of Section 5.21(e) of the Company Disclosure Schedule, to the knowledge of the Company, there are no facts or alleged facts which would reasonably serve as a basis for any claim that the Intellectual Property Rights which are necessary or useful and actually used in the conduct of the Company's business as conducted on or before the effective date of the Patent Disclosure Agreement, or the use, license or transfer of such Intellectual Property Rights, including, without limitation, the development, manufacture, use, sale or other disposition of any or all products or services presently being used, furnished or sold in the conduct of the business of the Company as it has been and is now being conducted, violate or infringe on the Intellectual Property Rights of any third party. Except as set forth in Part I or II of Section 5.21(e) of its Company Disclosure Schedule, to the knowledge of the Company after due inquiry by the Company of its patent advisor(s), the Intellectual Property Rights of the Company referred to in the preceding sentence are free of any unresolved ownership disputes with respect to any third party and to the knowledge of the Company, after due inquiry by the Company of its patent advisor(s), there is no unauthorized use, infringement or misappropriation of any of its Intellectual 39 Property Rights by any third party, including, without limitation, any employee or former employee of the Company. The Company has not entered into any agreement granting any third party the right to bring infringement actions with respect to, or otherwise to enforce rights with respect to, any of its Intellectual Property Rights. (f) Other than as disclosed pursuant to the Patent Disclosure Agreement, there are no other proceedings before any patent or trademark authority or otherwise relating to Intellectual Property Rights owned or used by the Company to which the Company is a party. The Company has the exclusive right to file, prosecute and maintain any such applications for patents, copyrights or trademarks and the patents and registrations that issue therefrom. (g) The Company has taken all measures that are reasonable and appropriate to maintain the confidentiality of the Intellectual Property Rights used or proposed to be used in the conduct of its business the value of which to the Company is contingent upon maintenance of the confidentiality thereof. Without limitation, the Company has complied with all express and/or implied obligations of confidentiality in relation to Intellectual Property Rights owned by third parties. (h) The data, information, results and conclusions set forth in the reports provided by the Company to Parent as listed in Schedule 5.21 (h) hereto are true, correct and complete in all material aspects. 5.22 Insurance. The Company has policies of insurance in force as of the Execution Date naming the Company as an insured which, having regard to the nature of such risk and the relative cost of obtaining insurance, are reasonable and provide a level of protection against loss comparable to similarly situated companies in British Columbia. 5.23 Property. Except as disclosed in Section 5.23 of the Company Disclosure Schedule, the Company has good, marketable and sufficient title to such real and personal property interests, including fee simple estate of and in real property, leases, easements, rights of way, permits or licenses from land owners or authorities permitting the use of land by the Company, necessary to permit the operation of its businesses as presently owned and conducted except for such failure of title that would not individually or in the aggregate have a Material Adverse Effect on the Company. The Company has no plan to expand its facilities except as described in Section 5.23 of the Company Disclosure Schedule. 5.24 Licenses, Etc. Except as they relate to Intellectual Property Rights, which are subject to the representations and warranties set forth in Section 5.21 of this Agreement, the Company has, owns, possesses, or has obtained and is in compliance with, all franchises, licenses, permits, certificates, orders, grants and other authorizations of or from any individual, entity, or Governmental Entity necessary to conduct its businesses as now conducted except for such failure that would individually or in the aggregate not have a Material Adverse Effect on the Company. Except as they relate to Intellectual Property Rights, which are subject to the representations and warranties set forth in Section 5.21 of this Agreement, the Company has not granted rights to manufacture, produce, assemble, license, market or sell its research findings, 40 products or services to any other Person and is not bound by any agreement that affects the Company's exclusive right to develop, manufacture, assemble, distribute, market or sell its research findings, products or services. 5.25 Registration Rights and Other Member Rights. Except as disclosed in Section 5.25 of the Company Disclosure Schedule, the Company has not granted or agreed to grant or been under any obligation to grant any registration rights, including "demand" or "piggyback" rights, and no Member otherwise has any right to compel the Company to register or otherwise qualify the securities of the Company for public sale in Canada or the United States. Except as contemplated in this Agreement and except as set forth in the Company's organizational documents, no voting or similar agreements exist related to the Company's securities which are presently outstanding or that may hereafter be issued. 5.26 Significant Customers and Suppliers. No customer or supplier (including any private or public research foundation or Governmental Entity) that was significant to the Company during the period covered by the Financial Statements or that has been significant thereafter, has terminated, materially reduced or to the knowledge of the Company threatened to terminate or materially reduce its purchases from or provision of products or services, or award of research grants, as the case may be, to the Company. 6. ADDITIONAL AGREEMENTS 6.1 Other Filings. Parent and the Company each have filed, or as promptly as practicable hereafter, shall prepare and file, any applicable filings, including the filing necessary to obtain the Applicable Regulatory Approvals, required under Applicable Corporate Laws, the Investment Canada Act (Canada), the Competition Act (Canada), Applicable Securities Laws or any other applicable law relating to the Acquisition, the Information Circular and the transactions contemplated hereby. 6.2 Further Assurances. Subject to the terms and conditions herein provided, each of the parties hereto agrees to use its reasonable best efforts to take, or cause to be taken, all action and to do, or cause to be done, all things necessary, proper or advisable to consummate and make effective as promptly as practicable the transactions contemplated by this Agreement, including the Arrangement, and to cooperate with each other in connection with the foregoing, including using reasonable best efforts to obtain all necessary consents, approvals and authorizations as are required to be obtained under any federal, provincial, state or foreign law or regulations, to defend all lawsuits or other legal proceedings challenging this Agreement or the consummation of the transactions contemplated hereby, including the Acquisition, to cause to be lifted or rescinded any injunction or restraining order or other order adversely affecting the ability of the parties to consummate the transactions contemplated hereby, including the Acquisition, and to effect all necessary registrations and other filings and submissions of information requested by governmental authorities. 41 6.3 Fees and Expenses. Except as provided for in the Patent Disclosure Agreement, all fees, costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such fees, costs or expenses. 6.4 Compliance with Contracts. Unless otherwise contemplated in this Agreement or in the Ancillary Agreements, Parent agrees that, from and after the Closing Date, it shall cause the Company to fulfil its obligations pursuant to (i) all such employment contracts to which the Company is a party listed in Section 5.11 of the Company Disclosure Schedule, as such agreements may be amended from time to time, and to the extent said agreements are not terminated on or prior to the Closing Date, (ii) termination, severance and retention plans of the Company listed in Section 5.13 of the Company Disclosure Schedule, as such plans may be amended from time to time, and to the extent such plans are not terminated on or prior to the Closing Date; and (iii) indemnity agreements entered into between the Company and any past or present officers or directors of the Company as listed in Section 5.7 of the Company Disclosure Schedule, and the indemnification and exculpation provisions in the Company organizational documents, which indemnification and exculpation provisions will not be amended, repealed or otherwise modified for a period of six (6) years from the Closing Date in any manner that would adversely affect the rights thereunder of any such officer or directors; provided, that, this Section 6.4 shall not restrict or prohibit Parent from dissolving the Company, reorganizing the capital of the Company, transferring the assets of the Company to another entity, causing the Company to assume the liabilities of another entity or otherwise reorganizing or restructuring the Company or its businesses if as part of such transaction or reorganization Parent causes the obligations under this Section 6.4 to be assumed by Parent. 6.5 Tax Election After the Closing Date, Parent shall cause the Company to elect, in its tax return for the taxation years ending concurrently with the Closing Date, that the provisions of subsection 256(9) of the Income Tax Act (Canada) do not apply, so that the acquisition of control of the Company will be deemed to have occurred simultaneously with the Closing Time and not at any earlier time. 6.6 Officers' and Directors' Insurance If the Arrangement is completed, Parent agrees to seek to secure at commercially reasonable rates directors' and officers' liability insurance on a "trailing" or "run-off" basis for the Company's current and former directors and officers (whether such insurance is maintained independently of or included under Parent's directors' and officers' insurance policy), covering claims made prior to or within six (6) years following the Effective Date. Coverage of such directors' and officers' insurance shall be substantially equivalent in scope and coverage to that provided by the Company's current directors' and officers' insurance policy. Notwithstanding the foregoing, in no event or circumstance shall Parent be obligated to pay any premiums or other amounts in respect of such insurance that would exceed Fifty Thousand Canadian dollars (CDN$50,000) in the aggregate. 7. TERM, TERMINATION, AMENDMENT AND WAIVER 7.1 General This Agreement shall be effective from the Execution Date until the earlier of the termination of this Agreement pursuant to Section 7.2 and the completion of the steps contemplated in the Plan of 42 Arrangement, provided that any obligations under Sections 6.3, 7 and 8 shall survive the termination of this Agreement. 7.2 Termination. This Agreement may be terminated at any time prior to the Closing Date as provided below, provided that the right to terminate this Agreement under any provision of this Section 7.2 shall not be available to any party if such party's material failure to fulfil any obligation under this Agreement has been the cause of or resulted in the failure of the Arrangement to occur on or before such termination: (a) by written agreement of the parties hereto; (b) by Parent or the Company, if the Final Order shall not have been issued on or before December 1, 2000; (c) by Parent, if the Special Resolution is not approved by the Members at the Meeting, as required by the Interim Order; (d) by Parent, if any one of the conditions for the benefit of Parent set forth in Section 2.2(b) have not been satisfied or waived by Parent on or before 10 a.m. (Vancouver time) December 1, 2000; (e) by Parent, if a Minimum Dissent Event or a Material Adverse Change of the Company shall have occurred; (f) by the Company, if any one of the conditions for the benefit of the Company set forth in Section 2.2(c) have not been satisfied or waived by the Company on or before 10 a.m. (Vancouver time), December 1, 2000; (g) by the Company, if a Parent Material Adverse Change shall have occurred; (h) by either Parent or the Company if a Governmental Entity shall have issued an order, decree or ruling or taken any other action, in any case having the effect of permanently restraining, enjoining or otherwise prohibiting the Acquisition or the Arrangement, which order, decree, ruling or other action shall have become final and nonappealable; (i) by Parent, if the Board shall withdraw, modify or change any recommendation regarding the Arrangement, or shall have failed to include in the Information Circular the favorable recommendation to the Members; (j) by Parent, in the event that the Principal Members have not complied with or performed, in all material respects, their covenants and obligations under the Shareholder Voting Agreement and Irrevocable Proxy to be complied with or performed at or prior to the Closing Date; (k) by Parent, in the event that the Shareholder Voting Agreement and Irrevocable Proxy shall have been terminated in accordance with the terms thereof. Neither Parent nor the Company may exercise any termination right pursuant to Section 7.2 hereof, unless Parent or the Company, as the case may be, has delivered a written notice to the other 43 parties hereto specifying in reasonable detail all breaches of covenants, representations and warranties or other matters which Parent or the Company, as the case may be, is asserting as the basis for the exercise of the termination right, as the case may be. If any such notice is delivered, provided that Parent or the Company, as the case may be, is proceeding diligently to cure such matter, if such matter is susceptible to being cured, the other parties hereto may not terminate this Agreement as a result thereof until the earlier of December 1, 2000, and the expiration of a period of thirty (30) days from such notice. For the avoidance of doubt, in the event that such matter is cured within the time period referred to herein, this Agreement may not be terminated pursuant to Section 7.2 as a result of the breach identified in the relevant notice. 7.3 Effect of Termination. In the event of the termination of this Agreement as provided in Section 7.2, this Agreement shall forthwith become void and there shall be no liability on the part of Parent or the Company hereunder, except as set forth in Sections 8.8 and this Section 7.3. Nothing contained in this Section 7.3 shall relieve any party from liability for any breach of any provision of this Agreement prior to the date of termination. No termination of this Agreement shall affect the obligations of the parties pursuant to the Confidentiality Agreement, the Patent Disclosure Agreement, except to the extent specified therein. 7.4 Amendment. This Agreement may be amended by mutual written agreement among the parties hereto. This Agreement may not be amended except by an instrument in writing signed by the appropriate officers on behalf of each of the parties hereto. 7.5 Waiver. Parent and the Company may (i) extend the time for the performance of any of the obligations or other acts of the other, (ii) waive compliance with any of the other's agreements or the fulfilment of any conditions to its own obligations contained herein, or (iii) waive inaccuracies in any of the other's representations or warranties contained herein or in any document delivered by the other party hereto; provided, however, that any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. 8. GENERAL PROVISIONS 8.1 Notices. All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed to have been duly given or made as of the date delivered or sent if delivered personally or sent by facsimile transmission or sent by prepaid overnight courier to the parties at the following address (or at such other addresses as shall be specified by either party by notice to the other): 44 (a) if to Parent or to Abgenix Canada: c/o Abgenix, Inc. 7601 Dumbarton Circle Fremont, California, U.S.A. 94555 Attention: Mr. Kurt Leutzinger cc: Daniel Hunt, Esq. Telephone: (510) 608-6500 Facsimile: (510) 608-6511 with a copy to: Stikeman Elliott Barristers & Solicitors Suite 1700, Park Place 666 Burrad Street Vancouver, Canada V6C 2X8 Attention: Jonathan S. Drance, Esq. Telephone: (604) 631-1361 Facsimile: (604) 681-1825 O'Melveny & Myers LLP Embarcadero Center West 275 Battery Street San Francisco, California, U.S.A 94111-3305 Attention: Peter T. Healy, Esq. Telephone: (415) 984-8833 Facsimile: (415) 984-8701 (b) if to the Company: ImmGenics Pharmaceuticals Inc. Third Floor 6660 North West Marine Drive Vancouver, British Columbia V6T 1Z3 Attention: Dr. Kevin B. Leslie Telephone: (604) 732-7526 Facsimile: (604) 221-5032 with a copy to: Blake, Cassels & Graydon LLP Barristers and Solicitors Suite 2600, Three Bentall Centre 595 Burrard Street Vancouver, British Columbia V7X 1L3 Attention: Catherine E. Wade, Esq. Telephone: (604) 631-3300 Facsimile: (604) 631-3309 45 and: Wilson Sonsini Goodrich & Rosati Professional Corporation One Market Suite 3300, Spear Street Tower San Francisco, California U.S.A. 94105 Attention: Michael S. Dorf, Esq. Telephone: (415) 947-2000 Facsimile: (415) 947-2099 8.2 Interpretation. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Unless otherwise indicated, all references to an "Article" or "section" followed by a number and/or a letter refer to the specified Article or Section of this Agreement. The terms "this Agreement", "hereof", "herein" and "hereunder" and similar expressions refer to this Agreement (including the Schedules hereto) and not to any particular Article, Section or other portion hereof and include any agreement or instrument supplementary or ancillary hereto; the words "including" and "includes" mean "including (or includes) without limitation," and the phrase "the aggregate of," "the total of," "the sum of," or a phrase of similar meaning means "the aggregate (or total or sum), without duplication, of," and in the computation of periods of time from a specified date to a later specified date, unless otherwise expressly stated, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding." The term "business day" herein means any day on which commercial banks are open for business in both Vancouver, British Columbia, and San Francisco, California. Unless the context otherwise requires, words importing the singular include the plural and vice versa and words importing any gender shall include all genders. For purposes of this Agreement, the obligations of the Company, Parent and Abgenix Canada to use "best efforts" to obtain waivers, consents and approvals to loan agreements, leases and other contracts shall not include any obligation to agree to an adverse modification of the terms of such documents or to prepay or incur additional obligations to such other parties. 8.3 Schedules. The following Schedules and Exhibits are annexed to this Agreement and are hereby incorporated by reference into this Agreement and form part hereof: Schedule 1.1 - Applicable Regulatory Approvals Schedule 2.2(b)(vi) - Company Consents and Waivers Schedule 2.2(b)(ix) - Employees Schedule 2.2(c)(iv) - Parent Consents and Waivers Schedule 4 - Parent Disclosure Schedule Schedule 5 - Company Disclosure Schedule Schedule 5.21(i) - List of Technical Reports Exhibit A - Plan of Arrangement Exhibit B - Escrow Agreement Exhibit C - Option Replacement Agreement Exhibit D - Support Agreement Exhibit E - Voting, Exchange and Cash Put Trust Agreement 46 8.4 Date for Any Action. In the event that any date on which any action is required to be taken hereunder by any of the parties hereto is not a business day, such action shall be required to be taken on the next succeeding day which is a business day. 8.5 Miscellaneous. This Agreement and all agreements to which Parent and the Company are parties referred to herein: (i) constitutes, together with the Confidentiality Agreement and the Patent Disclosure Agreement the entire agreement and supersedes all other prior agreements and understandings, both written and oral, among the parties, or any of them, with respect to the subject matter hereof, (ii) shall be binding upon and inure to the benefit of the parties and their respective successors and assigns and is not intended to confer upon any other Person any rights or remedies hereunder, except for the provisions of Sections 6.4, 6.5 and 6.6 hereof and (iii) may be executed in two or more counterparts which together shall constitute a single agreement. The parties shall be entitled to rely upon delivery of an executed facsimile copy of this Agreement, and such facsimile copy shall be legally effective to create a valid and binding agreement among the parties hereto. This Agreement shall be governed, including as to validity, interpretation and effect, by the laws of British Columbia and the federal laws of Canada applicable therein. Each of the parties hereto agrees that any action or proceeding arising out of or relating to this Agreement may be instituted in the courts of the Province of British Columbia and waives any objection which it may have now or hereafter to the venue of any such action or proceeding, irrevocably submits to the jurisdiction of the said courts in any such action or proceeding. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof in any court of British Columbia having jurisdiction, this being in addition to any other remedy to which they are entitled at law or in equity. 8.6 Publicity. So long as this Agreement is in effect and except as required by applicable laws and the rules, regulations and policies of any applicable stock exchange, each of Parent and the Company promptly shall advise, consult and cooperate with the other prior to issuing, or permitting any of its subsidiaries, directors, officers, employees or agents to issue, any press release or other statement to the media or any third party with respect to this Agreement or the transactions contemplated hereby. 8.7 Assignment. Except as expressly permitted by the terms hereof, neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by either of the parties without the prior written consent of the other party. Notwithstanding the foregoing, Parent may assign its rights under this Agreement to a wholly-owned subsidiary, in which event Parent shall continue to be liable to the Company for any default in performance by such subsidiary. 8.8 Survival of Representations and Warranties. The representations and warranties made by the parties hereto shall remain in full force and effect until the earlier of (a) the termination of this Agreement and (b) the Closing Date, except for such longer period as otherwise specifically provided in the Escrow Agreement; provided, however, that the representations and warranties made by the Company in Section 5.21 - Intellectual Property, shall survive 47 the termination of this Agreement and the Closing Date and shall remain in full force and effect until the date of termination of the Escrow Agreement. Notwithstanding any provision to the contrary, nothing in this Agreement shall be construed to limit any party's remedies in law or equity against fraud and wilful misconduct. 8.9 Time is of the Essence. Time shall be of the essence of this Agreement. 8.10 Currency. Except as expressly indicated otherwise, all sums of money referred to in this Agreement are expressed and shall be payable in United States dollars. All payments shall be in immediately available funds. 8.11 Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law. Any provision of this Agreement that is invalid or unenforceable in any jurisdiction shall be ineffective to the extent of such invalidity or unenforceability without invalidating, rendering unenforceable or altering the remaining provisions hereof, and any such invalidity or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 48 9. EXECUTION Parent, Abgenix Canada and the Company have caused this Agreement to be executed as of the date first written above by their respective officers thereunto duly authorized. "PARENT" ABGENIX, INC. By: --------------------------------- Its: -------------------------------- By: --------------------------------- Its: -------------------------------- "ABGENIX CANADA" ABGENIX CANADA CORPORATION By: --------------------------------- Its: -------------------------------- By: --------------------------------- Its: -------------------------------- "COMPANY" IMMGENICS PHARMACEUTICALS INC. By: --------------------------------- Its: -------------------------------- By: --------------------------------- Its: -------------------------------- 49 SCHEDULE 1.1 attached to and forming part of the Acquisition Agreement (the "Agreement") dated as of September 25, 2000 between Parent, Abgenix Canada and the Company APPLICABLE REGULATORY APPROVALS Canada o Supreme Court of British Columbia - Final Order o exemption orders from the provincial securities regulators from the registration, prospectus delivery and continuous disclosure requirements with respect to the transactions provided for in the Arrangement and the Ancillary Agreements in form and substance satisfactory to Parent and the Company United States and Other o approval of NASDAQ regarding the listing of the Parent Common Stock subject to official notice of issuance SCHEDULE 2.2(b)(vi) attached to and forming part of the Acquisition Agreement (the "Agreement") dated as of September 25, 2000 between Parent, Abgenix Canada and the Company COMPANY CONSENTS AND WAIVERS 1. REGISTRATION RIGHTS AGREEMENT between the Company and Corixa Corporation, dated November 4, 1998, as amended: o AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT between the Company, Nomura International plc, International Biotechnology Trust plc and Corixa Corporation, dated 16 May, 2000 2. SHAREHOLDER AGREEMENT between the Company and certain shareholders, dated 12 May, 2000 3. CO-SALE AGREEMENT between the Company and certain shareholders, dated 4 November, 1998, as amended: o AMENDED AND RESTATED CO-SALE AGREEMENT between the Company and certain shareholders, dated 12 May, 2000 4. LICENSE AGREEMENT among BR Centre Limited, the Company and Dr. John W. Schrader, dated May 9, 1994, as amended (Article 16) o LICENSE AGREEMENT AMENDMENT among BR Centre Limited, the Company and Dr. John W. Schrader, dated May 9, 1994 o ASSIGNMENT AGREEMENT among BR Centre Limited and The University of British Columbia Foundation, dated March 10, 1998 5. OFFER TO SUB-LEASE between the Company and Discovery Parks Inc, dated May 30, 1997, as amended o MODIFICATION OF LEASE between the Company and Discovery Parks Inc, dated April 1, 1998 o MODIFICATION OF LEASE between the Company and Discovery Parks Inc, dated December 16, 1998 o MODIFICATION OF LEASE between the Company and Discovery Parks Inc, dated June 1, 1999 o MODIFICATION OF LEASE between the Company and Discovery Parks Inc, dated April 1, 2000 o MODIFICATION OF LEASE between the Company and Discovery Parks Inc, dated July 16, 2000 SCHEDULE 2.2(b)(ix) attached to and forming part of the Acquisition Agreement (the "Agreement") dated as of September 25, 2000 between Parent, Abgenix Canada and the Company EMPLOYEES John Babcook Ian Foltz Palaniswami Rathanaswami Jaspal Kang Chad King SCHEDULE 2.2(c)(iv) attached to and forming part of the Acquisition Agreement (the "Agreement") dated as of September 25, 2000 between Parent, Abgenix Canada and the Company PARENT CONSENTS AND WAIVERS None. SCHEDULE 4 attached to and forming part of the Acquisition Agreement (the "Agreement") dated as of September 25, 2000 between Parent, Abgenix Canada and the Company PARENT DISCLOSURE SCHEDULE Section 4.5 A report on Form 8-K required to be filed by the Parent to the SEC on or before December 31, 1999 was filed in January 2000. SCHEDULE 5 attached to and forming part of the Acquisition Agreement (the "Agreement") dated as of September 25, 2000 between Parent, Abgenix Canada and the Company COMPANY DISCLOSURE SCHEDULE As appended. SCHEDULE 5.21(i) attached to and forming part of the Acquisition Agreement (the "Agreement") dated as of September 25, 2000 between Parent, Abgenix Canada and the Company LIST OF TECHNICAL REPORTS 1. The summary of data generated in the three collaborative programs between Millennium Biotherapeutics, Inc. and the Company sent to Dr. Geoff Davis, Chief Scientific Officer of Parent with an accompanying letter dated August 8, 2000. 2. The interim report of the data generated with respect to anti-IL-8 antibodies sent to Dr. Geoff Davis, Chief Scientific Officer of Parent with an accompanying letter dated September 11, 2000. 3. The Affinity Report dated September 25, 2000. EXHIBIT A attached to and forming part of the Acquisition Agreement (the "Agreement") dated as of September 25, 2000 between Parent, Abgenix Canada and the Company FORM OF PLAN OF ARRANGEMENT As appended. EXHIBIT B attached to and forming part of the Acquisition Agreement (the "Agreement") dated as of September 25, 2000 between Parent, Abgenix Canada and the Company FORM OF ESCROW AGREEMENT EXHIBIT C attached to and forming part of the Acquisition Agreement (the "Agreement") dated as of September 25, 2000 between Parent, Abgenix Canada and the Company FORM OF OPTION REPLACEMENT AGREEMENT EXHIBIT D attached to and forming part of the Acquisition Agreement (the "Agreement") dated as of September 25, 2000 between Parent, Abgenix Canada and the Company FORM OF SUPPORT AGREEMENT EXHIBIT E attached to and forming part of the Acquisition Agreement (the "Agreement") dated as of September 25, 2000 between Parent, Abgenix Canada and the Company FORM OF VOTING, EXCHANGE AND CASH PUT TRUST AGREEMENT EX-99.2 5 a2030181zex-99_2.txt EXHIBIT 99.2 APPENDIX C PLAN OF ARRANGEMENT INCLUDING SPECIAL SHARE PROVISIONS TABLE OF CONTENTS Page ARTICLE 1 INTERPRETATION 1.1 Definitions............................................................1 1.2 Sections and Headings..................................................4 1.3 Number, Gender and Persons.............................................5 ARTICLE 2 ARRANGEMENT 2.1 Binding Effect.........................................................5 2.2 Arrangement............................................................5 2.3 Elections..............................................................6 ARTICLE 3 CERTIFICATES AND FRACTIONAL SHARES 3.1 Issuance of Certificates Representing Company Special Shares...........7 3.2 Distributions with Respect to Unsurrendered Certificates...............8 3.3 Lost Certificates......................................................8 3.4 Extinction of Rights...................................................8 3.5 Withholding Rights.....................................................9 ARTICLE 4 CERTAIN RIGHTS OF ABGENIX CANADA TO ACQUIRE COMPANY SPECIAL SHARES 4.1 Abgenix Canada Liquidation Call Right..................................9 4.2 Abgenix Canada Redemption Call Right..................................11 4.3 No Fractional Abgenix Common Shares...................................12 ARTICLE 5 AMENDMENTS 5.1 Amendments to Plan of Arrangement.....................................13 ARTICLE 6 FURTHER ASSURANCES 6.1 Further Assurances....................................................13 -i- PLAN OF ARRANGEMENT UNDER SECTION 252 OF THE COMPANY ACT (BRITISH COLUMBIA) ARTICLE 1 INTERPRETATION 1.1 Definitions In this Plan of Arrangement, unless there is something in the subject matter or context inconsistent therewith, the following terms shall have the respective meanings set out below and grammatical variations of such terms shall have corresponding meanings: "Acquisition Agreement" means the agreement made as of the 25th day of September, 2000 among the Company, Abgenix Canada and Abgenix, as amended, supplemented and/or restated in accordance therewith prior to the Effective Date, providing for, among other things, the Arrangement; "Abgenix" means Abgenix, Inc., a corporation existing under the laws of the State of Delaware; "Abgenix Canada" means Abgenix Canada Corporation, an unlimited liability company existing under the laws of the Province of Nova Scotia; "Abgenix Common Shares" means the common shares in the capital of Abgenix; "Abgenix Stock Price" shall be equal to the average of the closing prices of one Abgenix Common Share, as quoted on NASDAQ, for the five (5) trading days ending on the Business Day before the SEC Effective Date; "Arrangement" means an arrangement under section 252 of the BC Act on the terms and subject to the conditions set out in this Plan of Arrangement, subject to any amendments or variations thereto made in accordance with section 7.4 of the Acquisition Agreement or Article 5 or made at the direction of the Court in the Final Order; "Arrangement Resolutions" means the special resolutions of the Company Securityholders; "BC Act" means the Company Act (British Columbia), as amended; "Business Day" means any day other than a Saturday or Sunday or any day on which commercial banks located in each of the Province of British Columbia, the State of California and the State of Delaware are authorized or obligated to close. "Canadian Resident" means a resident of Canada for purposes of the ITA; "Circular" means the notice of the Company Meeting and accompanying management information circular, including all appendices thereto, to be sent to the Company Securityholders in connection with the Company Meeting; -2- "Company" means ImmGenics Pharmaceuticals Inc., a corporation existing under the laws of British Columbia; "Company Class A Shares" means the Class A preferred shares without par value in the capital of the Company outstanding from time to time; "Company Class B Shares" means the Class B preferred shares with a par value of CDN$1.00 per share in the capital of the Company outstanding from time to time; "Company Common Shares" means the outstanding common shares in the capital of the Company; "Company Convertible Debenture" means that certain debenture convertible into 343,595 shares of Company Class A Shares held by Corixa Corporation; "Company Fully Diluted Shares" shall be the aggregate number of Company Special Shares outstanding as of the Effective Date, plus the aggregate number of Company Common Shares that would have been purchasable upon exercise of all Company Options that are vested as of the Closing Date (after giving effect to the acceleration of such Company Options contemplated hereby) were such Company Options not replaced in accordance with the terms of the Option Replacement Agreement; "Company Meeting" means the special meetings of the Company Securityholders, including any adjournment thereof, to be called and held in accordance with the Interim Order to consider the Arrangement; "Company Options" means the Company Common Share purchase options granted under the Company Stock Option Plan, as amended, and under separate agreements with one senior officer of the Company, and being outstanding and unexercised on the Effective Date; "Company Securities" means the Company Common Shares and any other securities issued by the Company which are converted into Company Common Shares under or pursuant to the Arrangement; "Company Securityholders" means the holders of Company Common Shares, Company Class A Shares and Company Class B Shares, the Company Options and the Company Convertible Debenture, collectively; "Company Special Shares" means the non-voting shares in the capital of the Company, having substantially the rights, privileges, restrictions and conditions set out in the Special Share Provisions; "Company Stock Option Plan" means the Company's 1996 Stock Option Plan; "Court" means the Supreme Court of British Columbia; "Current Market Price" has the meaning ascribed thereto in the Special Share Provisions; -3- "Dividend Amount" means an amount equal to and in satisfaction of all declared and unpaid dividends on a Company Special Share held by a holder on any dividend record date which occurred prior to the date of exchange of such share for Abgenix Common Shares; "Drop Dead Date" means December 1, 2000, or such later date as may be mutually agreed by the parties to the Arrangement Agreement; "Effective Date" means the date on which the Final Order is filed with and accepted by the Registrar, provided that such date occurs on or prior to the Drop Dead Date; "Effective Time" means 12:01 a.m. (Vancouver time) on the Effective Date; "Exchange Ratio" means the ratio of Abgenix Common Shares deliverable on exchange of each Company Special Share that will be delivered for each Company Common Share pursuant to the Recapitalization, which will be determined on the SEC Effective Date. The "Exchange Ratio" shall be equal to the Purchase Price per Share divided by the Abgenix Stock Price; "Final Order" means the final order of the Court approving the Arrangement; "Governmental Entity" means any (a) multinational, federal, provincial, state, regional, municipal, local or other government, governmental or public department, court or tribunal, domestic or foreign, (b) any subdivision, arbitral body, commission, board, bureau, agency or authority of any of the foregoing, or (c) any quasi-governmental or private body exercising any regulatory, expropriation or taxing authority under or for the account of any of the foregoing; "holders" means, when used with reference to any class of Company Securities, the holders of Company Securities shown from time to time in the register maintained by or on behalf of the Company in respect of those Company Securities; "Interim Order" means the interim order of the Court, as the same may be amended, in respect of the Arrangement, as contemplated by section 2.3 of the Acquisition Agreement; "ITA" means the Income Tax Act (Canada), as amended; "Liquidation Amount" has the meaning ascribed thereto in the Special Share Provisions; "Liquidation Call Purchase Price" has the meaning ascribed thereto in section 4.1(a); "Liquidation Call Right" has the meaning ascribed thereto in section 4.1(a); "Liquidation Date" has the meaning ascribed thereto in the Special Share Provisions; "Meeting Date" means the date of the Company Meeting; "NASDAQ" means the Nasdaq National Market; -4- "Person" includes any individual, firm, partnership, joint venture, venture capital fund, limited liability company, unlimited liability company, association, trust, trustee, executor, administrator, legal personal representative, estate, group, body corporate, corporation, unincorporated association or organization, Governmental Entity, syndicate or other entity, whether or not having legal status; "Purchase Price per Share" means seventy-five million United States dollars (US$75,000,000) plus the aggregate exercise price of all vested Company Options to be replaced on the Closing Date and then divided by the number of Company Fully Diluted Shares as of the Closing Date; "Redemption Call Purchase Price" has the meaning ascribed thereto in section 4.2(a); "Redemption Call Right" has the meaning ascribed thereto in section 4.2(a); "Redemption Date" has the meaning ascribed thereto in the Special Share Provisions; "Registrar" means the Registrar of Companies appointed pursuant to section 320 of the BC Act; "SEC Effective Date" means the date on which the registration statement on Form S-1 (or S-3, as the case may be) filed by Abgenix with the United States Securities and Exchange Commission in connection with the issuance of Abgenix Common Shares upon exchange of the Company Special Shares becomes effective; "Special Share Provisions" means the rights, privileges, restrictions and conditions attaching to the Company Special Shares, which rights, privileges, restrictions and conditions shall be substantially as set out in Appendix 1 hereto; "Transfer Agent" means the transfer agent of the Company Special Shares; "Trustee" means the trustee to be chosen by Abgenix and the Company, acting reasonably, to act as trustee under the Voting, Exchange and Cash Put Trust Agreement, being a corporation organized and existing under the laws of Canada and authorized to carry on the business of a trust company in all of the provinces of Canada, and any successor trustee appointed under the Voting, Exchange and Cash Put Trust Agreement; and "Voting, Exchange and Cash Put Trust Agreement" means an agreement to be made between Abgenix, the Company and the Trustee in connection with the Plan of Arrangement substantially in the form and content of Exhibit E annexed to the Acquisition Agreement, with such changes thereto as the parties to the Acquisition Agreement, acting reasonably, may agree. 1.2 Sections and Headings The division of this Plan of Arrangement into sections and the insertion of headings are for reference purposes only and shall not affect the interpretation of this Plan of Arrangement. Unless otherwise indicated any reference in this Plan of Arrangement to a section or an exhibit refers to the specified section of or exhibit to this Plan of Arrangement. -5- 1.3 Number, Gender and Persons In this Plan of Arrangement, unless the context otherwise requires, words importing the singular number include the plural and vice versa and words importing any gender include all genders. ARTICLE 2 ARRANGEMENT 2.1 Binding Effect This Plan of Arrangement will become effective at, and be binding at and after, the Effective Time on (i) the Company, (ii) all holders and all beneficial holders of Company Common Shares, (iii) all holders and all beneficial holders of Company Options, (iv) all holders and all beneficial holders of the Company Class A Shares, (v) all holders and all beneficial holders of Company Class B Shares, (vi) the holder of the Company Convertible Debenture, (vii) Abgenix and (viii) Abgenix Canada. 2.2 Arrangement Commencing at the Effective Time, the following shall occur and shall be deemed to occur in the following order without any further act or formality: (a) the Memorandum of the Company is altered by increasing the Company's authorized capital to consist of 500,000,000 shares divided into (i) 100,000,000 common shares without par value; (ii) 100,000,000 Class A preferred shares without par value; (iii) 100,000,000 Class B preferred shares with a par value of CDN$1.00; (iv) 100,000,000 Special Shares without par value; and (v) 100,000,000 Ordinary Shares without par value; (b) the Articles of the Company be amended by adding the Special Rights and Restrictions Attached to the Special Shares, as set forth in Schedule A; (c) the Articles of the Company be amended by adding the Special Rights and Restrictions Attached to the Ordinary Shares, as set forth in Schedule B; (d) the Company Convertible Debenture shall be converted into 343,595 Company Class A Shares in accordance with its terms; (e) each of the Company Class A Shares shall be converted into one Company Common Share; (f) each of the Company Class B Shares shall be converted into one Company Common Share; (g) each Company Common Share shall be redesignated as a Company Special Share; -6- (h) each Company Option shall be exchanged for an option under the Abgenix 1999 Non-statutory Stock Option Plan (a "Replacement Option") to purchase a number of Abgenix Common Shares equal to the product of the Exchange Ratio multiplied by the number of Company Common Shares subject to such Company Option. Such Replacement Option shall provide for an exercise price per Abgenix Common Share equal to the exercise price per share of such Company Option immediately prior to the Effective Time divided by the Exchange Ratio. If the foregoing calculation results in a Replacement Option being exercisable for a fraction of an Abgenix Common Share, then the number of Abgenix Common Shares subject to such Replacement Option shall be rounded down to the next whole number of Abgenix Common Shares and the total exercise price for the Replacement Option will be reduced by the exercise price of the fractional Abgenix Common Shares. Such Replacement Option shall not be exercisable until the SEC Effective Date; (i) the Memorandum of the Company is altered to decrease the Company's authorized capital to consist of 200,000,000 shares divided into (i) 100,000,000 Special Shares without par value; and (ii) 100,000,000 Ordinary Shares without par value; (j) the Articles of the Company be amended by deleting Article 27, Special Rights and Restrictions attaching to the Class A Preferred Shares; (k) the Articles of the Company be amended by deleting Article 28, Special Rights and Restrictions attaching to the Class B Preferred Shares; (l) the Memorandum of the Company, after giving effect to the foregoing provisions of this Plan of Arrangement, shall be in the form attached as Schedule C; (m) the Articles of the Company, after giving effect to the foregoing provisions of this Plan of Arrangement, shall be in the form attached as Schedule D; (n) Abgenix shall issue to and deposit with the Trustee the Special Voting Share, in consideration of the payment to Abgenix of US$1.00, to be thereafter held of record by the Trustee as trustee for and on behalf of, and for the use and benefit of, the holders of the Company Special Shares in accordance with the Voting, Exchange and Cash Put Trust Agreement; and (o) the Company shall issue 20,000,000 Ordinary Shares to Abgenix Canada for an aggregate purchase price of $20 pursuant to and in accordance with the Acquisition Agreement. 2.3 Elections Holders of Company Common Shares, shall be entitled to make an income tax election pursuant to subsection 85 (1) of the ITA or, if the holder is a partnership, subsection 85 (2) of the ITA -7- (and in each case, where applicable, the analogous provisions of provincial income tax law) with respect to the redesignation of their Company Common Shares to Company Special Shares by providing two signed copies of the necessary prescribed election forms to the Company within ninety (90) days following the Effective Date, duly completed with the details of the number of Company Common Shares redesignated and the applicable agreed amounts for the purposes of such elections. Thereafter, subject to the election forms being correct and complete and complying with the provisions of the ITA (or applicable provincial income tax law), the forms will be signed by the Company and returned to such holders of Company Common Shares within thirty (30) days after the receipt thereof by the Company for filing with Canada Customs and Revenue Agency (or the applicable provincial taxing authority). The Company will not be responsible for the proper completion of any election form and, except for the Company's obligation to return duly completed election forms which are received by the Company within ninety (90) days of the Effective Date, within thirty (30) days after the receipt thereof by the Company, the Company will not be responsible for any taxes, interest or penalties resulting from the failure by a holder of Company Common Shares to properly complete or file the election forms in the form and manner and within the time prescribed by the ITA (or any applicable provincial legislation). In its sole discretion, the Company may choose to sign and return an election form received more than ninety (90) days following the Effective Date, but the Company will have no obligation to do so. ARTICLE 3 CERTIFICATES AND FRACTIONAL SHARES 3.1 Issuance of Certificates Representing Company Special Shares At or promptly after the Effective Time, the Company shall deposit with the Transfer Agent at its registered office, for the benefit of the holders of Company Common Shares who will receive Company Special Shares in connection with the Arrangement, certificates representing that number of whole Company Special Shares to be delivered pursuant to section 2.2 upon the redesignation of Company Common Shares. Upon surrender to the Company for cancellation of a certificate which immediately prior to the Effective Time represented Company Common Shares that were redesignated as Company Special Shares under the Arrangement, together with such other documents and instruments as would have been required to effect the transfer of the shares formerly represented by such certificate under the BC Act and the articles of the Company and such additional documents and instruments as the Company may reasonably require, the holder of such surrendered certificate shall be entitled to receive in exchange therefor, and the Company shall deliver to such holder, a certificate representing that number of Company Special Shares which such holder has the right to receive (together with any dividends or distributions with respect thereto pursuant to section 3.2, less any amounts withheld pursuant to section 3.5 hereof), and the certificate so surrendered shall forthwith be cancelled. In the event of a transfer of ownership of Company Securities that is not registered in the transfer records of the Company, a certificate representing the proper number of Company Special Shares may be issued to the transferee if the certificate representing such Company Securities is presented to the Company, accompanied by all documents required to evidence and effect such transfer. Until surrendered as contemplated by this section 3.1, each certificate which immediately prior to the Effective Time -8- represented Company Securities shall be deemed at all times after the Effective Time to represent only the right to receive upon such surrender (i) the certificate representing Company Special Shares as contemplated by this section 3.1, and (ii) any dividends or distributions with a record date after the Effective Time theretofore paid or payable with respect to Company Special Shares as contemplated by section 3.2. 3.2 Distributions with Respect to Unsurrendered Certificates No dividends or other distributions declared or made after the Effective Time with respect to Company Special Shares with a record date after the Effective Time shall be paid to the holder of any unsurrendered certificate which immediately prior to the Effective Time represented outstanding Company Securities, and no interest shall be earned or payable on these proceeds unless and until the holder of such certificate shall surrender such certificate in accordance with section 3.1. Subject to applicable law, at the time of such surrender of any such certificate (or, in the case of clause (ii) below, at the appropriate payment date), there shall be paid to the holder of the certificates representing Company Securities without interest, (i) the amount of dividends or other distributions with a record date after the Effective Time theretofore paid with respect to the Company Special Shares to which such holder is entitled pursuant hereto and (ii) on the appropriate payment date, the amount of dividends or other distributions with a record date after the Effective Time but prior to surrender and a payment date subsequent to surrender payable with respect to such Company Special Shares. 3.3 Lost Certificates In the event any certificate which immediately prior to the Effective Time represented one or more outstanding Company Securities shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such certificate to be lost, stolen or destroyed, the Company will deliver in exchange for such lost, stolen or destroyed certificate one or more certificates representing one or more Company Special Shares (and any dividends or distributions with respect thereto) deliverable in accordance with such holder's instructions. When authorizing such payment in exchange for any lost, stolen or destroyed certificate, the Person to whom certificates representing Company Special Shares are to be delivered shall, as a condition precedent to the delivery thereof, give a bond satisfactory to the Company and its transfer agents in such sum as the Company may direct or otherwise indemnify the Company and Abgenix in a manner satisfactory to the Company against any claim that may be made against the Company with respect to the certificate alleged to have been lost, stolen or destroyed. 3.4 Extinction of Rights Any certificate which immediately prior to the Effective Time represented outstanding Company Securities that is not deposited with all other instruments required by section 3.1 on or prior to the date of the notice referred to in section 6(2) of the Special Share Provisions shall cease to represent a claim or interest of any kind or nature as a shareholder of the Company. On such date, the Company Special Shares to which the former holder of the certificate referred to in the preceding sentence was ultimately entitled shall be deemed to have been surrendered for no consideration to the Company together with all entitlements to dividends, distributions and -9- interest in respect thereof held for such former holder. None of the Company, Abgenix or Abgenix Canada shall be liable to any person in respect of any Company Special Shares (or dividends, distributions and interest in respect thereof) delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. 3.5 Withholding Rights The Company, Abgenix and Abgenix Canada shall be entitled to deduct and withhold from any dividend or consideration otherwise payable to any holder of Company Securities or Company Special Shares such amounts as the Company, Abgenix or Abgenix Canada is required or permitted to deduct and withhold with respect to such payment under the ITA, the United States Internal Revenue Code of 1986 or any provision of provincial, state, local or foreign tax law, in each case, as amended. To the extent that amounts are so withheld, such withheld amounts shall be treated for all purposes hereof as having been paid to the holder of the securities in respect of which such deduction and withholding was made, provided that such withheld amounts are actually remitted to the appropriate taxing authority. To the extent that the amount so required to be deducted or withheld from any payment to a holder exceeds the cash portion of the consideration otherwise payable to the holder, the Company, Abgenix Canada and Abgenix are hereby authorized to sell or otherwise dispose of such portion of the consideration as is necessary to provide sufficient funds to the Company, Abgenix Canada or Abgenix, as the case may be, to enable it to comply with such deduction or withholding requirement and the Company, Abgenix Canada or Abgenix shall notify the holder thereof and remit any unapplied balance of the net proceeds of such sale. ARTICLE 4 CERTAIN RIGHTS OF ABGENIX CANADA TO ACQUIRE COMPANY SPECIAL SHARES 4.1 Abgenix Canada Liquidation Call Right (a) Abgenix Canada shall have the overriding right (the "Liquidation Call Right"), in the event of and notwithstanding the proposed liquidation, dissolution or winding-up of the Company, to purchase from all but not less than all of the holders of Company Special Shares (other than any holder of Company Special Shares which is an affiliate of Abgenix) on the Liquidation Date all but not less than all of the Company Special Shares held by each such holder on payment by Abgenix Canada of an amount per share (the "Liquidation Call Purchase Price") equal to the Current Market Price of an Abgenix Common Share on the last Business Day prior to the Liquidation Date multiplied by the Exchange Ratio, which shall be satisfied in full by Abgenix Canada causing to be delivered to such holder such number of Abgenix Common Shares calculated in accordance with the Exchange Ratio for each Company Special Share held by such holder, plus any Dividend Amount. In the event of the exercise of the Liquidation Call Right by Abgenix Canada each holder shall be obligated to sell all the Company Special Shares held by the holder to Abgenix Canada on the Liquidation Date on payment by Abgenix Canada to the holder of the Liquidation Call Purchase Price for each such share, -10- and the Company shall have no obligation to pay any Liquidation Amount to the holders of such shares so purchased by Abgenix Canada. (b) To exercise the Liquidation Call Right, Abgenix Canada must notify the holders of Company Special Shares, and the Company of Abgenix Canada's intention to exercise such right at least forty-five (45) days before the Liquidation Date in the case of a voluntary liquidation, dissolution or winding-up of the Company and at least five (5) Business Days before the Liquidation Date in the case of an involuntary liquidation, dissolution or winding-up of the Company. If Abgenix Canada exercises the Liquidation Call Right, then on the Liquidation Date Abgenix Canada will purchase and the holders will sell all of the Company Special Shares then outstanding for a price per share equal to the Liquidation Call Purchase Price. (c) For the purposes of completing the purchase of the Company Special Shares pursuant to the Liquidation Call Right, Abgenix Canada shall deposit with the Transfer Agent, on or before the Liquidation Date, certificates representing the aggregate number of Abgenix Common Shares deliverable by Abgenix Canada and a cheque or cheques of Abgenix Canada payable at par at any branch of the bankers of Abgenix Canada representing the aggregate Dividend Amount, if any, in payment of the total Liquidation Call Purchase Price, less any amounts withheld pursuant to section 3.5 hereof. Provided that Abgenix Canada has complied with the immediately preceding sentence, on and after the Liquidation Date the rights of each holder of Company Special Shares will be limited to receiving such holder's proportionate part of the total Liquidation Call Purchase Price payable by Abgenix Canada upon presentation and surrender by the holder of certificates representing the Company Special Shares held by such holder and the holder shall on and after the Liquidation Date be considered and deemed for all purposes to be the holder of the Abgenix Common Shares to which it is entitled. Upon surrender to the Transfer Agent of a certificate or certificates representing Company Special Shares, together with such other documents and instruments as may be required to effect a transfer of Company Special Shares under the governing corporate statute and the articles of the Company and such additional documents and instruments as the Transfer Agent may reasonably require, the holder of such surrendered certificate or certificates shall be entitled to receive in exchange therefor, and the Transfer Agent on behalf of Abgenix Canada shall deliver to such holder, certificates representing the Abgenix Common Shares to which the holder is entitled and a cheque or cheques of Abgenix Canada payable at par at any branch of the bankers of Abgenix Canada in payment of the remaining portion, if any, of the total Liquidation Call Purchase Price, less any amounts withheld pursuant to section 3.5 hereof. If Abgenix Canada does not exercise the Liquidation Call Right in the manner described above, on the Liquidation Date the holders of the Company Special Shares will be entitled to receive in exchange therefor the Liquidation Amount otherwise -11- payable by the Company in connection with the liquidation, dissolution or winding-up of the Company pursuant to Article 5 of the Special Share Provisions. 4.2 Abgenix Canada Redemption Call Right In addition to Abgenix Canada's rights contained in the Special Share Provisions, including, without limitation, the Retraction Call Right (as defined in the Special Share Provisions), Abgenix Canada shall have the following rights in respect of the Company Special Shares: (a) Abgenix Canada shall have the overriding right (the "Redemption Call Right"), notwithstanding the proposed redemption of the Company Special Shares by the Company pursuant to Section 6(2) of the Special Share Provisions, to purchase from all but not less than all of the holders of Company Special Shares (other than any holder of Company Special Shares which is an affiliate of Abgenix) on the Redemption Date all but not less than all of the Company Special Shares held by each such holder on payment by Abgenix to each holder of an amount per Company Special Share (the "Redemption Call Purchase Price") equal to the Current Market Price of an Abgenix Common Share on the last Business Day prior to the Redemption Date multiplied by the Exchange Ratio, which shall be satisfied in full by Abgenix Canada causing to be delivered to such holder such number of Abgenix Common Shares calculated in accordance with the Exchange Ratio for each Special Share held by such holder, plus any Dividend Amount. In the event of the exercise of the Redemption Call Right by Abgenix Canada each holder shall be obligated to sell all the Company Special Shares held by the holder to Abgenix Canada on the Redemption Date on payment by Abgenix Canada to the holder of the Redemption Call Purchase Price for each such share, and the Company shall have no obligation to redeem, or to pay any Dividend Amount in respect of, such shares so purchased by Abgenix Canada. (b) To exercise the Redemption Call Right, Abgenix Canada must notify the Transfer Agent, as agent for the holders of Company Special Shares, and the Company of Abgenix Canada's intention to exercise such right at least sixty (60) days before the Redemption Date, except in the case of a redemption occurring as a result of a Abgenix Control Transaction, an Exchangeable Share Voting Event or an Exempt Exchangeable Share Voting Event (each as defined in the Special Share Provisions), in which case Abgenix Canada shall so notify the Transfer Agent and the Company on or before the Redemption Date. The Transfer Agent will notify the holders of the Company Special Shares as to whether or not Abgenix Canada has exercised the Redemption Call Right forthwith after the expiry of the period during which the same may be exercised by Abgenix Canada. If Abgenix Canada exercises the Redemption Call Right, on the Redemption Date Abgenix Canada will purchase and the holders will sell all of the Company Special Shares then outstanding for a price per share equal to the Redemption Call Purchase Price. (c) For the purposes of completing the purchase of the Company Special Shares pursuant to the Redemption Call Right, Abgenix Canada shall deposit with the -12- Transfer Agent, on or before the Redemption Date, certificates representing the aggregate number of Abgenix Common Shares deliverable by Abgenix Canada and a cheque or cheques of Abgenix Canada payable at par at any branch of the bankers of Abgenix Canada representing the aggregate Dividend Amount, if any, in payment of the total Redemption Call Purchase Price, less any amounts withheld pursuant to section 3.5 hereof. Provided that Abgenix Canada has complied with the immediately preceding sentence, on and after the Redemption Date the rights of each holder of Company Special Shares will be limited to receiving such holder's proportionate part of the total Redemption Call Purchase Price payable by Abgenix Canada upon presentation and surrender by the holder of certificates representing the Company Special Shares held by such holder and the holder shall on and after the Redemption Date be considered and deemed for all purposes to be the holder of the Abgenix Common Shares to which it is entitled. Upon surrender to the Transfer Agent of a certificate or certificates representing Company Special Shares, together with such other documents and instruments as may be required to effect a transfer of Company Special Shares under the governing corporate statute and the articles of the Company and such additional documents and instruments as the Transfer Agent may reasonably require, the holder of such surrendered certificate or certificates shall be entitled to receive in exchange therefor, and the Transfer Agent on behalf of Abgenix Canada shall deliver to such holder, certificates representing the Abgenix Common Shares to which the holder is entitled and a cheque or cheques of Abgenix Canada payable at par at any branch of the bankers of Abgenix Canada in payment of the remaining portion, if any, of the total Redemption Call Purchase Price, less any amounts withheld pursuant to section 3.5 hereof. If Abgenix Canada does not exercise the Redemption Call Right in the manner described above, on the Redemption Date the holders of the Company Special Shares will be entitled to receive in exchange therefor the redemption price otherwise payable by the Company in connection with the redemption of the Company Special Shares pursuant to Section 7 of the Special Share Provisions. 4.3 No Fractional Abgenix Common Shares No fraction of an Abgenix Common Share will be delivered in connection with the exercise of the Liquidation Call Right or the Redemption Call Right by Abgenix Canada. In lieu thereof any holder of Company Special Shares who would otherwise be entitled to receive a fraction of an Abgenix Common Share (after aggregating all fractional Abgenix Common Shares that would otherwise be received by such holder) shall receive from Abgenix Canada an amount of cash (rounded to the nearest cent) without interest, equal to the product of (x) such fraction and (y) the Current Market Price of an Abgenix Common Share. -13- ARTICLE 5 AMENDMENTS 5.1 Amendments to Plan of Arrangement The Company reserves the right to amend, modify and/or supplement this Plan of Arrangement at any time and from time to time prior to the Effective Date, provided that each such amendment, modification and/or supplement must be (i) set out in writing, (ii) approved by Abgenix, (iii) filed with the Court and, if made following the Company Meeting, approved by the Court and (iv) communicated to holders of Company Common Shares, the Company Class A Shares, the Company Class B Shares, the Company Convertible Debenture and the Company Options if and as required by the Court. Any amendment, modification or supplement to this Plan of Arrangement may be proposed by the Company at any time prior to the Company Meeting (provided that Abgenix shall have consented thereto) with or without any other prior notice or communication, and if so proposed and accepted by the Persons voting at the Company Meeting (other than as may be required under the Interim Order), shall become a part of this Plan of Arrangement for all purposes. Any amendment, modification or supplement to this Plan of Arrangement that is approved by the Court following the Company Meeting shall be effective only if (i) it is consented to by each of the Company and Abgenix and (ii) if required by the Court, it is consented to by holders of the Company Common Shares, the Company Class A Shares, the Company Class B Shares, the Company Convertible Debenture and the Company Options voting in the manner directed by the Court. Any amendment, modification or supplement to this Plan of Arrangement may be made following the Effective Date unilaterally by the Company, provided that it concerns a matter which, in the reasonable opinion of Company, is of an administrative nature required to better give effect to the implementation of this Plan of Arrangement and is not adverse to the financial or economic interests of any Company Securityholder. ARTICLE 6 FURTHER ASSURANCES 6.1 Further Assurances Notwithstanding that the transactions and events set out herein shall occur and be deemed to occur in the order set out in this Plan of Arrangement without any further act or formality, each of the parties to the Acquisition Agreement shall make, do and execute, or cause to be made, done and executed, all such further acts, deeds, agreements, transfers, assurances, instruments or documents as may reasonably be required by any of them in order further to document or evidence any of the transactions or events set out herein. SCHEDULE A Special Share Terms SCHEDULE B Ordinary Share Terms SPECIAL RIGHTS AND RESTRICTIONS ATTACHED TO THE ORDINARY SHARES The Ordinary Shares shall have the following rights, privileges, restrictions and conditions: 30.1 For the purposes of these share provisions: "Ordinary Shares" means the ordinary shares of the Company to which will be attached the rights, privileges, restrictions and conditions as set forth herein; "Special Shares" mean the special shares in the capital of the Company, having the rights, privileges, restrictions and conditions set forth at Article 29; 30.2 The Ordinary Shares shall rank junior to the Special Shares with respect to the payment of dividends and the distribution of assets in the event of the liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, or any other distribution of the assets of the Company, among its members for the purpose of winding up its affairs. 30.3 The Ordinary Shares will entitle holders to one vote for each Ordinary Share held at all meetings of members except meetings at which only holders of another specified class of shares are entitled to vote. 30.4 The Ordinary Shares will entitle holders: (a) to receive, subject to the rights of the holders of other classes of shares of the Company, any dividend declared by the Board; and (b) to receive, also subject to the rights on holders of other classes of shares of the Company, the remaining property of the Company upon its liquidation, dissolution or winding up, whether voluntary or involuntary. SCHEDULE C Altered Memorandum (As altered by Plan of Arrangement) OF IMMGENICS PHARMACEUTICALS INC. 1. The name of the Company is ImmGenics Pharmaceuticals Inc. 2. The authorized capital of the Company consists of 200,000,000 shares divided into: (a) 100,000,000 Special Shares without par value; and (b) 100,000,000 Ordinary Shares without par value. 3. The rights and restrictions attached to the classes of shares in the capital of the Company are as set out in the articles of the Company. SCHEDULE D Altered Articles EX-99.3 6 a2030181zex-99_3.txt EXHIBIT 99.3 ABGENIX, INC. and IMMGENICS PHARMACEUTICALS INC. and CIBC MELLON TRUST COMPANY as Trustee - -------------------------------------------------------------------------------- VOTING, EXCHANGE AND CASH PUT TRUST AGREEMENT November 3, 2000 - -------------------------------------------------------------------------------- VOTING, EXCHANGE AND CASH PUT TRUST AGREEMENT THIS VOTING TRUST, EXCHANGE AND CASH PUT AGREEMENT made as of November 3, 2000, among Abgenix, a corporation existing under the laws of Delaware (hereinafter referred to as "Abgenix"), ImmGenics Pharmaceuticals Inc., a corporation existing under the laws of British Columbia (hereinafter referred to as "Company") and CIBC Mellon Trust Company, a trust company incorporated under the laws of Canada (hereinafter referred to as "Trustee"). RECITALS: (a) In connection with an acquisition agreement (as amended, supplemented and/or restated, the "Acquisition Agreement") made as of September 25, 2000 between Abgenix, Abgenix Canada Corporation ("Abgenix Canada") and the Company, the Company is to issue exchangeable shares to certain holders of securities of the Company pursuant to the plan of arrangement contemplated in the Acquisition Agreement; and (b) Pursuant to the Acquisition Agreement, Abgenix and the Company are required to execute a voting trust, exchange and cash put agreement substantially in the form of this Agreement. In consideration of the foregoing and the mutual agreements contained herein (the receipt and adequacy of which are acknowledged), the parties agree as follows: ARTICLE 1 DEFINITIONS AND INTERPRETATION 1.1 Definitions In this Agreement, the following terms shall have the following meanings: "Abgenix Canada" means Abgenix Canada Corporation, a Nova Scotia unlimited liability company wholly owned by Abgenix. "Abgenix Meeting" has the meaning ascribed thereto in Section 4.2. "Abgenix Common Shares" means common shares in the capital stock of Abgenix. "Abgenix Special Voting Share" means the one special voting share in the capital of Abgenix issued in connection with the Plan of Arrangement which entitles the holder of record to such number of votes at meetings of holders of Abgenix Common Shares that equals the product of (a) the number of Company Special Shares outstanding from time to time (other than Company Special Shares -2- held by Abgenix and Affiliates of Abgenix), multiplied by (b) the Exchange Ratio, which share is to be issued to and voted by the Trustee as described herein. "Abgenix Successor" has the meaning ascribed thereto in Section 11.1(a). "Affiliate" of any person means any other person directly or indirectly controlled by, or under control of, that person or under common control of the same person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlled by" and "under common control of"), as applied to any person, means the possession by another person, directly or indirectly, of the power to direct or cause the direction of the management and policies of that first mentioned person, whether through the ownership of voting securities, by contract or otherwise. "Arrangement" means the arrangement under Section 252 of the BC Act on the terms and subject to the conditions set out in the Plan of Arrangement. "Automatic Exchange Rights on Liquidation" means the benefit of the obligation of Abgenix to effect the automatic exchange of Company Special Shares for Abgenix Common Shares pursuant to Section 5.13. "BC Act" means the Company Act (British Columbia), as amended. "Beneficiaries" means the registered holders from time to time of Company Special Shares, other than Abgenix and Abgenix's Affiliates. "Beneficiary Votes" has the meaning ascribed thereto in Section 4.2. "Board of Directors" means the Board of Directors of the Company or Abgenix, as the case may be. "Business Day" means any day other than a Saturday, a Sunday or any day on which commercial banks located in the Province of British Columbia, the State of California or the State of Delaware are authorized or obligated to close. "Canadian Dollar Equivalent" means, in respect of an amount expressed in a currency other than Canadian dollars (the "Foreign Currency Amount") at any date, the product obtained by multiplying (a) the Foreign Currency Amount by (b) the noon spot exchange rate on such date for such foreign currency expressed in Canadian dollars as reported by the Bank of Canada or, in the event such spot exchange rate is not available, such exchange rate on such date for such foreign currency expressed in Canadian dollars as may be determined by the Board of Directors in good faith and in its sole discretion to be appropriate for such purpose. "Cash Put Right" has the meaning ascribed thereto in Section 5.16. "Company" means ImmGenics Pharmaceuticals Inc. -3- "Company Fully Diluted Shares" shall be the aggregate number of Company Special Shares outstanding as of the Closing Date, plus the aggregate number of Company Common Shares that would have been purchasable upon exercise of all Company Options that are vested as of the Closing Date (after giving effect to the acceleration of such Company Options contemplated hereby) were such Company Options not replaced in accordance with the terms of the Option Replacement Agreement. "Company Special Shares" means the non-voting exchangeable shares in the capital of the Company, having substantially the rights, privileges, restrictions and conditions set out in Appendix 1 to the Plan of Arrangement. "Court" means the Supreme Court of British Columbia. "Current Market Price" means, in respect of an Abgenix Common Share on any date, the Canadian Dollar Equivalent of the average of the closing bid and offer prices of Abgenix Common Shares during a period of five (5) consecutive trading days ending on the third trading day before such date on the NASDAQ; provided however, that if in the opinion of the Board of Directors the public distribution or trading activity of Abgenix Common Shares during such period does not create a market which reflects the fair market value of an Abgenix Common Share, then the Current Market Price of an Abgenix Common Share shall be determined by the Board of Directors, in good faith and in its sole discretion, and provided further that any such selection, opinion or determination by the Board of Directors shall be conclusive and binding. "Exchange Ratio" means the Purchase Price per Share, divided by the average of the closing prices of one Abgenix Common Share, as quoted on NASDAQ, for the five (5) trading days ending on the day immediately preceding the SEC Effective Date. "Exchange Right" has the meaning ascribed thereto in Section 5.1. "Indemnified Parties" has the meaning ascribed thereto in Section 9.1. "Insolvency Event" means (i) the institution by the Company of any proceeding to be adjudicated a bankrupt or insolvent or to be wound up, or the consent of the Company to the institution of bankruptcy, insolvency or winding-up proceedings against it, or (ii) the filing of a petition, answer or consent seeking dissolution or winding-up under any bankruptcy, insolvency or analogous laws, including without limitation the Companies Creditors' Arrangement Act (Canada) and the Bankruptcy and Insolvency Act (Canada), and the failure by the Company to contest in good faith any such proceedings commenced in respect of the Company within thirty (30) days of becoming aware thereof, or the consent by the Company to the filing of any such petition or to the appointment of a receiver, or (iii) the making by the Company of a general assignment for the benefit of creditors, or the admission in writing by the Company of its inability to pay its debts generally -4- as they become due, or (iv) the Company not being permitted, pursuant to solvency requirements of applicable law, to redeem any Retracted Shares pursuant to Section 6(6) of the Share Provisions. "Liquidation Call Right" has the meaning ascribed thereto in the Plan of Arrangement. "Liquidation Event" has the meaning ascribed thereto in Section 5.13(2). "Liquidation Event Effective Date" has the meaning ascribed thereto in Section 5.13(3). "List" has the meaning ascribed thereto in Section 4.6. "NASDAQ" means the Nasdaq National Market or its successors. "Officer's Certificate" means, with respect to Abgenix or the Company, as the case may be, a certificate signed by any officer or director of Abgenix or the Company, as the case may be. "Person" includes any individual, firm, partnership, limited partnership, joint venture, venture capital fund, limited liability company, unlimited liability company, association, trust, trustee, executor, administrator, legal personal representative, estate, group, body corporate, corporation, unincorporated association or organization, government body, syndicate or other entity, whether or not having legal status. "Plan of Arrangement" means the plan of arrangement substantially in the form and content of Exhibit A to the Acquisition Agreement and any amendments or variations thereto made in accordance with the Acquisition Agreement or the Plan of Arrangement or made at the direction of the Court. "Purchase Price per Share" means Seventy-five million United States dollars (US$75,000,000), plus the aggregate exercise price of all vested Company Options to be replaced on the Closing Date, and then divided by the number of Company Fully-Diluted Shares as of the Closing Date. "Redemption Call Right" has the meaning ascribed thereto in the Plan of Arrangement. "Retracted Shares" has the meaning ascribed thereto in Section 5.7. "Retraction Call Right" has the meaning ascribed thereto in the Share Provisions. "SEC Effective Date" means the effective date of the registration statement on Form S-1 (or Form S-3, as the case may be) filed by Abgenix with the United States Securities and Exchange Commission, in order to register under the United -5- States Securities Act of 1933, the Abgenix Common Shares to be delivered pursuant to the Share Provisions, the Support Agreement and this Agreement. "Share Provisions" means the rights, privileges, restrictions and conditions attaching to the Company Special Shares. "Stamp Taxes" means all stamp, registration and transfer taxes and duties or their equivalents in all jurisdictions where such taxes and duties are payable as a result of any of the transactions contemplated by this Agreement. "Support Agreement" means that certain support agreement made as of even date herewith between the Company, Abgenix Canada and Abgenix substantially in the form and content of Exhibit D to the Acquisition Agreement, as amended in accordance with the terms of the Support Agreement. "Trust" means the trust created by this Agreement. "Trust Estate" means the Abgenix Special Voting Share, any other securities, the Exchange Right, the Automatic Exchange Rights on Liquidation, the Cash Put Rights and any money or other property which may be held by the Trustee from time to time pursuant to this Agreement. "Trustee" means CIBC Mellon Trust Company and, subject to the provisions of Article 10, includes any successor trustee. "Voting Rights" means the voting rights attached to the Abgenix Special Voting Share. 1.2 Interpretation Not Affected by Headings, etc. The division of this Agreement into Articles, Sections and other portions and the insertion of headings are for convenience of reference only and should not affect the construction or interpretation of this Agreement. Unless otherwise indicated, all references to an "Article" or "Section" followed by a number and/or a letter refer to the specified Article or Section of this Agreement. The terms "this Agreement," "hereof," "herein" and "hereunder" and similar expressions refer to this Agreement and not to any particular Article, Section or other portion hereof and include any agreement or instrument supplementary or ancillary hereto. 1.3 Number, Gender, etc. Words importing the singular number only shall include the plural and vice versa. Words importing any gender shall include all genders. 1.4 Date for any Action If any date on which any action is required to be taken under this Agreement is not a Business Day, such action shall be required to be taken on the next succeeding Business Day. -6- ARTICLE 2 PURPOSE OF AGREEMENT 2.1 Establishment of Trust The purpose of this Agreement is to create the Trust for the benefit of the Beneficiaries, as herein provided. The Trustee will hold the Abgenix Special Voting Share in order to enable the Trustee to exercise the Voting Rights and will hold the Exchange Right, the Automatic Exchange Rights on Liquidation, and the Cash Put Right in order to enable the Trustee to exercise such rights, in each case as trustee for and on behalf of the Beneficiaries as provided in this Agreement. ARTICLE 3 ABGENIX SPECIAL VOTING SHARE 3.1 Issue and Ownership of the Abgenix Special Voting Share Immediately following execution of this Agreement, Abgenix shall issue to the Trustee the Abgenix Special Voting Share (and shall deliver the certificate representing such share to the Trustee) to be hereafter held of record by the Trustee as trustee for and on behalf of, and for the use and benefit of, the Beneficiaries and in accordance with the provisions of this Agreement. Abgenix hereby acknowledges receipt from the Trustee as trustee for and on behalf of the Beneficiaries of good and valuable consideration (and the adequacy thereof) for the issuance of the Abgenix Special Voting Share by Abgenix to the Trustee. During the term of the Trust and subject to the terms and conditions of this Agreement, the Trustee shall possess and be vested with full legal ownership of the Abgenix Special Voting Share and shall be entitled to exercise all of the rights and powers of an owner with respect to the Abgenix Special Voting Share provided that the Trustee shall: (1) hold the Abgenix Special Voting Share and the legal title thereto as trustee solely for the use and benefit of the Beneficiaries in accordance with the provisions of this Agreement; and (2) except as specifically authorized by this Agreement, have no power or authority to sell, transfer, vote or otherwise deal in or with the Abgenix Special Voting Share and the Abgenix Special Voting Share shall not be used or disposed of by the Trustee for any purpose other than the purposes for which this Trust is created pursuant to this Agreement. 3.2 Legended Share Certificates The Company will cause each certificate representing Company Special Shares to bear an appropriate legend notifying the Beneficiaries of their right to instruct the Trustee with respect to the exercise of the Voting Rights in respect of the Abgenix Special Voting Shares of the Beneficiaries. -7- 3.3 Safe Keeping of Certificate The certificate representing the Abgenix Special Voting Share shall at all times be held in safe keeping by the Trustee or its agent. ARTICLE 4 EXERCISE OF VOTING RIGHTS 4.1 Voting Rights The Trustee, as the holder of record of the Abgenix Special Voting Share, shall be entitled to all of the Voting Rights, including the right to consent to or vote in person or by proxy attaching to the Abgenix Special Voting Share on any matters, questions, proposals or propositions whatsoever that may properly come before the shareholders of Abgenix at an Abgenix Meeting or in connection with an Abgenix Consent (in each case, as hereinafter defined). The Voting Rights shall be and remain vested in and exercised by the Trustee subject to the terms of this Agreement. Subject to Section 7.15: (1) the Trustee shall exercise the Voting Rights only on the basis of instructions received pursuant to this Article 4 from Beneficiaries on the record date established by Abgenix or by applicable law for such Abgenix Meeting or Abgenix Consent who are entitled to instruct the Trustee as to the voting thereof; and (2) to the extent that no instructions are received from a Beneficiary with respect to the Voting Rights to which such Beneficiary is entitled, the Trustee shall not exercise or permit the exercise of such Voting Rights. 4.2 Number of Votes With respect to all meetings of shareholders of Abgenix at which holders of Abgenix Common Shares are entitled to vote (each, an "Abgenix Meeting") and with respect to all written consents sought by Abgenix from its shareholders including holders of Abgenix Common Shares (an "Abgenix Consent"), each Beneficiary shall be entitled to instruct the Trustee to cast and exercise one of the votes comprised in the Voting Rights for each Abgenix Common Share into which each Company Special Share is exchangeable owned of record by such Beneficiary on the record date established by Abgenix or by applicable law for such Abgenix Meeting or Abgenix Consent (the "Beneficiary Votes"), in respect of each matter, question, proposal or proposition to be voted on at such Abgenix Meeting or in connection with such Abgenix Consent. 4.3 Mailings to Shareholders (1) With respect to each Abgenix Meeting and Abgenix Consent, the Trustee will use its reasonable efforts promptly to mail or cause to be mailed (or otherwise communicate in the same manner as Abgenix utilizes in communications to holders of Abgenix Common Shares subject to applicable regulatory requirements and provided that such manner of communications is reasonably available to the Trustee) to each of the Beneficiaries named in the List, such mailing or communication to commence wherever practicable on -8- the same day as the mailing or notice (or other communication) with respect thereto is commenced by Abgenix to its shareholders: (a) a copy of such notice, together with any related materials, including, without limitation, any circular or information statement to be provided to shareholders of Abgenix; (b) a statement that such Beneficiary is entitled to instruct the Trustee as to the exercise of the Beneficiary Votes with respect to such Abgenix Meeting or, pursuant to Section 4.7, to attend such Abgenix Meeting or the delivery of the Abgenix Consent and to exercise personally the Beneficiary Votes ; (c) a statement as to the manner in which such instructions may be given to the Trustee, including an express indication that instructions may be given to the Trustee to give: (i) a proxy to such Beneficiary or his designee to exercise personally the Beneficiary Votes; or (ii) a proxy to a designated agent or other representative of the management of Abgenix to exercise such Beneficiary Votes; (d) a statement that if no such instructions are received from the Beneficiary, the Beneficiary Votes to which such Beneficiary is entitled will not be exercised; (e) a form of direction whereby the Beneficiary may so direct and instruct the Trustee as contemplated herein; and (f) a statement of the time and date by which such instructions must be received by the Trustee in order to be binding upon it, which in the case of an Abgenix Meeting shall be the close of business on the fourth Business Day prior to such meeting, and of the method for revoking or amending such instructions. (2) The materials referred to in this Section 4.3 are to be provided to the Trustee by Abgenix, and the materials referred to in Section 4.3(1)(c), Section 4.3(1)(e) and Section 4.3(1)(f) shall be subject to reasonable comment by the Trustee in a timely manner. Abgenix shall ensure that the materials to be provided to the Trustee are provided in sufficient time to permit the Trustee to comment as aforesaid and to send all materials to each Beneficiary at the same time as such materials are first sent to holders of Abgenix Common Shares. Abgenix agrees not to communicate with holders of Abgenix Common Shares with respect to the materials referred to in this Section 4.3 otherwise than by mail unless such method of communication is also reasonably available to the Trustee for communication with the Beneficiaries. (3) For the purpose of determining Beneficiary Votes to which a Beneficiary is entitled in respect of any Abgenix Meeting or Abgenix Consent, the number of Company Special Shares owned of record by the Beneficiary shall be determined at the close of business on the record date established by Abgenix or by applicable law for purposes of determining -9- shareholders entitled to vote at such Abgenix Meeting or in respect of such Abgenix Consent. Abgenix will notify the Trustee of any decision of the Board of Directors of Abgenix with respect to the calling of any Abgenix Meeting or request for Abgenix Consent and shall provide all necessary information and materials to the Trustee in each case promptly and in any event in sufficient time to enable the Trustee to perform its obligations contemplated by this Section 4.3. 4.4 Copies of Shareholder Information Abgenix will deliver to the Trustee copies of all proxy materials (including notices of Abgenix Meetings but excluding proxies to vote Abgenix Common Shares), information statements, reports (including without limitation, all interim and annual financial statements) and other written communications that, in each case, are to be distributed by Abgenix from time to time to holders of Abgenix Common Shares in sufficient quantities and in sufficient time so as to enable the Trustee to send those materials to each Beneficiary at the same time as such materials are first sent to holders of Abgenix Common Shares. The Trustee will mail or otherwise send to each Beneficiary, at the expense of Abgenix, copies of all such materials (and all materials specifically directed to the Beneficiaries or to the Trustee for the benefit of the Beneficiaries by Abgenix) received by the Trustee from Abgenix contemporaneously with the sending of such materials to holders of Abgenix Common Shares. The Trustee will also make available for inspection by any Beneficiary at the Trustee's principal office in Vancouver all proxy materials, information statements, reports and other written communications that are: (a) received by the Trustee as the registered holder of the Abgenix Special Voting Share and made available by Abgenix generally to the holders of Abgenix Common Shares; or (b) specifically directed to the Beneficiaries or to the Trustee for the benefit of the Beneficiaries by Abgenix. 4.5 Other Materials As soon as reasonably practicable after receipt by Abgenix or shareholders of Abgenix (if such receipt is known by Abgenix) of any material sent or given by or on behalf of a third party to holders of Abgenix Common Shares generally, including without limitation, dissident proxy and information circulars (and related information and material) and take-over bid and securities exchange take-over bid circulars (and related information and material), provided such material has not been sent to the Beneficiaries by or on behalf of such third party, Abgenix shall use its reasonable efforts to obtain and deliver to the Trustee copies thereof in sufficient quantities so as to enable the Trustee to forward such material (unless the same has been provided directly to Beneficiaries by such third party) to each Beneficiary as soon as possible thereafter. As soon as reasonably practicable after receipt thereof, the Trustee will mail or otherwise send to each Beneficiary, at the expense of Abgenix, copies of all such material received by the Trustee from Abgenix. The Trustee will also make available for inspection by any Beneficiary at the Trustee's principal office in Vancouver copies of all such material. -10- 4.6 List of Persons Entitled to Vote The Company shall, (a) prior to each annual, general and extraordinary Abgenix Meeting or the seeking of any Abgenix Consent and (b) forthwith upon each request made at any time by the Trustee in writing, prepare or cause to be prepared a list (a "List") of the names and addresses of the Beneficiaries arranged in alphabetical order and showing the number of Company Special Shares held of record by each such Beneficiary, in each case at the close of business on the date specified by the Trustee in such request or, in the case of a List prepared in connection with an Abgenix Meeting or Abgenix Consent, at the close of business on the record date established by Abgenix or pursuant to applicable law for determining the holders of Abgenix Common Shares entitled to receive notice of and/or to vote at such Abgenix Meeting or to give any consent in connection with an Abgenix Consent. Each such List shall be delivered to the Trustee promptly after receipt by the Company of such request or the record date for such meeting and in any event within sufficient time as to permit the Trustee to perform its obligations under this Agreement. Abgenix agrees to give the Company notice (with a copy to the Trustee) of the calling of any Abgenix Meeting, together with the record dates therefor, sufficiently prior to the date of the calling of such meeting so as to enable the Company to perform its obligations under this Section 4.6. 4.7 Entitlement to Direct Votes Subject to Sections 4.8 and 4.10, any Beneficiary named in a List prepared in connection with any Abgenix Meeting or Abgenix Consent will be entitled (a) to instruct the Trustee in the manner described in Section 4.3 with respect to the exercise of the Beneficiary Votes to which such Beneficiary is entitled or (b) to attend such meeting and personally exercise thereat, as the proxy of the Trustee, the Beneficiary Votes to which such Beneficiary is entitled. 4.8 Voting by Trustee and Attendance of Trustee Representative at Meeting (1) In connection with each Abgenix Meeting or Abgenix Consent, the Trustee shall exercise, either in person or by proxy, in accordance with the instructions received from a Beneficiary pursuant to Section 4.3, the Beneficiary Votes as to which such Beneficiary is entitled to direct the vote (or any lesser number thereof as may be set forth in the instructions); provided, however, that such written instructions are received by the Trustee from the Beneficiary prior to the time and date fixed by the Trustee for receipt of such instructions in the notice given by the Trustee to the Beneficiary pursuant to Section 4.3. (2) The Trustee shall cause a representative who is empowered by it to sign and deliver, on behalf of the Trustee, proxies for Voting Rights to attend each Abgenix Meeting. Upon submission by a Beneficiary (or its designee) named in the List prepared in connection with the relevant Abgenix Meeting of identification satisfactory to the Trustee's representative, and at the Beneficiary's request, such representative shall sign and deliver to such Beneficiary (or its designee) a proxy to exercise personally the Beneficiary Votes as to which such Beneficiary is otherwise entitled hereunder to direct the vote, if such Beneficiary either (i) has not previously given the Trustee instructions pursuant to Section 4.3 in respect of such meeting or (ii) submits to such representative written -11- revocation of any such previous instructions. At such meeting, the Beneficiary (or its designee) exercising such Beneficiary Votes in accordance with such proxy shall have the same rights as the Trustee to speak at the meeting in favour of any matter, question, proposal or proposition, to vote by way of ballot at the meeting in respect of any matter, question, proposal or proposition, and to vote at such meeting by way of a show of hands in respect of any matter, question or proposition. 4.9 Distribution of Written Materials Any written materials distributed by the Trustee pursuant to this Agreement shall be sent by mail (or otherwise communicated in the same manner as Abgenix utilizes in communications to holders of Abgenix Common Shares subject to applicable regulatory requirements and provided such manner of communications is reasonably available to the Trustee) to each Beneficiary at its address as shown on the books of the Company. Abgenix agrees not to communicate with holders of Abgenix Common Shares with respect to such written materials otherwise than by mail unless such method of communication is also reasonably available to the Trustee for communication with the Beneficiaries. The Company shall provide or cause to be provided to the Trustee a current List (and upon request of the Trustee, mailing labels) for purposes of communication, on a timely basis and without charge or other expense. 4.10 Termination of Voting Rights All of the rights of a Beneficiary with respect to the Beneficiary Votes exercisable in respect of the Company Special Shares held by such Beneficiary, including the right to instruct the Trustee as to the voting of or to vote personally such Beneficiary Votes, shall be deemed to be surrendered by the Beneficiary to Abgenix or Abgenix Canada, as the case may be, and such Beneficiary Votes and the Voting Rights represented thereby shall cease immediately upon (i) the delivery by such holder to the Trustee of the certificates representing such Company Special Shares in connection with the exercise by the Beneficiary of the Exchange Right or the occurrence of the automatic exchange of Company Special Shares for Abgenix Common Shares, as specified in Article 5 (unless Abgenix shall not have delivered the requisite Abgenix Common Shares deliverable in exchange therefor to the Trustee pending delivery to the Beneficiaries), or (ii) the retraction or redemption of Company Special Shares pursuant to Section 6 or 7 of the Share Provisions, or (iii) the effective date of the liquidation, dissolution or winding-up of the Company deliverable pursuant to Section 5 of the Share Provisions, or (iv) the purchase of Company Special Shares from the holder thereof by Abgenix Canada pursuant to the exercise by Abgenix Canada of the Retraction Call Right, the Redemption Call Right or the Liquidation Call Right. 4.11 Disclosure of Interest in Company Special Shares The Trustee and/or the Company shall be entitled to require any Beneficiary or any person who the Trustee and/or the Company know or have reasonable cause to believe to hold any interest whatsoever in a Company Special Share to confirm that fact or to give such details as to whom has an interest in such Company Special Share as would be required under the articles of Abgenix or any laws or regulations, or pursuant to the rules or regulations of any -12- regulatory authority, of the United States if the Company Special Shares were Abgenix Common Shares. If a Beneficiary does not provide the information required to be provided by such Beneficiary pursuant to this Section 4.11, the Board of Directors of Abgenix may take any action permitted under the articles of Abgenix or any laws or regulations, or pursuant to the rules or regulations of any regulatory authority, of the United States with respect to the Voting Rights relating to the Company Special Shares held by such Beneficiary. ARTICLE 5 EXCHANGE AND CASH PUT RIGHTS & AUTOMATIC EXCHANGE RIGHTS ON LIQUIDATION 5.1 Grant of Exchange Right, Automatic Exchange Right on Liquidation and Cash Put Right Abgenix hereby grants to Trustee as trustee for and on behalf of, and for the use and benefit of, the Beneficiaries the right (the "Exchange Right"), upon the occurrence and during the continuance of an Insolvency Event, to require Abgenix to purchase from each and every Beneficiary all of the Company Special Shares held by such Beneficiary, the Automatic Exchange Rights on Liquidation and the Cash Put Right, all in accordance with the provisions of this Agreement. Abgenix hereby acknowledges receipt from the Trustee as trustee for and on behalf of the Beneficiaries of good and valuable consideration (and the adequacy thereof) for the grant of the Exchangeable Right, the Automatic Exchange Rights on Liquidation and the Cash Put Right by Abgenix to the Trustee. During the term of the Trust and subject to the terms and conditions of this Agreement, the Trustee shall possess and be vested with full legal ownership of the Exchange Right, the Automatic Exchange Rights on Liquidation and the Cash Put Right and shall be entitled to exercise all of the rights and powers of an owner with respect to the Exchange Right, the Automatic Exchange Rights on Liquidation and the Cash Put Right, provided that the Trustee shall: (A) hold the Exchange Right, and the Automatic Exchange Rights on Liquidation and the Cash Put Right, and the legal title thereto as trustee solely for the use and the benefit of the Beneficiaries in accordance with the provisions of this Agreement; and (B) except as specifically authorized by this Agreement, have no power or authority to exercise or otherwise deal in or with the Exchange Right, the Automatic Exchange Rights on Liquidation or the Cash Put Right, and the Trustee shall not exercise any such rights for any purpose other than the purposes for which the Trust is created pursuant to this Agreement. 5.2 Legended Share Certificates The Company will cause each certificate representing Company Special Shares to bear an appropriate legend notifying the Beneficiaries of (a) the right to instruct the Trustee with respect to the exercise of the Exchange Right and the Cash Put Right in respect of the Company Special Shares held by a Beneficiary; and (b) the Automatic Exchange Rights on Liquidation. 5.3 General Exercise of Exchange Right The Exchange Right shall be and remain vested in and exercisable by the Trustee. Subject to Section 7.15, the Trustee shall exercise the Exchange Right only on the basis of -13- instructions received pursuant to this Article 5 from Beneficiaries entitled to instruct the Trustee as to the exercise thereof. To the extent that no instructions are received from a Beneficiary with respect to the Exchange Right, the Trustee shall not exercise or permit the exercise of the Exchange Right. 5.4 Purchase Price The purchase price payable by Abgenix for each Company Special Share to be purchased by Abgenix under the Exchange Right shall be an amount per share equal to (i) the Current Market Price of an Abgenix Common Share on the last Business Day prior to the day of closing of the purchase and sale of such Company Special Share multiplied by the Exchange Ratio, which shall be satisfied in full by Abgenix causing to be delivered to the relevant Beneficiary that number of Abgenix Common Shares calculated in accordance with the Exchange Ratio for each Special Share held by such Beneficiary, plus (ii) to the extent not paid by the Company on the designated payment date therefor, an additional amount equal to and in full satisfaction of the full amount of all declared and unpaid dividends on each such Company Special Share held by such holder on any dividend record date which occurred prior to the closing of the purchase and sale. In connection with each exercise of the Exchange Right, Abgenix shall provide to the Trustee an Officer's Certificate setting forth the calculation of the purchase price for each Company Special Share. The purchase price for each such Company Special Share so purchased may be satisfied only by Abgenix delivering or causing to be delivered to the Trustee, on behalf of the relevant Beneficiary, such number of Abgenix Common Shares calculated as provided above and a cheque for the balance, if any, of the purchase price, less any amounts withheld pursuant to Section 5.14. No fraction of a share of Abgenix Common Share will be issued upon exchange of Company Special Shares, but in lieu thereof each Beneficiary who would otherwise be entitled to receive a fraction of a share of Abgenix Common Share (after aggregating all fractional shares of Abgenix Common Shares that otherwise would be received by such Beneficiary) shall, upon such exchange receive from the Company an amount of cash (rounded to the nearest whole cent), without interest, equal to the product of (x) such fraction, multiplied by (y) the Current Market Price, multiplied by (z) the Exchange Ratio. Upon payment by Abgenix of such purchase price the relevant Beneficiary shall cease to have any right to be paid by the Company any amount in respect of declared and unpaid dividends on each such Company Special Share. 5.5 Exercise Instructions Subject to the terms and conditions herein set forth, a Beneficiary shall be entitled, upon the occurrence and during the continuance of an Insolvency Event, to instruct the Trustee to exercise the Exchange Right with respect to all or any part of the Company Special Shares registered in the name of such Beneficiary on the books of the Company. To cause the exercise of the Exchange Right by the Trustee, the Beneficiary shall deliver to the Trustee, in person or by certified or registered mail, as its principal office in Vancouver or at such other places in Canada as the Trustee may from time to time designate by written notice to the Beneficiaries, the certificates representing the Company Special Shares which such Beneficiary desires Abgenix to purchase, duly endorsed in blank for transfer, and accompanied by such other documents and instruments as may be required to effect a transfer of Company Special Shares under the Act and the memorandum and articles of association of the Company and such additional documents and -14- instruments as the Trustee, the Company and Abgenix may reasonably require together with (a) a duly completed form of notice of exercise of the Exchange Right, contained on the reverse of or attached to the Company Special Share certificates, stating (i) that the Beneficiary thereby instructs the Trustee to exercise the Exchange Right so as to require Abgenix to purchase from the Beneficiary the number of Company Special Shares specified therein, (ii) that such Beneficiary has good title to and owns all such Company Special Shares to be acquired by Abgenix free and clear of all liens, claims and encumbrances, (iii) the names in which the certificates representing Abgenix Common Shares issuable in connection with the exercise of the Exchange Right are to be issued and (iv) the names and addresses of the persons to whom such new certificates should be delivered and (b) payment (or evidence satisfactory to the Trustee, the Company and Abgenix of payment) of the taxes (if any) payable as contemplated by Section 5.10 of this Agreement. If only a part of the Company Special Shares represented by any certificate or certificates delivered to the Trustee are to be purchased by Abgenix under the Exchange Right, a new certificate for the balance of such Company Special Shares shall be issued to the holder at the expense of Abgenix. 5.6 Delivery of Abgenix Common Shares; Effect of Exercise Promptly after the receipt of the certificates representing the Company Special Shares which the Beneficiary desires Abgenix to purchase under the Exchange Right, together with such documents and instruments of transfer and a duly completed form of notice of exercise of the Exchange Right (and payment of taxes, if any payable as contemplated by Section 5.10 or evidence thereof), duly endorsed for transfer to Abgenix, the Trustee shall notify Abgenix and the Company of its receipt of the same, which notice to Abgenix and the Company shall constitute exercise of the Exchange Right by the Trustee on behalf of the holder of such Company Special Shares, and Abgenix shall promptly thereafter deliver or cause to be delivered to the Trustee, for delivery to the Beneficiary of such Company Special Shares (or to such other persons, if any, properly designated by such Beneficiary) the number of Abgenix Common Shares issuable in connection with the exercise of the Exchange Right, and on the applicable payment date cheques for the balance, if any, of the total purchase price therefor without interest (but less any amounts withheld pursuant to Section 5.14); provided, however, that no such delivery shall be made unless and until the Beneficiary requesting the same shall have paid (or provided evidence satisfactory to the Trustee, the Company and Abgenix of the payment of) the taxes (if any) payable as contemplated by Section 5.10 of this Agreement. Immediately upon the giving of notice by the Trustee to Abgenix and the Company of the exercise of the Exchange Right as provided in this Section 5.6, the closing of the transaction of purchase and sale contemplated by the Exchange Right shall be deemed to have occurred and the holder of such Company Special Shares shall be deemed to have transferred to Abgenix all of such holder's right, title and interest in and to such Company Special Shares and the related interest in the Trust Estate and shall cease to be a holder of such Company Special Shares and shall not be entitled to exercise any of the rights of a holder in respect thereof, other than the right to receive his proportionate part of the total purchase price therefor, unless the requisite number of shares in Abgenix Common Shares is not allotted, issued and delivered by Abgenix to the Trustee within five (5) Business Days of the date of the giving of such notice by the Trustee or the balance of the purchase price, if -15- any, is not paid by Abgenix on the applicable payment date therefor, in which case the rights of the Beneficiary shall remain unaffected until such shares in Abgenix Common Shares are so allotted, issued and delivered, and the balance of the purchase price, if any, has been paid, by Abgenix. Upon delivery by Abgenix to the Trustee of such Abgenix Common Shares, and the balance of the purchase price, if any, the Trustee shall deliver such shares in Abgenix Common Shares to such Beneficiary (or to such other persons, if any, properly designated by such Beneficiary). Concurrently with such Beneficiary ceasing to be a holder of Company Special Shares, the Beneficiary shall be considered and deemed for all purposes to be the holder of the Abgenix Common Shares delivered to it pursuant to the Exchange Right. 5.7 Exercise of Exchange Right Subsequent to Retraction In the event that a Beneficiary has exercised its right under Section 6 of the Share Provisions to require the Company to redeem any or all of the Company Special Shares held by the Beneficiary (the "Retracted Shares") and is notified by the Company pursuant to Section 6.6 of the Share Provisions that the Company will not be permitted as a result of solvency requirements of applicable law to redeem all such Retracted Shares, and provided that Abgenix Canada shall not have exercised the Retraction Call Right with respect to the Retracted Shares and that the Beneficiary has not revoked the retraction request delivered by the Beneficiary to the Company pursuant to Section 6.1 of the Share Provisions and provided further that the Trustee has received written notice of same from the Company or Abgenix, the retraction request will constitute and will be deemed to constitute notice from the Beneficiary to the Trustee instructing the Trustee to exercise the Exchange Right with respect to those Retracted Shares that the Company is unable to redeem. In any such event, the Company hereby agrees with the Trustee and in favour of the Beneficiary promptly to forward or cause to be forwarded to the Trustee all relevant materials delivered by the Beneficiary to the Company or to the transfer agent of the Company Special Shares (including without limitation, a copy of the retraction request delivered pursuant to Section 6.1 of the Share Provisions) in connection with such proposed redemption of the Retracted Shares and the Trustee will thereupon exercise the Exchange Right with respect to the Retracted Shares that the Company is not permitted to redeem and will require Abgenix to purchase such shares in accordance with the provisions of this Article 5. 5.8 Failure to Retract Upon the occurrence of an event referred to in paragraph (iv) of the definition of Insolvency Event, the Company hereby agrees with the Trustee and in favour of the Beneficiary promptly to forward or cause to be forwarded to the Trustee all relevant materials delivered by the Beneficiary to the Company or to the transfer agent of the Company Special Shares (including without limitation, a copy of the retraction request delivered pursuant to Section 6(1) of the Share Provisions) in connection with such proposed redemption of the Retracted Shares. 5.9 Notice of Insolvency Event As soon as practicable following the occurrence of an Insolvency Event or any event that with the giving of notice or the passage of time or both would be an Insolvency Event, the Company and Abgenix shall give written notice thereof to the Trustee. As soon as practicable following the receipt of notice from the Company and Abgenix of the occurrence of an Insolvency Event, or upon the Trustee becoming aware of an Insolvency Event, the Trustee will mail to each Beneficiary, at the expense of Abgenix (such funds to be received in advance), a -16- notice of such Insolvency Event in the form provided by Abgenix, which notice shall contain a brief statement of the rights of the Beneficiaries with respect to the Exchange Right. 5.10 Stamp Taxes Upon any sale of Company Special Shares to Abgenix pursuant to the Exchange Right or the Automatic Exchange Rights on Liquidation, the share certificate or certificates representing Abgenix Common Shares to be delivered in connection with the payment of the total purchase price therefor shall be delivered in the name of the Beneficiary of the Company Special Shares so sold or in such names as such Beneficiary may otherwise direct in writing provided such direction is received by Abgenix prior to the time such shares are issued without charge to the holder of the Company Special Shares so sold; provided, however, that such Beneficiary (a) shall pay (and none of Abgenix, the Company or the Trustee shall be required to pay) any Stamp Taxes that may be payable in respect of any transfer of such Company Special Shares to Abgenix or in respect of the issuance or delivery of such Abgenix Common Shares to such Beneficiary or any other person including, without limitation, in the event that Abgenix Common Shares are being issued or transferred in the name of a clearing service or depositary or a nominee thereof, and (b) shall have evidenced to the satisfaction of the Trustee, Abgenix and the Company that such Stamp Taxes, if any, have been paid. 5.11 Qualification and Listing of Abgenix Common Shares Abgenix covenants that if any Abgenix Common Shares to be issued pursuant to the Exchange Right or the Automatic Exchange Rights on Liquidation require registration or qualification with or approval of or the filing of any document, including any prospectus or similar document, or the taking of any proceeding with or the obtaining of any order, ruling or consent from any governmental or regulatory authority or stock exchange under any United States or Canadian federal, provincial, territorial or state law or regulation or pursuant to the rules and regulations of any regulatory authority or the fulfillment of any other United States or Canadian legal requirement before such shares may be issued and delivered by Abgenix to the initial holder thereof or in order that such shares may be freely traded thereafter (other than any restrictions of general application on transfer by reason of a holder being a "control person" or the equivalent of Abgenix for purposes of Canadian securities law or any United States equivalent), Abgenix will in good faith expeditiously take all such actions and do all such things as are reasonably necessary or desirable to cause such Abgenix Common Shares to be and remain duly registered, qualified or approved in order that they may be freely traded. Abgenix will in good faith expeditiously take all such actions and do all such things as are reasonably necessary or desirable to cause all Abgenix Common Shares to be issued pursuant to the Exchange Right or the Automatic Exchange Rights on Liquidation to be listed, quoted or posted for trading on all stock exchanges and quotation systems on which issued Abgenix Common Shares have been listed by Abgenix and remain listed and/or quoted or posted for trading at such time. Notwithstanding any provision to the contrary in this Agreement, (i) nothing herein or in the Support Agreement or the Pan of Arrangement shall be construed to impose any obligation on Abgenix with respect to the filing and maintenance of a registration statement with the United States Securities and Exchange Commission in addition to the provisions set forth in Section 2.4(d) of the Acquisition Agreement, (ii) Abgenix shall be entitled to the right to suspend the use of the Registration Statement (as defined therein) pursuant to Section 2.4(d) of he Acquisition Agreement, and -17- (iii) Section 2.4(d) of the Acquisition Agreement is incorporated herein and made a part hereof notwithstanding any expiration of the Acquisition Agreement. 5.12 Abgenix Common Shares Abgenix hereby represents, warrants and covenants that the Abgenix Common Shares issuable as described herein will be duly authorized and validly issued as fully paid and non-assessable and shall be free and clear of any lien, claim or encumbrance. 5.13 Automatic Exchange on Liquidation of Abgenix (1) Abgenix will give the Trustee written notice of each of the following events at the time set forth below: (a) in the event of any determination by the Board of Directors of Abgenix to institute voluntary liquidation, dissolution or winding-up proceedings with respect to Abgenix or to effect any other distribution of assets of Abgenix among its shareholders for the purpose of winding up its affairs, at least sixty (60) days prior to the proposed effective date of such liquidation, dissolution, winding-up or other distribution; and (b) as soon as practicable following the earlier of (A) receipt by Abgenix of notice of, and (B) Abgenix otherwise becoming aware of any threatened or instituted claim, suit, petition or other proceedings with respect to the involuntary liquidation, dissolution or winding-up of Abgenix or to effect any other distribution of assets of Abgenix among its shareholders for the purpose of winding up its affairs, in each case where Abgenix has failed to contest in good faith any such proceeding commenced in respect of Abgenix within thirty (30) days of becoming aware thereof. (2) As soon as practicable following receipt by the Trustee from Abgenix of notice of any event (a "Liquidation Event") contemplated by Section 5.13(1)(a) or 5.13(1)(b), the Trustee will give notice thereof to the Beneficiaries. Such notice shall be provided to the Trustee by Abgenix and shall include a brief description of the automatic exchange of Company Special Shares for Abgenix Common Shares provided for in Section 5.13(3). (3) In order that the Beneficiaries will be able to participate on a pro rata basis with the holders of Abgenix Common Shares in the distribution of assets of Abgenix in connection with a Liquidation Event, on the fifth Business Day prior to the effective date (the "Liquidation Event Effective Date") of a Liquidation Event, all of the then outstanding Company Special Shares shall be automatically exchanged for Abgenix Common Shares. To effect such automatic exchange, Abgenix shall purchase on the fifth Business Day prior to the Liquidation Event Effective Date each Company Special Share then outstanding and held by Beneficiaries, and each Beneficiary shall sell the Company Special Shares held by it at such time, free and clear of any lien, claim or encumbrance, for a purchase price per share equal to (i) the Current Market Price of an Abgenix Common Share on the fifth Business Day prior to the Liquidation Event Effective Date -18- multiplied by the Exchange Ratio, which shall be satisfied in full by Abgenix delivering to the Beneficiary that number of Abgenix Common Shares calculated based on the Exchange Ratio for such Company Special Shares held by such Beneficiary, plus (ii) to the extent not paid by the Company on the designated payment date therefor, an additional amount equal to and in full satisfaction of the full amount of all declared and unpaid dividends on each such Company Special Share held by such holder on any dividend record date which occurred prior to the date of the exchange. Abgenix shall provide the Trustee with an Officer's Certificate in connection with each automatic exchange setting forth the calculation of the purchase price for each Company Special Share. (4) On the fifth Business Day prior to the Liquidation Event Effective Date, the closing of the transaction of purchase and sale contemplated by the automatic exchange of Company Special Shares for Abgenix Common Shares shall be deemed to have occurred, and each Beneficiary shall be deemed to have transferred to Abgenix all of the Beneficiary's right, title and interest in and to such Beneficiary's Company Special Shares free and clear of any lien, claim or encumbrance and the related interest in the Trust Estate, any right of each such Beneficiary to receive declared and unpaid dividends from the Company shall be deemed to be satisfied and discharged, and each such Beneficiary shall cease to be a holder of such Company Special Shares and Abgenix shall deliver to the Beneficiary a number of Abgenix Common Shares issuable upon the automatic exchange of Company Special Shares calculated in accordance with the Exchange Ratio for Abgenix Common Shares and on the applicable payment date shall deliver to the Trustee for delivery to the Beneficiary a cheque for the balance, if any, of the total purchase price for such Company Special Shares, without interest, in each case less any amounts withheld pursuant to Section 5.14. Concurrently with such Beneficiary ceasing to be a holder of Company Special Shares, the Beneficiary shall become the holder of the Abgenix Common Shares issued pursuant to the automatic exchange of such Beneficiary's Company Special Shares for Abgenix Common Shares and the certificates held by the Beneficiary previously representing the Company Special Shares exchanged by the Beneficiary with Abgenix pursuant to such automatic exchange shall thereafter be deemed to represent Abgenix Common Shares delivered to the Beneficiary by Abgenix pursuant to such automatic exchange. Upon the request of a Beneficiary and the surrender by the Beneficiary of Company Special Share certificates deemed to represent Abgenix Common Shares, duly endorsed in blank and accompanied by such instruments of transfer as Abgenix may reasonably require, Abgenix shall issue and deliver to the Beneficiary certificates in the name of, or as otherwise directed in writing by, the relevant Beneficiary in respect of the Abgenix Common Shares to which the Beneficiary is the holder. 5.14 Withholding Rights Abgenix, the Company and the Trustee shall be entitled to deduct and withhold from any consideration otherwise payable under this Agreement to any holder of Company Special Shares or Abgenix Common Shares, and such amounts as Abgenix, the Company or the Trustee is required or permitted to deduct and withhold with respect to such payment under the Income Tax Act (Canada), the United States Internal Revenue Code of 1986, as amended or any provision of -19- provincial, state, local or foreign tax law, in each case as amended or succeeded. The Trustee may act on the advice of counsel with respect to such matters. To the extent that amounts are so withheld, such withheld amounts shall be treated for all purposes as having been paid to the holder of the shares in respect of which such deduction and withholding was made, provided that such withheld amounts are actually remitted to the appropriate taxing authority. To the extent that the amount so required or permitted to be deducted or withheld from any payment to a holder exceeds the cash portion of the consideration otherwise payable to the holder, Abgenix, the Company and the Trustee are hereby authorized to sell or otherwise dispose of such portion of the consideration as is necessary to provide sufficient funds to Abgenix, the Company or the Trustee, as the case may be, to enable it to comply with such deduction or withholding requirement and Abgenix, the Company or the Trustee shall notify the holder thereof and remit to such holder any unapplied balance of the net proceeds of such sale. Abgenix represents and warrants that, based upon facts currently known to it, it has no current intention, as at the date of this Agreement, to deduct or withhold from any dividend paid to holders of the Company Special Shares any amounts under the United States Internal Revenue Code of 1986, as amended. 5.15 No Fractional Shares No fraction of an Abgenix Common Share will be delivered upon any exchange of a Company Special Share under or pursuant to this Agreement. In lieu thereof any Beneficiary who would otherwise be entitled to receive a fraction of an Abgenix Common Share (after aggregating all fractional Abgenix Common Shares that would otherwise be received by such Beneficiary) shall upon such exchange receive from the Company an amount of cash (rounded to the nearest cent) without interest, equal to the product of (x) such fraction and (y) the Current Market Price of an Abgenix Common Share. 5.16 Put Rights (1) If the SEC Effective Date has not occurred on or prior to the number of days after the Closing Date set forth below and the Trustee has received written confirmation from Abgenix that the SEC Effective Date has not occurred, from and after the following dates, each Beneficiary shall have the right to put up to the following percentages (inclusive of any prior puts by such holder) of such Beneficiary's initial number of Company Special Shares to Abgenix for cash at the Purchase Price per Share for each Company Special Share held by such Beneficiary (the "Cash Put Right"): Number of Calendar Days Maximum after the Closing Date Put 100 50% 145 75% 190 100% -20- (2) A Beneficiary shall be entitled to instruct the Trustee to exercise the Cash Put Right with respect to all or any part of the Company Special Shares registered in the name of such Beneficiary on the books of the Company. To cause the exercise of the Cash Put Right by the Trustee, the Beneficiary shall deliver to the Trustee, in person or by certified or registered mail, at its principal office in Vancouver or at such other places in Canada as the Trustee may from time to time designate by written notice to the Beneficiaries, the certificates representing the Company Special Shares which such Beneficiary desires Abgenix to purchase, duly endorsed in blank for transfer, and accompanied by such other documents and instruments as may be required to effect a transfer of Company Special Shares under the Act and the memorandum and articles of association of the Company and such additional documents and instruments as the Trustee, the Company and Abgenix may reasonably require together with (a) a duly completed form of notice of exercise of the Cash Put Right, contained on the reverse of or attached to the Company Special Share certificates, stating (i) that the Beneficiary thereby instructs the Trustee to exercise the Cash Put Right so as to require Abgenix to purchase from the Beneficiary the number of Company Special Shares specified therein, (ii) that such Beneficiary has good title to and owns all such Company Special Shares to be acquired by Abgenix free and clear of all liens, claims and encumbrances, and (iii) the names and addresses of the persons to whom the cash consideration for the Company Special Shares being put to Abgenix should be delivered and (b) payment (or evidence satisfactory to the Trustee, the Company and Abgenix of payment) of the taxes (if any) payable as contemplated by Section 5.10 of this Agreement. If only a part of the Company Special Shares represented by any certificate or certificates delivered to the Trustee are to be purchased by Abgenix under the Cash Put Right, a new certificate for the balance of such Company Special Shares shall be issued to the holder at the expense of Abgenix. (3) During the period between the ninety-sixth (96th) day after the Closing Date and March 31, 2002, and upon receipt of the instruction from a Beneficiary as set forth in Section 5.16(2) of this Agreement, Trustee shall give Abgenix a written notice of exercise of the Cash Put Right (the "Put Election Notice"). The Put Election Notice shall include a proposed closing date which shall not be less than five (5) Business Days after the delivery thereof. On or before such closing date, Abgenix shall, upon the execution of such documentation and such procedures reasonably requested by Abgenix to effectuate the transfer of the subject Company Special Shares to Abgenix, deliver to Trustee in immediately available funds the relevant purchase price for the Company Special Shares being put to Abgenix. The Cash Put Right shall terminate and shall be of no force or effect on the earlier of (a) the SEC Effective Date and (b) March 31, 2002 ("Put Termination Date"), and Abgenix shall be released from any and all liabilities and obligations with respect to the Cash Put Right from the Put Termination Date. (4) Abgenix may elect, in its sole discretion, to fulfill its obligations under this Section 5.16 itself, or through Abgenix Canada. In the event that Abgenix Canada is the party fulfilling the obligations of Abgenix under this Section 5.16, the term "Abgenix" as used in this Section 5.16 shall include, as appropriate, Abgenix Canada; provided, however, Abgenix shall be liable to the Trustee and Beneficiaries for any default in performance by Abgenix Canada to the extent Abgenix Canada cannot or does not meet its obligations. -21- ARTICLE 6 RESTRICTIONS ON ISSUE OF ABGENIX SPECIAL VOTING SHARES 6.1 Issue of Additional Shares During the term of this Agreement, Abgenix will not, without the consent of the holders at the relevant time of Company Special Shares, given in accordance with Section 10(2) of the Share Provisions, issue any additional Abgenix Special Voting Shares. ARTICLE 7 CONCERNING THE TRUSTEE 7.1 Powers and Duties of the Trustee (1) The rights, powers, duties and authorities of the Trustee under this Agreement, in its capacity as Trustee of the Trust, shall include: (a) receipt and deposit of the Abgenix Special Voting Share from Abgenix as Trustee for and on behalf of the Beneficiaries in accordance with the provisions of this Agreement; (b) granting proxies and distributing materials to Beneficiaries as provided in this Agreement; (c) voting the Beneficiary Votes in accordance with the provisions of this Agreement; (d) receiving the grant of the Exchange Right, the Automatic Exchange Rights on Liquidation and Cash Put Right from Abgenix as Trustee for and on behalf of the Beneficiaries in accordance with the provisions of this Agreement; (e) exercising the Exchange Right and enforcing the benefit of the Automatic Exchange Rights on Liquidation, in each case in accordance with the provisions of this Agreement, and in connection therewith receiving from Beneficiaries Company Special Shares and other requisite documents and distributing to such Beneficiaries Abgenix Common Shares and cheques, if any, to which such Beneficiaries are entitled pursuant to the Exchange Right or the Automatic Exchange Rights on Liquidation, as the case may be; (f) exercising the Cash Put Right and distributing to the Beneficiaries the cheques to which such Beneficiaries are entitled pursuant to the Cash Put Right; (g) holding title to the Trust Estate; (h) investing any moneys forming, from time to time, a part of the Trust Estate as provided in this Agreement; -22- (i) taking action at the direction of a Beneficiary or Beneficiaries to enforce the obligations of Abgenix, Abgenix Canada and the Company under this Agreement; and (j) taking such other actions and doing such other things as are specifically provided in this Agreement. (2) In the exercise of such rights, powers, duties and authorities the Trustee shall have (and is granted) such incidental and additional rights, powers, duties and authority not in conflict with any of the provisions of this Agreement as the Trustee, acting in good faith and in the reasonable exercise of its discretion, may deem necessary, appropriate or desirable to effect the purpose of the Trust. Any exercise of such discretionary rights, powers, duties and authorities by the Trustee shall be final, conclusive and binding upon all persons. For greater certainty, the Trustee shall have only those duties as are set out specifically in this Agreement. (3) The Trustee in exercising its rights, powers, duties and authorities hereunder shall act honestly and in good faith and with a view to the best interests of the Beneficiaries and shall exercise the care, diligence and skill that a reasonably prudent trustee would exercise in comparable circumstances. (4) The Trustee shall not be bound to give notice or do or take any act, action or proceeding by virtue of the powers conferred on it hereby unless and until it shall be specifically required to do so under the terms hereof; nor shall the Trustee be required to take any notice of, or to do, or to take any act, action or proceeding as a result of any default or breach of any provision hereunder, unless and until notified in writing of such default or breach, which notices shall distinctly specify the default or breach desired to be brought to the attention of the Trustee, and in the absence of such notice the Trustee may for all purposes of this Agreement conclusively assume that no default or breach has been made in the observance or performance of any of the representations, warranties, covenants, agreements or conditions contained herein. 7.2 No Conflict of Interest The Trustee represents to Abgenix and the Company that at the date of execution and delivery of this Agreement there exists no conflict of interest in the role of the Trustee as a fiduciary hereunder and the role of the Trustee in any other capacity. The Trustee shall, within ninety (90) days after it becomes aware that such material conflict of interest exists, either eliminate such material conflict of interest or resign in the manner and with the effect specified in Article 10. If, notwithstanding the foregoing provisions of this Section 7.2, the Trustee has such a material conflict of interest, the validity and enforceability of this Agreement shall not be affected in any manner whatsoever by reason only of the existence of such material conflict of interest. If the Trustee contravenes the foregoing provisions of this Section 7.2, any interested party may apply to the BC Court for an order that the Trustee be replaced as Trustee hereunder. 7.3 Dealings with Transfer Agents, Registrars, etc. (1) Abgenix and the Company irrevocably authorize the Trustee, from time to time, to: -23- (a) consult, communicate and otherwise deal with the respective registrars and transfer agents, and with any such subsequent registrar or transfer agent, of the Company Special Shares and Abgenix Common Shares; and (b) requisition, from time to time, (i) from any such registrar or transfer agent any information readily available from the records maintained by it which the Trustee may reasonably require for the discharge of its duties and responsibilities under this Agreement and (ii) from the transfer agent of Abgenix Common Shares, and any subsequent transfer agent of such shares, the share certificates deliverable upon the exercise from time to time of the Exchange Right and pursuant to the Exchange Rights on Liquidation. (2) Abgenix and the Company irrevocably authorize their respective registrars and transfer agents to comply with all such requests. Abgenix covenants that it will supply its transfer agent with duly executed share certificates for the purpose of completing the exercise from time to time of the Exchange Right and the Automatic Exchange Rights on Liquidation. 7.4 Books and Records The Trustee shall keep available for inspection by Abgenix and the Company at the Trustee's principal office in Vancouver correct and complete books and records of account relating to the Trust created by this Agreement, including without limitation, all relevant data relating to mailings and instructions to and from Beneficiaries and all transactions pursuant to the Exchange Right, the Automatic Exchange Rights on Liquidation and the Cash Put Right. On or before January 15, 2001 and on or before January 15 in every year thereafter, so long as the Abgenix Special Voting Share is registered in the name of the Trustee, the Trustee shall transmit to Abgenix and the Company a brief report, dated as of the preceding December 31 with respect to: (a) the property and funds comprising the Trust Estate as of that date; (b) the number of exercises of the Exchange Right and the Cash Put Right, if any, and the aggregate number of Company Special Shares received by the Trustee on behalf of Beneficiaries in consideration of the delivery by Abgenix of Abgenix Common Shares in connection with the Exchange Right or cash in connection with the Cash Put Right, during the calendar year ended on such December 31st; and (c) any action taken by the Trustee in the performance of its duties under this Agreement which it had not previously reported. 7.5 Income Tax Returns and Reports The Trustee shall, to the extent necessary, prepare and file on behalf of the Trust appropriate Canadian income tax returns and any other returns or reports as may be required by applicable law or pursuant to the rules and regulations of any securities exchange or other trading system through which the Company Special Shares are traded. In connection therewith, the -24- Trustee may obtain the advice and assistance of such experts or advisors as the Trustee considers necessary or advisable (who may be experts or advisors to Abgenix or the Company). If requested by the Trustee, Abgenix or the Company shall retain qualified experts or advisors for the purpose of providing such tax advice or assistance. 7.6 Indemnification Prior to Certain Actions by Trustee (1) The Trustee shall exercise any or all of the rights, duties, powers or authorities vested in it by this Agreement at the request, order or direction of any Beneficiary upon such Beneficiary furnishing to the Trustee reasonable funding, security or indemnity against the costs, expenses and liabilities which may be incurred by the Trustee therein or thereby, provided that no Beneficiary shall be obligated to furnish to the Trustee any such security or indemnity in connection with the exercise by the Trustee of any of its rights, duties, powers and authorities with respect to the Abgenix Special Voting Share pursuant to Article 4, subject to Section 7.15, and with respect to the Exchange Right, the automatic Exchange Rights on Liquidation and the Cash Put Right pursuant to Article 5. (2) None of the provisions contained in this Agreement shall require the Trustee to expend or risk its own funds or otherwise incur financial liability in the exercise of any of its rights, powers, duties, or authorities unless funded, given security and indemnified as aforesaid. 7.7 Action of Beneficiaries No Beneficiary shall have the right to institute any action, suit or proceeding or to exercise any other remedy authorized by this Agreement for the purpose of enforcing any of its rights or for the execution of any trust or power hereunder unless the Beneficiary has requested the Trustee to take or institute such action, suit or proceeding and furnished the Trustee with the funding, security or indemnity referred to in Section 7.6 and the Trustee shall have failed to act within a reasonable time thereafter. In such case, but not otherwise, the Beneficiary shall be entitled to take proceedings in any court of competent jurisdiction such as the Trustee might have taken; it being understood and intended that no one or more Beneficiaries shall have any right in any manner whatsoever to affect, disturb or prejudice the rights hereby created by any such action, or to enforce any right hereunder or the Voting Rights, the Exchange Right, the Automatic Exchange Rights on Liquidation or the Cash Put Right except subject to the conditions and in the manner herein provided, and that all powers and trusts hereunder shall be exercised and all proceedings at law shall be instituted, had and maintained by the Trustee, except only as herein provided, and in any event for the equal benefit of all Beneficiaries. 7.8 Reliance Upon Declarations The Trustee shall not be considered to be in contravention of any of its rights, powers, duties and authorities hereunder if, when required, it acts and relies in good faith upon statutory declarations, certificates, opinions or reports furnished pursuant to the provisions hereof or required by the Trustee to be furnished to it in the exercise of its rights, powers, duties and authorities hereunder if such statutory declarations, certificates, opinions or reports comply with the provisions of Section 7.9, if applicable, and with any other applicable provisions of this Agreement. -25- 7.9 Evidence and Authority to Trustee (1) Abgenix and/or the Company shall furnish to the Trustee evidence of compliance with the conditions provided for in this Agreement relating to any action or step required or permitted to be taken by Abgenix and/or the Company or the Trustee under this Agreement or as a result of any obligation imposed under this Agreement, including, without limitation, in respect of the Voting Rights or the Exchange Right, the Automatic Exchange Rights on Liquidation or the Cash Put Right and the taking of any other action to be taken by the Trustee at the request of or on the application of Abgenix and/or the Company promptly if and when: (a) such evidence is required by any other Section of this Agreement to be furnished to the Trustee in accordance with the terms of this Section 7.9; or (b) the Trustee, in the exercise of its rights, powers, duties and authorities under this Agreement, gives Abgenix and/or the Company written notice requiring it to furnish such evidence in relation to any particular action or obligation specified in such notice. (2) Such evidence shall consist of an Officer's Certificate of Abgenix and/or the Company or a statutory declaration or a certificate made by persons entitled to sign an Officer's Certificate stating that any such condition has been complied with in accordance with the terms of this Agreement. (3) Whenever such evidence relates to a matter other than the Voting Rights or the Exchange Right, the Exchange Rights on Liquidation or the Cash Put Right or the taking of any other action to be taken by the Trustee at the request or on the application of Abgenix and/or the Company, and except as otherwise specifically provided herein, such evidence may consist of a report or opinion of any solicitor, attorney, auditor, accountant, appraiser, valuer, engineer or other expert or any other person whose qualifications give authority to a statement made by him, provided that if such report or opinion is furnished by a director, officer or employee of Abgenix and/or the Company it shall be in the form of an Officer's Certificate or a statutory declaration. (4) Each statutory declaration, Officer's Certificate, opinion or report furnished to the Trustee as evidence of compliance with a condition provided for in this Agreement shall include a statement by the person giving the evidence: (a) declaring that he has read and understands the provisions of this Agreement relating to the condition in question; (b) describing the nature and scope of the examination or investigation upon which he based the statutory declaration, certificate, statement or opinion; and (c) declaring that he has made such examination or investigation as he believes is necessary to enable him to make the statements or give the opinions contained or expressed therein. -26- 7.10 Experts, Advisers and Agents The Trustee may: (a) in relation to these presents act and rely on the opinion or advice of or information obtained from any solicitor, attorney, auditor, accountant, appraiser, valuer, engineer or other expert, whether retained by the Trustee or by Abgenix and/or the Company or otherwise, and may retain or employ such assistants as may be necessary to the proper discharge of its powers and duties and determination of its rights hereunder and may pay proper and reasonable compensation for all such legal and other advice or assistance as aforesaid; (b) retain or employ such agents and other assistants as it may reasonably require for the proper determination and discharge of its powers and duties hereunder; and (c) pay reasonable remuneration for all services performed for it (and shall be entitled to receive reasonable remuneration for all services performed by it) in the discharge of the trusts hereof and compensation for all disbursements, costs and expenses made or incurred by it in the discharge of its duties hereunder and in the management of the Trust. 7.11 Investment of Moneys Held by Trustee Unless otherwise provided in this Agreement, any moneys held by or on behalf of the Trustee which under the terms of this Agreement may or ought to be invested or which may be on deposit with the Trustee or which may be in the hands of the Trustee may be invested and reinvested in the name or under the control of the Trustee in short term interest bearing or discount debt obligations issued or guaranteed by the Government of Canada or a Province or a Canadian chartered bank (which may include an affiliate or related party of the Trustee, including without limitation Mellon Bank Canada and CIBC) provided that each such obligation is rated at least R1 (middle) by DBRS Inc. or an equivalent rating by Canadian Bond Rating Service. 7.12 Trustee Not Required to Give Security The Trustee shall not be required to give any bond or security in respect of the execution of the trusts, rights, duties, powers and authorities of this Agreement or otherwise in respect of the premises. 7.13 Trustee Not Bound to Act on Request Except as in this Agreement otherwise specifically provided, the Trustee shall not be bound to act in accordance with any direction or request of Abgenix and/or the Company or of the directors thereof until a duly authenticated copy of the instrument or resolution containing such direction or request shall have been delivered to the Trustee, and the Trustee shall be empowered to act upon any such copy purporting to be authenticated and believed by the Trustee to be genuine. -27- 7.14 Authority to Carry on Business The Trustee represents to Abgenix and the Company that at the date of execution and delivery by it of this Agreement it is authorized to carry on the business of a trust company in each of the provinces of Canada but if, notwithstanding the provisions of this Section 7.14, it ceases to be so authorized to carry on business, the validity and enforceability of this Agreement and the Voting Rights, the Exchange Right, the Automatic Exchange Rights on Liquidation and the Cash Put Right shall not be affected in any manner whatsoever by reason only of such event but the Trustee shall, within ninety (90) days after ceasing to be authorized to carry on the business of a trust company in any province of Canada, either become so authorized or resign in the manner and with the effect specified in Article 10. 7.15 Conflicting Claims (1) If conflicting claims or demands are made or asserted with respect to any interest of any Beneficiary in any Company Special Shares, including any disagreement between the heirs, representatives, successors or assigns succeeding to all or any part of the interest of any Beneficiary in any Company Special Shares, resulting in conflicting claims or demands being made in connection with such interest, then the Trustee shall be entitled, in its sole discretion, to refuse to recognize or to comply with any such claims or demands. In so refusing, the Trustee may elect not to exercise any Voting Rights, Exchange Right, Automatic Exchange Rights on Liquidation or the Cash Put Right subject to such conflicting claims or demands and, in so doing, the Trustee shall not be or become liable to any person on account of such election or its failure or refusal to comply with any such conflicting claims or demands. The Trustee shall be entitled to continue to refrain from acting and to refuse to act until: (a) the rights of all adverse claimants with respect to the Voting Rights, Exchange Right, Automatic Exchange Rights on Liquidation or the Cash Put Right subject to such conflicting claims or demands have been adjudicated by a final judgment of a court of competent jurisdiction; or (b) all differences with respect to the Voting Rights, Exchange Right, Automatic Exchange Rights on Liquidation or the Cash Put Right subject to such conflicting claims or demands have been conclusively settled by a valid written agreement binding on all such adverse claimants, and the Trustee shall have been furnished with an executed copy of such agreement certified to be in full force and effect. (2) If the Trustee elects to recognize any claim or comply with any demand made by any such adverse claimant, it may in its discretion require such claimant to furnish such surety bond or other security satisfactory to the Trustee as it shall deem appropriate to fully indemnify it as between all conflicting claims or demands. 7.16 Acceptance of Trust The Trustee hereby accepts the Trust created and provided for by and in this Agreement and agrees to perform the same upon the terms and conditions herein set forth and to hold all -28- rights, privileges and benefits conferred hereby and by law in trust for the various persons who shall from time to time be Beneficiaries, subject to all the terms and conditions herein set forth. ARTICLE 8 COMPENSATION 8.1 Fees and Expenses of the Trustee Abgenix and the Company jointly and severally agree to pay the Trustee reasonable compensation for all of the services rendered by it under this Agreement and will reimburse the Trustee for all reasonable expenses (including, but not limited to, taxes other than taxes based on the net income or capital of the Trustee, fees paid to legal counsel and other experts and advisors and travel expenses) and disbursements, including the cost and expense of any suit or litigation of any character and any proceedings before any governmental agency, reasonably incurred by the Trustee in connection with its duties under this Agreement; provided that Abgenix and the Company shall have no obligation to reimburse the Trustee for any expenses or disbursements paid, incurred or suffered by the Trustee in any claim, action, proceeding, suit or litigation in which the Trustee is determined to have acted in bad faith or with fraud, negligence, recklessness or wilful misconduct. ARTICLE 9 INDEMNIFICATION AND LIMITATION OF LIABILITY 9.1 Indemnification of the Trustee (1) Abgenix and the Company jointly and severally agree to indemnify and hold harmless the Trustee and each of its directors, officers, employees and agents appointed and acting in accordance with this Agreement (collectively, the "Indemnified Parties") against all claims, losses, damages, reasonable costs, penalties, fines and reasonable expenses (including reasonable expenses of the Trustee's legal counsel) which, without fraud, negligence, recklessness, wilful misconduct or bad faith on the part of such Indemnified Party, may be paid, incurred or suffered by the Indemnified Party by reason or as a result of the Trustee's acceptance or administration of the Trust, its compliance with its duties set forth in this Agreement, or any written or oral instruction delivered to the Trustee by Abgenix or the Company pursuant hereto. (2) In no case shall Abgenix or the Company be liable under this indemnity for any claim against any of the Indemnified Parties unless Abgenix and the Company shall be notified by the Trustee of the written assertion of a claim or of any action commenced against the Indemnified Parties, promptly after any of the Indemnified Parties shall have received any such written assertion of a claim or shall have been served with a summons or other first legal process giving information as to the nature and basis of the claim. Subject to (ii) below, Abgenix and the Company shall be entitled to participate at their own expense in the defence and, if Abgenix and the Company so elect at any time after receipt of such notice, either of them may assume the defence of any suit brought to enforce any such claim. The Trustee shall have the right to employ separate counsel in any such suit and participate in the defence thereof, but the fees and expenses of such counsel shall be at -29- the expense of the Trustee unless: (i) the employment of such counsel has been authorized by Abgenix or the Company (such authorization not to be unreasonably withheld); or (ii) the named parties to any such suit include both the Trustee and Abgenix or the Company and the Trustee shall have been advised by counsel acceptable to Abgenix or the Company that there may be one or more legal defences available to the Trustee that are different from or in addition to those available to Abgenix or the Company and that, in the judgment of such counsel, would present a conflict of interest were a joint representation to be undertaken (in which case Abgenix and the Company shall not have the right to assume the defence of such suit on behalf of the Trustee but shall be liable to pay the reasonable fees and expenses of counsel for the Trustee). This indemnity shall survive the termination of this Agreement and the resignation or removal of the Trustee. 9.2 Limitation of Liability The Trustee shall not be held liable for any loss which may occur by reason of depreciation of the value of any part of the Trust Estate or any loss incurred on any investment of funds pursuant to this Agreement, except to the extent that such loss is attributable to the fraud, negligence, recklessness, wilful misconduct or bad faith on the part of the Trustee. ARTICLE 10 CHANGE OF TRUSTEE 10.1 Resignation The Trustee, or any trustee hereafter appointed, may at any time resign by giving written notice of such resignation to Abgenix and the Company specifying the date on which it desires to resign, provided that such notice shall not be given less than thirty (30) days before such desired resignation date unless Abgenix and the Company otherwise agree and provided further that such resignation shall not take effect until the date of the appointment of a successor trustee and the acceptance of such appointment by the successor trustee. Upon receiving such notice of resignation, Abgenix and the Company shall promptly appoint a successor trustee, which shall be a corporation organized and existing under the laws of Canada and authorized to carry on the business of a trust company in all provinces of Canada, by written instrument in duplicate, one copy of which shall be delivered to the resigning trustee and one copy to the successor trustee. Failing the appointment and acceptance of a successor trustee, a successor trustee may be appointed by order of a court of competent jurisdiction upon application of one or more of the parties to this Agreement. If the retiring trustee is the party initiating an application for the appointment of a successor trustee by order of a court of competent jurisdiction, Abgenix and the Company shall be jointly and severally liable to reimburse the retiring trustee for its legal costs and expenses in connection with same. 10.2 Removal The Trustee, or any trustee hereafter appointed, may (provided a successor trustee is appointed) be removed at any time on not less than thirty (30) days' prior notice by written -30- instrument executed by Abgenix and the Company, in duplicate, one copy of which shall be delivered to the trustee so removed and one copy to the successor trustee. 10.3 Successor Trustee Any successor trustee appointed as provided under this Agreement shall execute, acknowledge and deliver to Abgenix and the Company and to its predecessor trustee an instrument accepting such appointment. Thereupon the resignation or removal of the predecessor trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, duties and obligations of its predecessor under this Agreement, with the like effect as if originally named as trustee in this Agreement. However, on the written request of Abgenix and the Company or of the successor trustee, the trustee ceasing to act shall, upon payment of any amounts then due it pursuant to the provisions of this Agreement, execute and deliver an instrument transferring to such successor trustee all the rights and powers of the trustee so ceasing to act. Upon the request of any such successor trustee, Abgenix, the Company and such predecessor trustee shall execute any and all instruments in writing for more fully and certainly vesting in and confirming to such successor trustee all such rights and powers. 10.4 Notice of Successor Trustee Upon acceptance of appointment by a successor trustee as provided herein, Abgenix and the Company shall cause to be mailed notice of the succession of such trustee hereunder to each Beneficiary specified in a List. If Abgenix or the Company shall fail to cause such notice to be mailed within ten (10) days after acceptance of appointment by the successor trustee, the successor trustee shall cause such notice to be mailed at the expense of Abgenix and the Company. ARTICLE 11 ABGENIX SUCCESSORS 11.1 Certain Requirements in Respect of Combination, etc. As long as any outstanding Company Special Shares are owned by any person other than Abgenix or any of its Affiliates, Abgenix shall not consummate any transaction (whether by way of reconstruction, reorganization, consolidation, arrangement, merger, transfer, sale, lease or otherwise) whereby all or substantially all of its undertaking, property and assets would become the property of any other person or, in the case of a merger, of the continuing corporation resulting therefrom unless, but may do so if: (a) such other person or continuing corporation (the "Abgenix Successor"), by operation of law, becomes, without more, bound by the terms and provisions of this Agreement or, if not so bound, executes, prior to or contemporaneously with the consummation of such transaction, a trust agreement supplemental hereto and such other instruments (if any) as are satisfactory to the Trustee, acting reasonably, and in the opinion of legal counsel to the Trustee are reasonably necessary or advisable to evidence the assumption by the Abgenix Successor of liability for all moneys payable and property deliverable hereunder and the -31- covenant of such Abgenix Successor to pay and deliver or cause to be delivered the same and its agreement to observe and perform all the covenants and obligations of Abgenix under this Agreement; and (b) such transaction shall, to the satisfaction of the Trustee, acting reasonably, and in the opinion of legal counsel to the Trustee, be upon such terms and conditions as substantially to preserve and not to impair in any material respect any of the rights, duties, powers and authorities of the Trustee or of the Beneficiaries hereunder. 11.2 Vesting of Powers in Successor Whenever the conditions of Section 11.1 have been duly observed and performed, the Trustee, Abgenix Successor and the Company shall, if required by Section 11.1, execute and deliver the supplemental trust agreement provided for in Article 12 and thereupon Abgenix Successor shall possess and from time to time may exercise each and every right and power of Abgenix under this Agreement in the name of Abgenix or otherwise and any act or proceeding by any provision of this Agreement required to be done or performed by the Board of Directors of Abgenix or any officers of Abgenix may be done and performed with like force and effect by the directors or officers of such Abgenix Successor. 11.3 Wholly-Owned Subsidiaries Nothing herein shall be construed as preventing the amalgamation or merger of any wholly-owned direct or indirect subsidiary of Abgenix with or into Abgenix or the winding-up, liquidation or dissolution of any wholly-owned subsidiary of Abgenix, provided that all of the assets of such subsidiary are transferred to Abgenix or another wholly-owned direct or indirect subsidiary of Abgenix and any such transactions are expressly permitted by this Article 11. ARTICLE 12 AMENDMENTS AND SUPPLEMENTAL TRUST AGREEMENTS 12.1 Amendments, Modifications, etc. This Agreement may not be amended or modified except (a) as otherwise provided for in this Agreement, or (b) by an agreement in writing executed by Abgenix, the Company and the Trustee and approved by the Beneficiaries in accordance with Section 10(2) of the Share Provisions. 12.2 Ministerial Amendments Notwithstanding the provisions of Section 12.1, the parties to this Agreement may in writing, at any time and from time to time, without the approval of the Beneficiaries, amend or modify this Agreement for the purposes of: (a) adding to the covenants of any or all parties hereto for the protection of the Beneficiaries hereunder provided that the Board of Directors of each of the -32- Company and Abgenix shall be of the good faith opinion that such additions will not be prejudicial to the rights or interests of the Beneficiaries; (b) making such amendments or modifications not inconsistent with this Agreement as may be necessary or desirable with respect to matters or questions which, in the good faith opinion of the Board of Directors of each of Abgenix and the Company and in the opinion of the Trustee, having in mind the best interests of the Beneficiaries, it may be expedient to make, provided that such Boards of Directors and the Trustee, acting on the advice of counsel, shall be of the opinion that such amendments and modifications will not be prejudicial to the interests of the Beneficiaries; or (c) making such changes or corrections which, on the advice of counsel to Abgenix, the Company and the Trustee, are required for the purpose of curing or correcting any ambiguity or defect or inconsistent provision or clerical omission or mistake or manifest error, provided that the Trustee, acting on the advice of counsel, and the Board of Directors of each of Abgenix and the Company shall be of the opinion that such changes or corrections will not be prejudicial to the rights and interests of the Beneficiaries. 12.3 Meeting to Consider Amendments The Company, at the request of Abgenix, shall call a meeting or meetings of the Beneficiaries for the purpose of considering any proposed amendment or modification requiring approval pursuant hereto. Any such meeting or meetings shall be called and held in accordance with the memorandum and articles of association of the Company , the Share Provisions and all applicable laws. 12.4 Changes in Capital of Abgenix and the Company At all times after the occurrence of any event contemplated pursuant to Section 2.7 or 2.8 of the Support Agreement or otherwise, as a result of which either Abgenix Common Shares or the Company Special Shares or both are in any way changed, this Agreement shall, notwithstanding the provisions of Section 12.1, forthwith be amended and modified as necessary in order that it shall apply with full force and effect, mutatis mutandis, to all new securities into which Abgenix Common Shares or the Company Special Shares or both are so changed and the parties hereto shall execute and deliver a supplemental trust agreement giving effect to and evidencing such necessary amendments and modifications. 12.5 Execution of Supplemental Trust Agreements No amendment to or modification or waiver of any of the provisions of this Agreement otherwise permitted in this Agreement shall be effective unless made in writing and signed by all of the parties hereto. From time to time the Company (when authorized by a resolution of its Board of Directors), Abgenix (when authorized by a resolution of its Board of Directors) and the Trustee may, subject to the provisions of these presents, and they shall, when so directed by these presents, execute and deliver by their proper officers, trust agreements or other instruments -33- supplemental hereto, which thereafter shall form part hereof, for any one or more of the following purposes: (a) evidencing the succession of Abgenix Successors and the covenants of and obligations assumed by each such Abgenix Successor in accordance with the provisions of Article 11 and the successors of the Trustee or any successor trustee in accordance with the provisions of Article 10; (b) making any additions to, deletions from or alterations of the provisions of this Agreement or the Voting Rights, the Exchange Right or the Automatic Exchange Rights on Liquidation which, in the opinion of the Trustee, will not be prejudicial to the interests of the Beneficiaries or are, in the opinion of counsel to the Trustee, necessary or advisable in order to incorporate, reflect or comply with any legislation the provisions of which apply to Abgenix, the Company, the Trustee or this Agreement; and (c) for any other purposes not inconsistent with the provisions of this Agreement, including without limitation, to make or evidence any amendment or modification to this Agreement as contemplated hereby, provided that, in the opinion of the Trustee, the rights of the Trustee and Beneficiaries will not be prejudiced thereby. ARTICLE 13 TERMINATION 13.1 Term The Trust created by this Agreement shall continue until the earliest to occur of the following events: (a) no outstanding Company Special Shares are held by a Beneficiary; (b) each of Abgenix and the Company elects in writing to terminate the Trust and such termination is approved by the Beneficiaries in accordance with Section 10(2) of the Share Provisions; and (c) 21 years after the death of the last survivor of the descendants of His Majesty King George VI of Canada and the United Kingdom of Great Britain and Northern Ireland living on the date of the creation of the Trust. 13.2 Survival of Agreement This Agreement shall survive any termination of the Trust and shall continue until there are no Company Special Shares outstanding held by a Beneficiary; provided, however, that the termination of this Agreement shall not relieve any party from any obligation prior to the date of termination of this Agreement. -34- ARTICLE 14 GENERAL 14.1 Severability If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule or law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the fullest extent possible. 14.2 Enurement This Agreement shall be binding upon and enure to the benefit of the parties hereto and their respective successors and permitted assigns and, subject to the terms hereof, to the benefit of the Beneficiaries. 14.3 Notices to Parties (1) All notices and other communications between the parties hereunder shall be in writing and shall be deemed to have been given if delivered personally or by confirmed telecopy to the parties at the following addresses (or at such other address for such party as shall be specified in like notice): (a) To Abgenix or Company at: c/o Abgenix, Inc. 7601 Dumbarton Circle Fremont, CA 94555 Attention: Mr. Kurt Leutzinger cc: Daniel Hunt, Esq. Telephone: (510)608-6500 Facsimile: (510)608-6511 with a copy (which shall not constitute notice) to: Stikeman Elliott Suite 1700 Park Place, 666 Burrard Street Vancouver, Canada V6C 2X8 -35- Attention: Jonathan S. Drance, Esq. Telephone No.: (604) 631-1361 Telecopier No.: (604) 681-1825 and a copy (which shall not constitute notice) to: O'Melveny & Myers LLP Embarcadero Center West 275 Battery Street San Francisco, CA 94111-3305 Attention: Peter T. Healy, Esq. Telephone No.: (415)984-8833 Telecopier No.:(415)984-8701 (b) To the Trustee at: 1600-1066 West Hastings Street Vancouver, British Columbia Canada V6E 3X1 Attention: Tricia Murphy Telephone:(604) 891-3025 Facsimile: (604) 688-4301 (2) Any notice or other communication given personally shall be deemed to have been given and received upon delivery thereof and if given by telecopy shall be deemed to have been given and received on the date of receipt thereof unless such day is not a Business Day, in which case it shall be deemed to have been given and received upon the immediately following Business Day. 14.4 Notice to Beneficiaries Any and all notices to be given and any documents to be sent to any Beneficiaries may be given or sent to the address of such Beneficiary shown on the register of holders of Company Special Shares in any manner permitted by the memorandum and articles of association of the Company from time to time in force in respect of notices to shareholders and shall be deemed to be received (if given or sent in such manner) at the time specified in such memorandum and articles of association of the Company, the provisions of which shall apply mutatis mutandis to notices or documents as aforesaid sent to such Beneficiaries. 14.5 Counterparts This Agreement may be executed by facsimile and in counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. -36- 14.6 Jurisdiction This Agreement shall be construed and enforced in accordance with the laws of the Province of British Columbia and the laws of Canada applicable therein. 14.7 Attornment Each of the Trustee, Abgenix and the Company agrees that any action or proceeding arising out of or relating to this Agreement may be instituted in the courts of the Province of British Columbia, and Abgenix hereby appoints the Company at its registered office in the Province of British Columbia as attorney for service of process. IN WITNESS WHEREOF the parties hereto have caused this Agreement to be duly executed as of the date first above written. ABGENIX, INC. By: -------------------------------- Name: ------------------------------ Title: ----------------------------- IMMGENICS PHARMACEUTICALS INC. By: -------------------------------- Name: ------------------------------ Title: ----------------------------- CIBC MELLON TRUST COMPANY By: -------------------------------- Name: ------------------------------ Title: ----------------------------- EX-99.4 7 a2030181zex-99_4.txt EXHIBIT 99.4 ABGENIX, INC. and ABGENIX CANADA CORPORATION and IMMGENICS PHARMACEUTICALS INC. - -------------------------------------------------------------------------------- SUPPORT AGREEMENT November 3, 2000 - -------------------------------------------------------------------------------- SUPPORT AGREEMENT THIS SUPPORT AGREEMENT (this "Agreement") made as of November 3, 2000 between Abgenix, Inc., a corporation existing under the laws of Delaware (hereinafter referred to as "Abgenix") and ImmGenics Pharmaceuticals Inc., a company existing under the laws of British Columbia (hereinafter referred to as the "Company") and Abgenix Canada Corporation, an unlimited liability company existing under the laws of Nova Scotia (hereinafter referred to as "Abgenix Canada"). RECITALS: In connection with an acquisition and arrangement agreement (as amended, supplemented and/or restated, (the "Acquisition Agreement") made as of September 25, 2000 between Abgenix, Abgenix Canada and the Company, the Company is to issue exchangeable shares (the "Company Special Shares") to all holders of securities of the Company pursuant to the plan of arrangement contemplated by the Acquisition Agreement; and Pursuant to the Acquisition Agreement, Abgenix, Abgenix Canada and the Company are required to execute a support agreement substantially in the form of this Agreement. In consideration of the foregoing and the mutual agreements contained herein (the receipt and adequacy of which are acknowledged), the parties agree as follows: ARTICLE 1 DEFINITIONS AND INTERPRETATION 1.1 Defined Terms Each term denoted herein by initial capital letters and not otherwise defined herein shall have the meaning ascribed thereto in the rights, privileges, restrictions and conditions (collectively, the "Share Provisions") attaching to the Company Special Shares as set forth in the Plan of Arrangement, unless the context requires otherwise. 1.2 Interpretation Not Affected by Headings The division of this Agreement into Articles, sections and other portions and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Agreement. Unless otherwise indicated, all references to an "Article" or "Section" followed by a number and/or a letter refer to the specified Article or Section of this Agreement. The terms "this Agreement", "hereof", "herein" and "hereunder" and similar expressions refer to this Agreement and not to any particular Article, section or other portion hereof and include any agreement or instrument supplementary or ancillary hereto. 1.3 Number, Gender Words importing the singular number only shall include the plural and vice versa. Words importing any gender shall include all genders. 1.4 Date for any Action If any date on which any action is required to be taken under this Agreement is not a Business Day, such action shall be required to be taken on the next succeeding Business Day. For the purposes of this Agreement, a "Business Day" means any day other than a Saturday, a Sunday or any day on which commercial banks located in the Province of British Columbia, the State of California or the State of Delaware are authorized or obligated to close. ARTICLE 2 COVENANTS OF Abgenix AND THE COMPANY 2.1 Covenants Regarding Company Special Shares (1) So long as any Company Special Shares not owned by Abgenix or its Affiliates are outstanding, Abgenix will: (a) not declare or pay any dividend on the Abgenix Common Shares unless (i) it shall cause the Company simultaneously to declare or pay, as the case may be, an equivalent dividend (as provided for in the Share Provisions) on the Company Special Shares and (ii) the Company shall have sufficient money or other assets or authorized but unissued securities available to enable the due declaration and the due and punctual payment, in accordance with applicable law, of any such dividend on the Company Special Shares; (b) advise the Company sufficiently in advance of the declaration by Abgenix of any dividend on Abgenix Common Shares and take all such other actions as are reasonably necessary, in co-operation with the Company to ensure that the respective declaration date, record date and payment date for a dividend on the Company Special Shares shall be the same as the declaration date, record date and payment date for the corresponding dividend on the Abgenix Common Shares; (c) ensure that the record date for any dividend declared on Abgenix Common Shares is not less than ten (10) Business Days after the declaration date of such dividend; (d) take all such actions and do all such things as are reasonably necessary or desirable to enable and permit the Company, in accordance with applicable law, to pay and otherwise perform its obligations with respect to the satisfaction of the Liquidation Amount, the Retraction Price or the Redemption Price in respect of each issued and outstanding Company Special Share (other than Company Special Shares owned by Abgenix or its Affiliates) upon the liquidation, dissolution or winding-up of the Company, the delivery of a Retraction Request by a holder of Company Special Shares or a redemption of the Company Special Shares by the Company, as the case may be, including without limitation all such actions and all such things as are necessary or desirable to enable and permit the Company to cause to be delivered Abgenix Common Shares to the holders of the Company Special Shares in accordance with the provisions of Section 5, 6 or 7, as the case may be, of the Share Provisions; and 2 (e) take all such actions and do all such things as are reasonably necessary or desirable to enable and permit Abgenix Canada, in accordance with applicable law, to perform its obligations arising upon the exercise by it of the Liquidation Call Right, the Retraction Call Right or the Redemption Call Right, including without limitation all such actions and all such things as are necessary or desirable to enable and permit Abgenix Canada to cause to be delivered Abgenix Common Shares to the holders of the Company Special Shares in accordance with the provisions of the Liquidation Call Right, the Retraction Call Right or the Redemption Call Right, as the case may be. (2) Prior to December 31, 2004, Abgenix shall not exercise its vote as a shareholder to initiate the voluntary liquidation, dissolution or winding up of the Company nor take any action or omit to take any action that is designed to result in the liquidation, dissolution or winding up of the Company. 2.2 Segregation of Funds Abgenix will cause the Company to deposit a sufficient amount of funds in a separate account of the Company and segregate a sufficient amount of such other assets and property as is necessary to enable the Company to pay dividends when due and to pay or otherwise satisfy its respective obligations under Section 5, 6 or 7 of the Share Provisions, as applicable. 2.3 Reservation of Abgenix Common Shares Abgenix hereby represents, warrants and covenants in favour of the Company and Abgenix Canada that Abgenix has reserved for issuance and will, at all times while any Company Special Shares (other than the Company Special Shares held by Abgenix or its Affiliates) are outstanding, keep available, free from pre-emptive and other rights, out of its authorized and unissued capital stock such number of Abgenix Common Shares (or other shares or securities into which Abgenix Common Shares may be reclassified or changed as contemplated by Section 2.7: (a) as is equal to the sum of: (i) the number of the Company Special Shares issued and outstanding from time to time and (ii) the number of the Company Special Shares issuable upon the exercise of all rights to acquire the Company Special Shares outstanding from time to time, multiplied, in each case, by the Exchange Ratio; and (b) as are now and may hereafter be required to enable and permit Abgenix to meet its obligations under the Voting, Exchange and Cash Put Trust Agreement and under any other security or commitment pursuant to which Abgenix may now or hereafter be required to issue Abgenix Common Shares, to enable and permit Abgenix Canada to meet its obligations under each of the Liquidation Call Right, the Retraction Call Right and the Redemption Call Right and to enable and permit the Company to meet its obligations hereunder and under the Share Provisions. 2.4 Notification of Certain Events In order to assist Abgenix to comply with its obligations hereunder and to permit Abgenix Canada to exercise the Liquidation Call Right, the Retraction Call Right and the Redemption Call Right, the Company will notify Abgenix and Abgenix Canada of each of the following events at the time set forth below: 3 (a) in the event of any determination by the Board of Directors of the Company to institute voluntary liquidation, dissolution or winding-up proceedings with respect to the Company or to effect any other distribution of the assets of the Company among its shareholders for the purpose of winding up its affairs, at least sixty (60) days prior to the proposed effective date of such liquidation, dissolution, winding-up or other distribution; (b) immediately, upon the earlier of receipt by the Company of notice of and the Company otherwise becoming aware of any threatened or instituted claim, suit, petition or other proceedings with respect to the involuntary liquidation, dissolution or winding-up of the Company or to effect any other distribution of the assets of the Company among its shareholders for the purpose of winding up its affairs; (c) immediately, upon receipt by the Company of a Retraction Request; (d) immediately upon notice of redemption being given to holders of the Company Special Shares, upon the determination of a Redemption Date in accordance with the Share Provisions; and (e) immediately upon the issuance by the Company of any Company Special Shares or rights to acquire Company Special Shares (other than the issuance of Company Special Shares and rights to acquire Company Special Shares in exchange for Company Common Shares pursuant to the Arrangement). 2.5 Delivery of Abgenix Common Shares to the Company and Abgenix Canada In furtherance of its obligations under Section 2.1(1)(d) and Section 2.1(1)(e), upon notice from the Company or Abgenix Canada of any event that requires the Company or Abgenix Canada to cause to be delivered Abgenix Common Shares to any holder of Company Special Shares, Abgenix shall forthwith deliver to the relevant holder of Company Special Shares as directed by the Company or Abgenix Canada the requisite number of Abgenix Common Shares to be received by, and delivered to or to the order of, the former holder of the surrendered Company Special Shares. All such Abgenix Common Shares shall be duly authorized and validly issued as fully paid and shall be free and clear of any lien, claim or encumbrance. In consideration of the issuance of each such Abgenix Common Share, the Company or Abgenix Canada, as the case may be, shall subscribe a cash amount equal to such amount as Abgenix and the Company or Abgenix Canada, as the case may be, shall agree and shall be lawful. 2.6 Qualification of Abgenix Common Shares If any Abgenix Common Shares (or other shares or securities into which Abgenix Common Shares may be reclassified or changed as contemplated by Section 2.7) to be delivered hereunder requires registration or qualification with or approval of or the filing of any document, including any prospectus or similar document or the taking of any proceeding with or the obtaining of any order, ruling or consent from any governmental or regulatory authority under any United States or Canadian federal, provincial, territorial or state securities or other law or 4 regulation or pursuant to the rules and regulations of any securities or other regulatory authority or the fulfillment of any other United States or Canadian legal requirement before such shares (or such other shares or securities) may be issued by Abgenix at the direction of Abgenix Canada or the Company, if applicable, to the holder of surrendered Company Special Shares or in order that such shares (or such other shares or securities) may be freely traded thereafter (other than any restrictions of general application on transfer by reason of a holder being a "control person" for purposes of Canadian securities law or the equivalent thereof under applicable United States laws or stock exchange or regulatory requirements), Abgenix will in good faith expeditiously take all such actions and do all such things as are reasonably necessary to cause such Abgenix Common Shares (or such other shares or securities) to be and remain duly registered, qualified or approved under United States or Canadian law, as the case may be but has no such obligations in respect of foreign laws; provided, however, that (i) nothing in this Agreement, the Voting, Exchange and Cash Put Trust Agreement, or the Plan of Arrangement shall be construed to impose any obligation on Abgenix with respect to the filing and maintenance of a registration statement with the United States Securities Exchange Commission in addition to the provisions set forth in Section 2.4(d) of the Acquisition Agreement, (ii) Abgenix shall be entitled to the right to suspend the use of the Registration Statement (as defined therein) pursuant to Section 2.4(d) of the Acquisition Agreement, and (iii) Section 2.4(d) of the Acquisition Agreement is incorporated herein and made a part hereof notwithstanding any expiration of the Acquisition Agreement. Abgenix may require evidence satisfactory to it, acting reasonably, to be provided by a holder of Company Special Shares that no prospectus or other disclosure document is required to be prepared or filed under such foreign laws. If a holder fails to provide such evidence, Abgenix Canada shall be entitled to issue cash equal to the Current Market Price of all Abgenix Common Shares otherwise deliverable to such holder. Abgenix will in good faith expeditiously take all such actions and do all such things as are reasonably necessary or desirable to cause all Abgenix Common Shares (or such other shares or securities) to be delivered hereunder to be listed, quoted or posted for trading on all stock exchanges and quotation systems on which outstanding Abgenix Common Shares (or such other shares or securities) have been listed by Abgenix and remain listed and are quoted or posted for trading at such time. 2.7 Economic Equivalence So long as any Company Special Shares not owned by Abgenix or its Affiliates are outstanding: (a) Abgenix will not, without prior approval of the Company and the prior approval of the holders of the Company Special Shares given in accordance with Section 10(2) of the Share Provisions: (i) issue or distribute Abgenix Common Shares (or securities exchangeable for or convertible into or carrying rights to acquire Abgenix Common Shares) to the holders of all or substantially all of the then outstanding Abgenix Common Shares by way of stock dividend or other distribution, other than an issue of Abgenix Common Shares (or securities exchangeable for or convertible into or carrying rights to acquire Abgenix Common Shares) to holders of Abgenix Common Shares (i) who exercise an option to receive dividends in Abgenix Common Shares (or securities 5 exchangeable for or convertible into or carrying rights to acquire Abgenix Common Shares) in lieu of receiving cash dividends, or (ii) pursuant to any dividend reinvestment plan or scrip dividend; (ii) issue or distribute rights, options or warrants to the holders of all or substantially all of the then outstanding Abgenix Common Shares entitling them to subscribe for or to purchase Abgenix Common Shares (or securities exchangeable for or convertible into or carrying rights to acquire Abgenix Common Shares); or (iii) issue or distribute to the holders of all or substantially all of the then outstanding Abgenix Common Shares, (A) securities of Abgenix of any class other than Abgenix Common Shares (other than shares convertible into or exchangeable for or carrying rights to acquire Abgenix Common Shares); (B) rights, options or warrants other than those referred to in Section 2.7(a)(ii); (C) evidences of indebtedness of Abgenix; or (D) assets of Abgenix; unless in each case the economic equivalent on a per share basis of such rights, options, securities, shares, evidences of indebtedness or other assets is issued or distributed simultaneously to holders of the Company Special Shares; provided that, for greater certainty, the above restrictions shall not apply to any securities issued or distributed by Abgenix in order to give effect to and to consummate the transactions contemplated by, and in accordance with, the Acquisition Agreement. (b) Abgenix will not, without the prior approval of the Company and the prior approval of the holders of the Company Special Shares given in accordance with Section 10(2) of the Share Provisions: (i) subdivide, redivide or change the then outstanding Abgenix Common Shares into a greater number of Abgenix Common Shares; or (ii) reduce, combine, consolidate or change the then outstanding Abgenix Common Shares into a lesser number of Abgenix Common Shares; or (iii) reclassify or otherwise change Abgenix Common Shares or effect an amalgamation, merger, reorganization or other transaction affecting Abgenix Common Shares; unless the same or an economically equivalent change shall simultaneously be made to, or in the rights of the holders of, the Company Special Shares. (c) Abgenix will ensure that the record date for any event referred to in Section 2.7(a) or Section 2.7(b), or (if no record date is applicable for such event) the effective date for any such event, is not less than five (5) Business Days after the date on which such event is declared or announced by Abgenix (with contemporaneous notification thereof by Abgenix to the Company). 6 (d) The Board of Directors of the Company shall determine, in good faith and in its sole discretion, economic equivalence for the purposes of any event referred to in Section 2.7(a) or Section 2.7(b) and each such determination shall be conclusive. In making each such determination, the following factors shall, without excluding other factors determined by the Board of Directors of the Company to be relevant, be considered by the Board of Directors of the Company: (i) in the case of any stock dividend or other distribution payable in Abgenix Common Shares, the number of such shares issued in proportion to the number of Abgenix Common Shares previously outstanding; (ii) in the case of the issuance or distribution of any rights, options or warrants to subscribe for or purchase Abgenix Common Shares (or securities exchangeable for or convertible into or carrying rights to acquire Abgenix Common Shares), the relationship between the exercise price of each such right, option or warrant and the Current Market Price of an Abgenix Common Share; (iii) in the case of the issuance or distribution of any other form of property (including without limitation any shares or securities of Abgenix of any class other than Abgenix Common Shares, any rights, options or warrants other than those referred to in Section 2.7(d)(ii), any evidences of indebtedness of Abgenix or any assets of Abgenix), the relationship between the fair market value (as determined by the Board of Directors of Abgenix in the manner above contemplated) of such property to be issued or distributed with respect to each outstanding Abgenix Common Share and the Current Market Price of an Abgenix Common Share; (iv) in the case of any subdivision, redivision or change of the then outstanding Abgenix Common Shares into a greater number of Abgenix Common Shares or the reduction, combination, consolidation or change of the then outstanding Abgenix Common Shares into a lesser number of Abgenix Common Shares or any amalgamation, merger, reorganization or other transaction affecting Abgenix Common Shares, the effect thereof upon the then outstanding Abgenix Common Shares; and (v) in all such cases, the general taxation consequences of the relevant event to holders of Company Special Shares to the extent that such consequences may differ from the taxation consequences to holders of Abgenix Common Shares as a result of differences between taxation laws of Canada and the United States (except for any differing consequences arising as a result of differing marginal taxation rates and without regard to the individual circumstances of holders of Company Special Shares). The Company agrees that, to the extent required, upon due notice from Abgenix, the Company will use its best efforts to take or cause to be taken such steps as may be necessary for the purposes of ensuring that appropriate dividends are paid or other distributions are made by the 7 Company, or subdivisions, redivisions or changes are made to the Company Special Shares, in order to implement the required economic equivalence with respect to the Abgenix Common Shares and Company Special Shares as provided for in this Section 2.7. 2.8 Tender Offers In the event that a tender offer, share exchange offer, issuer bid, take-over bid or similar transaction with respect to Abgenix Common Shares (an "Offer") is proposed by Abgenix or is proposed to Abgenix or its shareholders and is recommended by the Board of Directors of Abgenix, or is otherwise effected or to be effected with the consent or approval of the Board of Directors of Abgenix, and the Company Special Shares are not redeemed by the Company or purchased by Abgenix Canada pursuant to the Redemption Call Right, Abgenix will use its reasonable efforts expeditiously and in good faith to take all such actions and do all such things as are necessary or desirable to enable and permit holders of Company Special Shares (other than Abgenix and its Affiliates) to participate in such Offer to the same extent and on an economically equivalent basis as the holders of Abgenix Common Shares, without discrimination. Without limiting the generality of the foregoing, Abgenix will use its reasonable efforts expeditiously and in good faith to ensure that holders of Company Special Shares may participate in each such Offer without being required to retract Company Special Shares as against the Company (or, if so required, to ensure that any such retraction, shall be effective only upon, and shall be conditional upon, the closing of such Offer and only to the extent necessary to tender or deposit to the Offer). Nothing herein shall affect the rights of the Company to redeem (or Abgenix Canada to purchase pursuant to the Redemption Call Right) Company Special Shares, as applicable, in the event of an Abgenix Control Transaction. 2.9 Ownership of Outstanding Shares Without the prior approval of the Company and the prior approval of the holders of the Company Special Shares given in accordance with Section 10(2) of the Share Provisions, Abgenix covenants and agrees in favour of the Company that, as long as any outstanding Company Special Shares are owned by any Person other than Abgenix or any of its Affiliates, Abgenix will be and remain the direct or indirect beneficial owner of all issued and outstanding voting shares in the capital of the Company and Abgenix Canada. 2.10 Abgenix and Affiliates Not to Vote Company Special Shares Abgenix covenants and agrees that it will appoint and cause to be appointed proxyholders with respect to all Company Special Shares held by it and its Affiliates for the sole purpose of attending each meeting of holders of Company Special Shares in order to be counted as part of the quorum for each such meeting. Abgenix further covenants and agrees that it will not, and will cause its Affiliates not to, exercise any voting rights which may be exercisable by holders of Company Special Shares from time to time pursuant to the Share Provisions or pursuant to the provisions of the BC Act (or any successor or other corporate statute by which the Company may in the future be governed) with respect to any Company Special Shares held by it or by its Affiliates in respect of any matter considered at any meeting of holders of Company Special Shares. 8 2.11 Ordinary Market Purchases For certainty, nothing contained in this Agreement, including without limitation the obligations of Abgenix contained in Section 2.8, shall limit the ability of Abgenix (or any of its subsidiaries including, without limitation, Abgenix Canada or the Company) to make ordinary market purchases of Abgenix Common Shares in accordance with applicable laws and regulatory or stock exchange requirements. ARTICLE 3 ABGENIX SUCCESSORS 3.1 Certain Requirements in Respect of Combination, etc. Abgenix shall not consummate any transaction (whether by way of reconstruction, reorganization, consolidation, arrangement, merger, transfer, sale, lease or otherwise) whereby all or substantially all of its undertaking, property and assets would become the property of any other Person (or, in the case of a merger, of the continuing corporation resulting therefrom) unless, but may do so if: (a) such other Person or continuing corporation (the "Abgenix Successor") by operation of law, becomes, without more, bound by the terms and provisions of this Agreement or, if not so bound, executes, prior to or contemporaneously with the consummation of such transaction, an agreement supplemental hereto and such other instruments (if any) as are reasonably necessary or advisable to evidence the assumption by the Abgenix Successor of liability for all moneys payable and property deliverable hereunder and the covenant of such Abgenix Successor to pay and deliver or cause to be delivered the same and its agreement to observe and perform all the covenants and obligations of Abgenix under this Agreement; and (b) such transaction shall be upon such terms and conditions as substantially to preserve and not to impair in any material respect any of the rights, duties, powers and authorities of the other parties hereunder or the holders of the Company Special Shares. 3.2 Vesting of Powers in Successor Whenever the conditions of Section 3.1 have been duly observed and performed, the parties, if required by Section 3.1, shall execute and deliver the supplemental agreement provided for in Section 3.1(a) and thereupon the Abgenix Successor shall possess and from time to time may exercise each and every right and power of Abgenix under this Agreement in the name of Abgenix or otherwise and any act or proceeding by any provision of this Agreement required to be done or performed by the Board of Directors of Abgenix or any officers of Abgenix may be done and performed with like force and effect by the directors or officers of such Abgenix Successor. 9 3.3 Wholly-Owned Subsidiaries Nothing herein shall be construed as preventing the amalgamation or merger of any wholly-owned direct or indirect subsidiary of Abgenix with or into Abgenix or the winding-up, liquidation or dissolution of any wholly-owned direct or indirect subsidiary of Abgenix or any other distribution of the assets of any wholly-owned direct or indirect subsidiary of Abgenix among the shareholders of such subsidiary for the purpose of winding up its affairs, provided that all of the assets of such subsidiary are transferred to Abgenix or another wholly-owned direct or indirect subsidiary of Abgenix and any such transactions are expressly permitted by this Article 3. ARTICLE 4 GENERAL 4.1 Term This Agreement shall come into force and be effective as of the date hereof and shall terminate and be of no further force and effect at such time as no Company Special Shares (or securities or rights convertible into or exchangeable for or carrying rights to acquire Company Special Shares) are held by any Person other than Abgenix and any of its Affiliates. 4.2 Changes in Capital of Abgenix and the Company At all times after the occurrence of any event contemplated pursuant to Section 2.7 and Section 2.8 or otherwise, as a result of which either Abgenix Common Shares or the Company Special Shares or both are in any way changed, this Agreement shall forthwith be amended and modified as necessary in order that it shall apply with full force and effect, mutatis mutandis, to all new securities into which Abgenix Common Shares or the Company Special Shares or both are so changed and the parties hereto shall execute and deliver an Agreement in writing giving effect to and evidencing such necessary amendments and modifications. 4.3 Severability If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule or law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the fullest extent possible. 4.4 Amendments, Modifications This Agreement may not be amended or modified except (a) as otherwise provided in this Agreement, or (b) by an agreement in writing executed by the Company, Abgenix Canada and 10 Abgenix and approved by the holders of the Company Special Shares in accordance with Section 10(2) of the Share Provisions. No amendment or modification or waiver of any of the provisions of this Agreement otherwise permitted hereunder shall be effective unless made in writing and signed by all of the parties hereto. 4.5 Ministerial Amendments Notwithstanding the provisions of Section 4.4, the parties to this Agreement may in writing at any time and from time to time, without the approval of the holders of the Company Special Shares, amend or modify this Agreement for the purposes of: (a) adding to the covenants of any or all parties provided that the Board of Directors of each of the Company, Abgenix Canada and Abgenix shall be of the good faith opinion that such additions will not be prejudicial to the rights or interests of the holders of the Company Special Shares; (b) making such amendments or modifications not inconsistent with this Agreement as may be necessary or desirable with respect to matters or questions which, in the good faith opinion of the Board of Directors of each of the Company, Abgenix Canada and Abgenix, it may be expedient to make, provided that each such Board of Directors shall be of the good faith opinion that such amendments or modifications will not be prejudicial to the rights or interests of the holders of the Company Special Shares; or (c) making such changes or corrections which, on the advice of counsel to the Company, Abgenix Canada and Abgenix, are required for the purpose of curing or correcting any ambiguity or defect or inconsistent provision or clerical omission or mistake or manifest error, provided that the Boards of Directors of each of the Company, Abgenix Canada and Abgenix shall be of the good faith opinion that such changes or corrections will not be prejudicial to the rights or interests of the holders of the Company Special Shares. 4.6 Meeting to Consider Amendments The Company, at the request of Abgenix, shall call a meeting or meetings of the holders of the Company Special Shares for the purpose of considering any proposed amendment or modification requiring approval pursuant to Section 4.4. Any such meeting or meetings shall be called and held in accordance with the articles of the Company, the Share Provisions and all applicable laws. 4.7 Enurement This Agreement shall be binding upon and enure to the benefit of the parties hereto and their respective successors and permitted assigns. 11 4.8 Notices to Parties All notices and other communications between the parties to this Agreement shall be in writing and shall be deemed to have been given if delivered personally or by confirmed telecopy to the parties at the following addresses (or at such other address for any such party as shall be specified in like notice): If to Abgenix or Abgenix Canada: Abgenix, Inc. 7601 Dumbarton Circle Fremont, CA 94555 Attention: Mr. Kurt Leutzinger cc: Daniel Hunt, Esq. Telephone No.: (510) 608-6500 Telecopier No.: (510) 608-6511 with a copy (which shall not constitute notice) to: Stikeman Elliott Suite 1700 Park Place, 666 Burrard Street Vancouver, Canada V6C 2X8 Attention: Jonathan S. Drance, Esq. Telephone No.: (604) 631-1361 Telecopier No.: (604) 681-1825 and a copy (which shall not constitute notice) to: O'Melveny & Myers LLP Embarcadero Center West 275 Battery Street San Francisco, CA 94111-3305 Attention: Peter T. Healy, Esq. Telephone No.: (415) 984-8833 Telecopier No.: (415) 984-8701 Any notice or other communication given personally shall be deemed to have been given and received upon delivery thereof and if given by telecopy shall be deemed to have been given and received on the date of confirmed receipt thereof unless such day is not a Business Day, in which case it shall be deemed to have been given and received upon the immediately following Business Day. 12 4.9 Counterparts This Agreement may be executed in facsimile and in counterparts, each of which shall be deemed an original, and all of which taken together shall constitute one and the same instrument. 4.10 Jurisdiction This Agreement shall be construed and enforced in accordance with the laws of the Province of British Columbia and the laws of Canada applicable therein. 4.11 Attornment Each of the parties hereto agrees that any action or proceeding arising out of or relating to this Agreement may be instituted in the courts of the Province of British Columbia and waives any objection which it may have now or hereafter to the venue of any such action or proceeding. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written. ABGENIX, INC. By: -------------------------------- Name: ------------------------------ Title: ----------------------------- ABGENIX CANADA CORPORATION By: -------------------------------- Name: ------------------------------ Title: ----------------------------- IMMGENICS PHARMACEUTICALS INC. By: -------------------------------- Name: ------------------------------ Title: ----------------------------- 13 EX-99.5 8 a2030181zex-99_5.txt EXHIBIT 99.5 STOCK PURCHASE AGREEMENT Abgenix, Inc. 7601 Dumbarton Circle Fremont, CA 94555 Cell Genesys, Inc. 342 Lakeside Drive Foster City, CA 94404 Ladies & Gentlemen: The undersigned, _________________________________(the "Investor"), hereby confirms its agreement with you as follows: 1. This Stock Purchase Agreement (the "Agreement") is made as of October ___, 2000 between Abgenix, Inc., a Delaware corporation (the "Company"), Cell Genesys, Inc., a Delaware corporation ("Current Stockholder") and the Investor. 2. The Company has authorized the sale and issuance of up to _____________ shares (the "Company Shares") of common stock of the Company, $0.0001 par value per share (the "Common Stock") and the Current Stockholder has authorized the sale of up to ____________ shares of Common Stock (the "Current Stockholder Shares"; and together with the Company Shares, the "Shares"), subject to adjustment by the Company's Board of Directors, to certain investors in a private placement (the "Offering"). 82 percent of the Shares to be sold in the Offering will be offered, issued and sold by the Company and 18 percent of the Shares to be sold in the Offering will be offered and sold by the Current Stockholder. 3. The Company, the Current Stockholder and the Investor agree that the Investor will purchase from the Company and the Current Stockholder, and the Company will issue and sell and the Current Stockholder will sell to the Investor, ___________ and ______________ Shares, respectively, for a purchase price of $_______ per share, or an aggregate purchase price of $_______________, pursuant to the Terms and Conditions for Purchase of Shares attached hereto as Annex I and incorporated herein by reference as if fully set forth herein. Unless otherwise requested by the Investor, certificates representing the Shares purchased by the Investor will be registered in the Investor's name and address as set forth below. 4. The Investor represents that, except as set forth below, (a) it has had no position, office or other material relationship within the past three years with the Company, the Current Stockholder or persons known to it to be affiliates of the Company or the Current Stockholder, (b) neither it, nor any group of which it is a member or to which it is related, beneficially owns (including the right to acquire or vote) any securities of the Company and (c) it has no direct or indirect affiliation or association with any NASD member as of the date hereof. Exceptions: ________________________________________________________________________________ ________________________________________________________________________________ (If no exceptions, write "none." If left blank, response will be deemed to be "none.") Please confirm that the foregoing correctly sets forth the agreement between us by signing in the space provided below for that purpose. By executing this Agreement, you acknowledge that the Company may use the information in paragraph 4 above and the name and address information below in preparation of the Registration Statement (as defined in Annex 1). [Remainder of Page Intentionally Left Blank] -1- [SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT] By: ---------------------------------- Print Name: --------------------------- Title: -------------------------------- Address: ------------------------------ Tax ID No.: --------------------------- Contact name: ------------------------- Telephone: Name in which shares should registered (if different): ------------------------------------------------------ AGREED AND ACCEPTED: - ------------------- ABGENIX, INC. - ------------------------------ By: Title: CELL GENESYS, INC. - ------------------------------ By: Title: -2- ANNEX I TERMS AND CONDITIONS FOR PURCHASE OF SHARES 1. Authorization and Sale of the Shares. Subject to these Terms and Conditions for Purchase of Shares (these "Terms and Conditions") the Company has authorized the sale of up to __________ Company Shares, and the Current Stockholder has committed to sell up to _________ Current Stockholder Shares. The Company reserves the right to proportionally increase or decrease these numbers. 2. Agreement to Sell and Purchase the Shares; Subscription Date. 2.1 At the Closing (as defined in Section 3), the Company and the Current Stockholder will sell to the Investor, and the Investor will purchase from the Company and the Current Stockholder, upon the terms and conditions hereinafter set forth, the number of Shares set forth in the Stock Purchase Agreement to which these Terms and Conditions are annexed at the purchase price set forth therein. 2.2 The Company and the Current Stockholder may enter into this same form of Stock Purchase Agreement with certain other investors (the "Other Investors") and expects to complete sales of Shares to them. (The Investor and the Other Investors are hereinafter sometimes collectively referred to as the "Investors," and this Agreement and the Stock Purchase Agreements executed by the Other Investors are hereinafter sometimes collectively referred to as the "Agreements.") The Company, on behalf of itself and the Current Stockholder, may accept executed Agreements from Investors for the purchase of Shares commencing upon the date on which the Company provides the Investors with the proposed purchase price per Share and concluding upon the date (the "Subscription Date") on which (i) the Company and the Current Stockholder have executed Agreements with Investors for the purchase of at least 1,000,000 Shares, and (ii) the Company has notified the Investors in writing that it is no longer accepting Agreements from Investors for the purchase of Shares. Neither the Company nor the Current Stockholder may enter into any Agreements after the Subscription Date. 3. Delivery of the Shares at Closing. The completion of the purchase and sale of the Shares (the "Closing") shall occur (the "Closing Date") on ________ __, 2000, at the offices of the Company's counsel. At the Closing, the Company shall deliver to the Investor one or more stock certificates representing the number of Shares set forth on the signature page hereto, each such certificate to be registered in the name of the Investor or, if so indicated on the signature page hereto, in the name of a nominee designated by the Investor. The Company's obligation to issue and sell, and the Current Stockholder's obligation to sell, the Shares to the Investor shall be subject to the following conditions, any one or more of which may be waived by the Company on behalf of itself and the Current Stockholder: (a) receipt by the Company of a certified or official bank check or wire transfer of funds in the full amount of the purchase price for the Shares being purchased hereunder as set forth on the signature page hereto; (b) completion of the purchases and sales under the Agreements with the Other Investors; and (c) the accuracy of the representations and warranties made by the Investors and the fulfillment of those undertakings of the Investors to be fulfilled prior to the Closing. The Investor's obligation to purchase the Shares shall be subject to the following conditions, any one or more of which may be waived by the Investor: (a) Investors shall have executed Agreements for the purchase of at least 1,000,000 Shares, (b) the representations and warranties of the Company and the Current Stockholder set forth herein shall be true and correct as of the Closing Date in all material respects and (c) the Investor shall have received such closing documents as such Investor shall reasonably have requested, including, a standard opinion of Company Counsel as to the matters set forth in Section 4A.2 and as to exemption from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"), of the sale of the Shares and a standard opinion of Current Stockholder's counsel as to the matters set forth in Sections 4B.2. -3- 4A. Representations, Warranties and Covenants of the Company. The Company hereby represents and warrants to, and covenants with, the Investor, as follows: 4A.1 Organization. The Company is duly organized and validly existing in good standing under the laws of the jurisdiction of its organization. Each of the Company and its Subsidiaries (as defined in Rule 405 under the Securities Act) has full power and authority to own, operate and occupy its properties and to conduct its business as presently conducted and as described in the documents (the "Exchange Act Documents") filed by the Company, as of the date hereof, under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and is registered or qualified to do business and in good standing in each jurisdiction in which it owns or leases property or transacts business and where the failure to be so qualified would have a material adverse effect upon the business, financial condition, properties or operations of the Company and its Subsidiaries, considered as one enterprise, and no proceeding has been instituted in any such jurisdiction, revoking, limiting or curtailing, or seeking to revoke, limit or curtail, such power and authority or qualification. 4A.2 Due Authorization and Valid Issuance. The Company has all requisite power and authority to execute, deliver and perform its obligations under the Agreements, and the Agreements have been duly authorized and validly executed and delivered by the Company and constitute legal, valid and binding agreements of the Company enforceable against the Company in accordance with their terms, except as rights to indemnity and contribution may be limited by state or federal securities laws or the public policy underlying such laws, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' and contracting parties' rights generally and except as enforceability may be subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). The Shares being purchased by the Investor hereunder have been or will be, upon issuance pursuant to the terms hereof, duly authorized, validly issued, fully-paid and nonassessable. 4A.3 Non-Contravention. The execution and delivery of the Agreements, the issuance and sale of the Shares under the Agreements, the fulfillment of the terms of the Agreements and the consummation of the transactions contemplated thereby will not (A) conflict with or constitute a material violation of, or material default (with the passage of time or otherwise) under, (i) any material bond, debenture, note or other evidence of indebtedness, lease, contract, indenture, mortgage, deed of trust, loan agreement, joint venture or other agreement or instrument to which the Company or any Subsidiary is a party or by which it or any of its Subsidiaries or their respective properties are bound, (ii) the charter, by-laws or other organizational documents of the Company or any Subsidiary, or (iii) any law, administrative regulation, ordinance or order of any court or governmental agency, arbitration panel or authority applicable to the Company or any Subsidiary or their respective properties, or (B) result in the creation or imposition of any material lien, encumbrance, claim, security interest or restriction upon any of the material properties or material assets of the Company or any Subsidiary or an acceleration of any material indebtedness pursuant to any obligation, agreement or condition contained in any material bond, debenture, note or any other evidence of indebtedness or any material indenture, mortgage, deed of trust or any other agreement or instrument to which the Company or any Subsidiary is a party or by which any of them is bound or to which any of the property or assets of the Company or any Subsidiary is subject. No consent, approval, authorization or other order of, or registration, qualification or filing with, any regulatory body, administrative agency, or other governmental body in the United States or any other person is required for the execution and delivery of the Agreements and the valid issuance and sale of the Shares to be sold pursuant to the Agreements by the Company, other than such as have been made or obtained, and except for any post-closing securities filings or notifications required to be made under federal or state securities laws. 4A.4 Capitalization. The capitalization of the Company as of June 30, 2000 is as set forth in the Exchange Act Documents. The Company has not issued any capital stock since that date other than pursuant to (i) employee benefit plans disclosed in the Exchange Act Documents, or (ii) outstanding warrants or options or other securities disclosed in the Exchange Act Documents. The Shares to be sold pursuant to the Agreements have been duly authorized, and when issued and paid for in accordance with the terms of the Agreements will be duly and validly issued, fully paid and nonassessable. The outstanding shares of capital stock of the Company have been duly and validly issued and are fully paid and nonassessable, have been issued in compliance with all federal and state securities laws, and were not issued in violation of any preemptive rights or similar rights to subscribe for or purchase securities. -4- Except as set forth in or contemplated by the Exchange Act Documents, there are no outstanding rights (including, without limitation, preemptive rights), warrants or options to acquire, or instruments convertible into or exchangeable for, any unissued shares of capital stock or other equity interest in the Company or any Subsidiary, or any contract, commitment, agreement, understanding or arrangement of any kind to which the Company is a party or of which the Company has knowledge and relating to the issuance or sale of any capital stock of the Company or any Subsidiary, any such convertible or exchangeable securities or any such rights, warrants or options other than (i) shares of ImmGenics Pharmaceuticals Inc. ("ImmGenics") that will become exchangeable into a number of shares of Common Stock of the Company ("Conversion Stock") that equals approximately US$77 million divided by the average trading price of the Common Stock of the Company for the five days immediately preceding the effective date of the registration statement covering the Conversion Stock; and (ii) the Conversion Stock. Without limiting the foregoing, no preemptive right, co-sale right, right of first refusal, registration right, or other similar right exists with respect to the Company Shares or the issuance and sale thereof, or pursuant to an agreement to which the Company is a party or the Company's organizational documents, with respect to the Current Stockholder Shares or the sale thereof other than those with respect to which waivers will have been obtained prior to, and be in effect at, the Closing. No further approval or authorization of any stockholder, the Board of Directors of the Company or others is required for the issuance and sale of the Shares. The Company owns the entire equity interest in each of its Subsidiaries, free and clear of any pledge, lien, security interest, encumbrance, claim or equitable interest, other than as described in the Exchange Act Documents. Except as disclosed in the Exchange Act Documents, there are no stockholders agreements, voting agreements or other similar agreements with respect to the Common Stock to which the Company is a party or, to the knowledge of the Company, between or among any of the Company's stockholders. For purposes of this Annex I, "knowledge" means facts that are known to the person or which could have been known to the person upon reasonable inquiry. 4A.5 Legal Proceedings. There is no material legal or governmental proceeding pending or, to the knowledge of the Company, threatened to which the Company or any Subsidiary is or may be a party or of which the business or property of the Company or any Subsidiary is subject that is not disclosed in the Exchange Act Documents. 4A.6 No Violations. Neither the Company nor any Subsidiary is in violation of its charter, bylaws, or other organizational documents, or in material violation of any law, administrative regulation, ordinance or order of any court or governmental agency, arbitration panel or authority applicable to the Company or any Subsidiary, which violation, individually or in the aggregate, would be reasonably likely to have a material adverse effect on the business or financial condition of the Company and its Subsidiaries, considered as one enterprise, or is in default (and there exists no condition which, with the passage of time or otherwise, would constitute a default) in any material respect in the performance of any bond, debenture, note or any other evidence of indebtedness in any indenture, mortgage, deed of trust or any other material agreement or instrument to which the Company or any Subsidiary is a party or by which the Company or any Subsidiary is bound or by which the properties of the Company or any Subsidiary are bound, which would be reasonably likely to have a material adverse effect upon the business or financial condition of the Company and its Subsidiaries, considered as one enterprise. 4A.7 Governmental Permits, Etc. With the exception of the matters which are dealt with separately in Sections 4A.1, 4A.12, 4A.13, and 4A.14, each of the Company and its Subsidiaries has all necessary franchises, licenses, certificates and authorizations from any foreign, federal, state or local government or governmental agency, department, or body that are currently necessary for the operation of the business of the Company and its Subsidiaries as currently conducted and as described in the Exchange Act Documents except where the failure to currently possess could not reasonably be expected to have a material adverse effect. 4A.8 Intellectual Property. Except as, and to the extent, specifically disclosed in the Exchange Act Documents (i) each of the Company and its Subsidiaries owns or possesses rights to use all material patents, patent rights, trademarks, copyrights, licenses, inventions, trade secrets, trade names and know-how (collectively, "Intellectual Property") described or referred to in the Exchange Act Documents as owned or possessed by it or that are necessary for the conduct of its business as now conducted or as proposed to be conducted as described in the Exchange Act Documents except where the failure to currently own or possess would not have a material adverse effect on the condition (financial or otherwise), earnings, operations or business of the Company and its Subsidiaries considered as one enterprise, (ii) neither the Company nor any of its Subsidiaries has received any notice of, or has any knowledge of, -5- any infringement of asserted rights of a third party with respect to any Intellectual Property that, individually or in the aggregate, could reasonably be expected to have a material adverse effect on the financial condition or business of the Company and its Subsidiaries considered as one enterprise and (iii) neither the Company nor any of its Subsidiaries has received any notice of any infringement of rights of a third party with respect to any Intellectual Property that, individually or in the aggregate, would have a material adverse effect upon the business or financial condition of the Company and its Subsidiaries, considered as one enterprise. 4A.9 Financial Statements. The financial statements of the Company and the related notes contained in the Exchange Act Documents present fairly, in accordance with generally accepted accounting principles, the financial position of the Company and its Subsidiaries as of the dates indicated, and the results of its operations and cash flows for the periods therein specified. Such financial statements (including the related notes) have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods therein specified, except as disclosed in the Exchange Act Documents. The other financial information contained in the Exchange Act Documents has been prepared on a basis consistent with the financial statements of the Company. 4A.10 No Material Adverse Change. Except as disclosed in the Exchange Act Documents, since June 30, 2000, there has not been (i) any material adverse change in the financial condition or earnings of the Company and its Subsidiaries considered as one enterprise nor has any material adverse event occurred to the Company or its Subsidiaries, (ii) any material adverse event affecting the Company, (iii) any obligation, direct or contingent, that is material to the Company and its Subsidiaries considered as one enterprise, incurred by the Company, except obligations incurred in the ordinary course of business, (iv) any dividend or distribution of any kind declared, paid or made on the capital stock of the Company or any of its Subsidiaries, or (v) any loss or damage (whether or not insured) to the physical property of the Company or any of its Subsidiaries which has been sustained which has a material adverse effect on the condition (financial or otherwise), earnings, operations, business or business prospects of the Company and its Subsidiaries considered as one enterprise. 4A.11 Disclosure. The information contained in the Exchange Act Documents as of the date hereof and as of the Closing Date, did not and shall not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. 4A.12 NASDAQ Compliance. The Company's Common Stock is registered pursuant to Section 12(g) of the Exchange Act and is listed on The Nasdaq Stock Market, Inc. National Market (the "Nasdaq National Market"), and the Company has taken no action designed to, or likely to have the effect of, terminating the registration of the Common Stock under the Exchange Act or de-listing the Common Stock from the Nasdaq National Market, nor has the Company received any notification that the Securities and Exchange Commission (the "SEC") or the National Association of Securities Dealers, Inc. ("NASD") is contemplating terminating such registration or listing. 4A.13 Reporting Status. The Company has filed in a timely manner all documents that the Company was required to file under the Exchange Act during the 12 months preceding the date of this Agreement other than the failure to timely file a report on Form 8-K, which was due on or around January 15, 2000 and which was filed on or around January 28, 2000. The following documents complied in all material respects with the SEC's requirements as of their respective filing dates, and the information contained therein as of the date thereof did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein in light of the circumstances under where they were made not misleading: (a) the current report on Form 8-K filed on or around October 19, 2000; (b) the registration statement on Form S-8 filed on or around September 8, 2000; (c) the quarterly report on Form 10-Q for the quarterly period ended June 30, 2000 filed on or around August 14, 2000; (d) the proxy statement pursuant to Section 14(a) of the Exchange Act, filed on or around July 17, 2000; -6- (e) the quarterly report on Form 10Q for the quarterly period ended March 31, 2000 filed on or around May 15, 2000; (f) the proxy statement pursuant to Section 14(a) of the Exchange Act filed on or around March 31, 2000; (g) the annual report on Form 10-K for the year ended December 31, 1999 filed on or around March 28, 2000; (h) the proxy statement pursuant to Section 14(a) of the Exchange Act filed on or around March 21, 2000; (i) the current report on Form 8-K filed on or around March 2 ,2000; (j) amendment no. 1 to the registration statement on Form S-1 filed on or around February 10, 2000; (k) the current report on Form 8-K filed on or around January 28, 2000; (l) the current report on Form 8-K filed on or around January 28, 2000; (m) the registration statement on Form S-1 filed on or around January 28, 2000; (n) amendment no. 1 to Form 8-A filed on or around November 30, 1999; (o) the registration statement on Form S-3 filed on or around November 26, 1999; (p) the current report on Form 8-K filed on or around November 23, 1999; (q) the quarterly report on Form 10-Q for the quarterly period ended September 30, 1999 filed on or around November 12, 1999; (r) the registration statement on Form S-8 filed on or around November 10, 1999; and (s) all other documents, if any, filed by the Company with the SEC since October 19, 2000 pursuant to the reporting requirements of the Exchange Act. 4A.14 Listing. The Company shall comply with all requirements of the National Association of Securities Dealers, Inc. with respect to the issuance of the Company Shares and the listing of the Shares on the Nasdaq National Market. 4A.15 No Manipulation of Stock. The Company has not taken and will not, in violation of applicable law, take, any action designed to or that might reasonably be expected to cause or result in stabilization or manipulation of the price of the Common Stock to facilitate the sale or resale of the Shares. 4A.16 Company not an "Investment Company". The Company has been advised of the rules and requirements under the Investment Company Act of 1940, as amended (the "Investment Company Act"). The Company is not, and immediately after receipt of payment for the Company Shares will not be, an "investment company" or an entity "controlled" by an "investment company" within the meaning of the Investment Company Act and will conduct its business in a manner so that it will not become subject to the Investment Company Act. 4B. Representations and Warranties of the Current Stockholder. The Current Stockholder represents and warrants to and covenants with, the Investor, as follows: 4B.1 Organization. The Current Stockholder is duly organized and validly existing in good standing under the laws of the jurisdiction of its organization. 4B.2 Due Authorization and Valid Issuance. The Current Stockholder has all requisite power and authority to execute, deliver and perform its obligations under the Agreements and the Power of Attorney appointing certain individuals named therein as the Current Stockholder's attorneys-in-fact to the extent set forth therein relating to the transactions contemplated hereby (the "Power of Attorney"), and the Agreements and the Power of Attorney have been duly authorized and validly executed and delivered by the Current Stockholder and constitute legal, valid and binding agreements of the Current Stockholder enforceable against the Current Stockholder in accordance with their terms, except as rights to indemnity and contribution may be limited by state or federal securities laws or the public policy underlying such laws, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' and contracting parties' rights generally and except as -7- enforceability may be subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 4B.3 Non-Contravention. The execution and delivery of the Agreements and the Power of Attorney, the sale of the Current Stockholder Shares under the Agreements, the fulfillment of the terms of the Agreements and the Power of Attorney and the consummation of the transactions contemplated thereby will not (A) conflict with or constitute a material violation of, or material default (with the passage of time or otherwise) under, (i) any material bond, debenture, note or other evidence of indebtedness, lease, contract, indenture, mortgage, deed of trust, loan agreement, joint venture or other agreement or instrument to which the Current Stockholder or any Subsidiary is a party or by which it or any of its Subsidiaries or their respective properties are bound, (ii) the charter, by-laws or other organizational documents of the Current Stockholder or any Subsidiary, or (iii) any law, administrative regulation, ordinance or order of any court or governmental agency, arbitration panel or authority applicable to the Current Stockholder or any Subsidiary or their respective properties, or (B) result in the creation or imposition of any material lien, encumbrance, claim, security interest or restriction upon any of the material properties or material assets of the Current Stockholder or any Subsidiary or an acceleration of any material indebtedness pursuant to any obligation, agreement or condition contained in any material bond, debenture, note or any other evidence of indebtedness or any material indenture, mortgage, deed of trust or any other agreement or instrument to which the Current Stockholder or any Subsidiary is a party or by which any of them is bound or to which any of the property or assets of the Current Stockholder or any Subsidiary is subject. No consent, approval, authorization or other order of, or registration, qualification or filing with, any regulatory body, administrative agency, or other governmental body in the United States or any other person is required for the execution and delivery of the Agreements or the Power of Attorney and the valid issuance and sale of the Current Stockholder Shares to be sold pursuant to the Agreements, other than such as have been made or obtained, and except for any post-closing securities filings or notifications required to be made under federal or state securities laws. 4B.4 Required Consents and Approvals. No preemptive right, co-sale right, right of first refusal, registration right, or other similar right exists with respect to the Current Stockholder Shares or the sale thereof, other than any such rights which have been duly and validly waived. No further approval or authorization of any stockholder, the Board of Directors of the Current Stockholder or others is required for the sale of the Current Stockholder Shares. 4B.5 No Manipulation of Stock. The Current Stockholder has not taken and will not, in violation of applicable law, take, any action designed to or that might reasonably be expected to cause or result in stabilization or manipulation of the price of the Common Stock to facilitate the sale or resale of the Shares. 4B.6 Title to Shares to be Sold. The Current Stockholder is the lawful owner of the Current Stockholder Shares and upon sale and delivery of, and payment for, such Current Stockholder Shares as provided herein, the Current Stockholder will convey good and marketable title to such Current Stockholder Shares, free and clear of all liens, encumbrances, equities and claims whatsoever. 4B.7 Confirmation. An officer of the Current Stockholder who is familiar with the Company has reviewed the Exchange Act Documents. The Current Stockholder, without having made any independent check or verification except as described herein, (i) has no knowledge of any material fact, condition or information not disclosed in the Exchange Act Documents which has had or may reasonably be expected to result in a material adverse change in the condition, financial or otherwise, or in the earnings, business, operation or prospects, whether or not arising from transactions in the ordinary course of business of the Company and its subsidiaries, considered as one entity, and (ii) is not prompted to sell the Current Stockholder Shares by any information concerning the Company which is not set forth in the Exchange Act Documents. 5. Representations, Warranties and Covenants of the Investor. 5.1 The Investor represents and warrants to, and covenants with, the Company and the Current Stockholder that: (i) the Investor is an institutional "accredited investor" as defined in paragraphs (1), (2), (3) or (7) of subsection (a) of Rule 501 under the Securities Act and the Investor is also knowledgeable, sophisticated and -8- experienced in making, and is qualified to make decisions with respect to investments in shares presenting an investment decision like that involved in the purchase of the Shares, including investments in securities issued by the Company and investments in comparable companies, and has requested, received, reviewed and considered all information it deemed relevant in making an informed decision to purchase the Shares; (ii) the Investor is acquiring the number of Shares set forth on the signature page hereto in the ordinary course of its business and for its own account for investment only and with no present intention of distributing any of such Shares or any arrangement or understanding with any other persons regarding the distribution of such Shares; (iii) the Investor will not, directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of (or solicit any offers to buy, purchase or otherwise acquire or take a pledge of) any of the Shares except in compliance with the Securities Act, applicable state securities laws and the respective rules and regulations promulgated thereunder; (iv) the Investor has answered all questions on the Investor Questionnaire hereto for use in preparation of the Registration Statement and the answers thereto are true, correct and complete as of the date hereof and will be true, correct and complete as of the Closing Date; (v) the Investor will notify the Company immediately of any change in any of such information until such time as the Investor has sold all of its Shares or until the Company is no longer required to keep the Registration Statement effective; and (vi) the Investor has, in connection with its decision to purchase the number of Shares set forth on the signature page hereto, relied only upon the Exchange Act Documents and the representations and warranties of the Company and the Current Stockholder contained herein. Investor understands that its acquisition of the Shares has not been registered under the Securities Act or registered or qualified under any state securities law in reliance on specific exemptions therefrom, which exemptions may depend upon, among other things, the bona fide nature of the Investor's investment intent as expressed herein. Investor has completed or caused to be completed and delivered to the Company the Investor Questionnaire attached as Exhibit B to the Exchange Act Documents, which questionnaire is true, correct and complete in all material respects. 5.2 The Investor acknowledges, represents and agrees that no action has been or will be taken in any jurisdiction outside the United States by the Company that would permit an offering of the Shares, or possession or distribution of offering materials in connection with the issue of the Shares, in any jurisdiction outside the United States where legal action by the Company for that purpose is required. Each Investor outside the United States will comply with all applicable laws and regulations in each foreign jurisdiction in which it purchases, offers, sells or delivers Shares or has in its possession or distributes any offering material, in all cases at its own expense. 5.3 The Investor hereby covenants with the Company not to make any sale of the Shares without complying with the provisions of this Agreement and without causing the prospectus delivery requirement under the Securities Act to be satisfied, and the Investor acknowledges that the certificates evidencing the Shares will be imprinted with a legend that prohibits their transfer except in accordance therewith. The Investor acknowledges that there may occasionally be times when the Company determines that it must suspend the use of the Prospectus forming a part of the Registration Statement, as set forth in Section 7.2(c). 5.4 The Investor further represents and warrants to, and covenants with, the Company and the Current Stockholder that (i) the Investor has full right, power, authority and capacity to enter into this Agreement and to consummate the transactions contemplated hereby and has taken all necessary action to authorize the execution, delivery and performance of this Agreement, and (ii) this Agreement constitutes a valid and binding obligation of the Investor enforceable against the Investor in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' and contracting parties' rights generally and except as enforceability may be subject to general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law) and except as the indemnification agreements of the Investors herein may be legally unenforceable. 5.5 Investor will not use any of the restricted Shares acquired pursuant to this Agreement to cover any short position in the Common Stock of the Company if doing so would be in violation of applicable securities laws. 5.6 The Investor understands that nothing in the Exchange Act Documents, this Agreement or any other materials presented to the Investor in connection with the purchase and sale of the Shares constitutes legal, tax or investment advice. The Investor has consulted such legal, tax and investment advisors as it, in its sole discretion, has deemed necessary or appropriate in connection with its purchase of Shares. -9- 6. Survival of Representations, Warranties and Agreements. Notwithstanding any investigation made by any party to this Agreement, all covenants, agreements, representations and warranties made by the Company, the Current Stockholder and the Investor herein shall survive the execution of this Agreement, the delivery to the Investor of the Shares being purchased and the payment therefor. Without limiting the foregoing, the parties hereto acknowledge that the representations and warranties contained herein are made solely as of the date hereof and, other than at the Closing Date, there is no obligation to update any such representations and warranties. 7. Registration of the Shares; Compliance with the Securities Act. 7.1 Registration Procedures and Other Matters. The Company shall: (a) subject to receipt of necessary information from the Investors after prompt request from the Company to the Investors to provide such information, use best efforts to prepare and file with the SEC, within 10 business days after the Closing Date, a registration statement on Form S-1 (the "S-1 Registration Statement") to enable the resale of the Shares by the Investors from time to time through the automated quotation system of the Nasdaq National Market or in privately-negotiated transactions; (b) use best efforts to cause the S-1 Registration Statement to become effective within 30 days after the S-1 Registration Statement is filed by the Company, such efforts to include, without limiting the generality of the foregoing, preparing and filing with the SEC in such 30-day period any financial statements that are required to be filed prior to the effectiveness of such S-1 Registration Statement; (c) subject to receipt of necessary information from the Investors after prompt request from the Company to the Investors to provide such information, use best efforts to prepare and file with the SEC, within 10 days after the Company first becomes eligible to file a registration statement on Form S-3, a registration statement on Form S-3 (the "S-3 Registration Statement") to enable the resale of the Shares by the Investors from time to time through the automated quotation system of the Nasdaq National Market or in privately-negotiated transactions; and to use best efforts to cause the S-3 Registration Statement to become effective as soon as practicable thereafter, such efforts to include, without limiting the generality of the foregoing, preparing and filing with the SEC as promptly as practicable any financial statements that are required to be filed prior to the effectiveness of such S-3 Registration Statement (the term "Registration Statement" shall mean the S-1 Registration Statement until the S-3 Registration Statement is first declared effective by the SEC, after which time it shall mean the S-3 Registration Statement); (d) use best efforts to prepare and file with the SEC such amendments and supplements to the Registration Statement and the Prospectus used in connection therewith as may be necessary to keep the Registration Statement current, effective and free from any material misstatement or omission to state a material fact for a period not exceeding, with respect to each Investor's Shares purchased hereunder, the earlier of (i) the second anniversary of the Closing Date, (ii) the date on which the Investor may sell all Shares then held by the Investor without restriction by the volume limitations of Rule 144(e) of the Securities Act, or (iii) such time as all Shares purchased by such Investor in this Offering have been sold pursuant to a registration statement. (e) furnish to the Investor with respect to the Shares registered under the Registration Statement such number of copies of the Registration Statement, Prospectuses and Preliminary Prospectuses in conformity with the requirements of the Securities Act and such other documents as the Investor may reasonably request (which shall not include confidential material), in furtherance of the Investor's proposed public sale or other disposition of all or any of the Shares by the Investor; provided, however, that the obligation of the Company to deliver copies of Prospectuses or Preliminary Prospectuses to the Investor shall be subject to the receipt by the Company of reasonable assurances from the Investor that the Investor will comply with the applicable provisions of the Securities Act and of such other securities or blue sky laws as may be applicable in connection with any use of such Prospectuses or Preliminary Prospectuses; -10- (f) file documents required of the Company for normal blue sky clearance in states in the United States specified in writing by the Investor; provided, however, that the Company shall not be required to qualify to do business or consent to service of process in any jurisdiction in which it is not now so qualified or has not so consented; (g) bear all reasonable expenses in connection with the procedures in paragraph (a) through (f) of this Section 7.1 and the registration of the Shares pursuant to the Registration Statement; and (h) advise the Investor, promptly after it shall receive notice or obtain knowledge of the issuance of any stop order by the SEC delaying or suspending the effectiveness of the Registration Statement or of the initiation or threat of any proceeding for that purpose; and it will promptly use its best efforts to prevent the issuance of any stop order or to obtain its withdrawal at the earliest possible moment if such stop order should be issued. Notwithstanding anything to the contrary herein, the Registration Statement shall cover only the Shares. In no event at any time before the Registration Statement with respect to the Shares is filed with the SEC shall the Company file any other registration statement without the prior written consent of a majority in interest of the Investors. The Company understands that the Investor disclaims being an underwriter, but the Investor being deemed an underwriter by the SEC shall not relieve the Company of any obligations it has hereunder; provided, however that if the Company receives notification from the SEC that the Investor is deemed an underwriter, then the period by which the Company is obligated to submit an acceleration request to the SEC shall be extended to the earlier of (i) the 90th day after such SEC notification, or (ii) 120 days after the initial filing of the Registration Statement with the SEC. 7.2 Transfer of Shares After Registration; Suspension. (a) The Investor agrees that it will not effect any disposition of the Shares or its right to purchase the Shares that would constitute a sale within the meaning of the Securities Act except as contemplated in the Registration Statement referred to in Section 7.1 and as described below or as otherwise permitted by law, and that it will promptly notify the Company of any changes in the information set forth in the Registration Statement regarding the Investor or its plan of distribution. (b) Except in the event that paragraph (c) below applies, the Company shall (i) if deemed necessary by the Company, prepare and file from time to time with the SEC a post-effective amendment to the Registration Statement or a supplement to the related Prospectus or a supplement or amendment to any document incorporated therein by reference or file any other required document so that such Registration Statement will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and so that, as thereafter delivered to purchasers of the Shares being sold thereunder, such Prospectus will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (ii) provide the Investor copies of any documents filed pursuant to Section 7.2(b)(i); and (iii) inform each Investor that the Company has complied with its obligations in Section 7.2(b)(i) (or that, if the Company has filed a post-effective amendment to the Registration Statement which has not yet been declared effective, the Company will notify the Investor to that effect, will use best efforts to secure the effectiveness of such post-effective amendment as promptly as reasonably practicable and will promptly notify the Investor pursuant to Section 7.2(b)(i) hereof when the amendment has become effective). (c) Subject to paragraph (d) below, in the event (i) of any request by the SEC or any other federal or state governmental authority during the period of effectiveness of the Registration Statement for amendments or supplements to a Registration Statement or related Prospectus or for additional information; (ii) of the issuance by the SEC or any other federal or state governmental authority of any stop order suspending the effectiveness of a Registration Statement or the initiation of any proceedings for that purpose; or (iii) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Shares for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; or (iv) of any event or -11- circumstance which, upon the advice of its counsel, necessitates the making of any changes in the Registration Statement or Prospectus, or any document incorporated or deemed to be incorporated therein by reference, so that, in the case of the Registration Statement, it will not contain any untrue statement of a material fact or any omission to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and that in the case of the Prospectus, it will not contain any untrue statement of a material fact or any omission to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; then the Company shall, deliver a certificate in writing to the Investor (the "Suspension Notice") to the effect of the foregoing and, upon receipt of such Suspension Notice, the Investor will refrain from selling any Shares pursuant to the Registration Statement (a "Suspension") until the Investor's receipt of copies of a supplemented or amended Prospectus prepared and filed by the Company, or until it is advised in writing by the Company that the current Prospectus may be used, and has received copies of any additional or supplemental filings that are incorporated or deemed incorporated by reference in any such Prospectus. In the event of any Suspension, the Company will use its best efforts to cause the use of the Prospectus so suspended to be resumed as soon as reasonably practicable within 20 business days after the delivery of a Suspension Notice to the Investor. In addition to and without limiting any other remedies (including, without limitation, at law or at equity) available to the Investor, the Investor shall be entitled to specific performance in the event that the Company fails to comply with the provisions of this Section 7.2(c). (d) Notwithstanding the foregoing paragraphs of this Section 7.2, the Investor shall not be prohibited from selling Shares under the Registration Statement as a result of Suspensions for more than 60 days in the aggregate during any twelve month period, unless, in the good faith judgment of the Company's Board of Directors, upon advice of counsel, the sale of Shares under the Registration Statement in reliance on this paragraph 7.2(d) would be reasonably likely to cause a violation of the Securities Act or the Exchange Act. (e) Provided that a Suspension is not then in effect, the Investor may sell Shares under the Registration Statement, provided that it arranges for delivery of a current Prospectus to the transferee of such Shares. Upon receipt of a request therefor, the Company has agreed to provide an adequate number of current Prospectuses to the Investor and to supply copies to any other parties requiring such Prospectuses. (f) In the event of a sale of Shares by the Investor pursuant to the Registration Statement, the Investor must also deliver to the Company's transfer agent, with a copy to the Company, a Certificate of Subsequent Sale substantially in the form attached hereto as Exhibit A, so that the Shares may be properly transferred. 7.3 Indemnification. For the purpose of this Section 7.3: (i) the term "Selling Stockholder" shall include the Investor and any affiliate of such Investor; (ii) the term "Registration Statement" shall include any final Prospectus, exhibit, supplement or amendment included in or relating to the Registration Statement referred to in Section 7.1; and (iii) the term "untrue statement" shall include any untrue statement or alleged untrue statement, or any omission or alleged omission to state in the Registration Statement a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. (a) The Company agrees to indemnify and hold harmless each Selling Stockholder from and against any losses, claims, damages or liabilities to which such Selling Stockholder may become subject (under the Securities Act or otherwise) insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of, or are based upon (i) any untrue statement of a material fact contained in the Registration Statement or any omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, or (ii) any failure by the Company to fulfill any undertaking included in the Registration Statement, and the Company will reimburse such Selling Stockholder for any reasonable legal or other expenses reasonably incurred in investigating, defending or preparing to defend any such action, proceeding or claim, or preparing to defend any such action, proceeding or claim, provided, however, that the Company shall not be liable in any such case to the extent that such loss, claim, damage or liability arises out of, or is based upon, an untrue statement made in such Registration -12- Statement or an omission of a material fact required to be stated therein or necessary to make the statements therein not misleading in reliance upon and in conformity with written information furnished to the Company by or on behalf of such Selling Stockholder specifically for use in preparation of the Registration Statement or the failure of such Selling Stockholder to comply with its covenants and agreements contained in Section 7.2 hereof respecting sale of the Shares or any statement or omission in any Prospectus that is corrected in any subsequent Prospectus that was delivered to the Selling Stockholder prior to the pertinent sale or sales by the Selling Stockholder. The Company shall reimburse each Selling Stockholder for the amounts provided for herein on 30 days' notice as such expenses are incurred. (b) The Current Stockholder agrees to indemnify and hold harmless the Company and each Selling Stockholder from and against any losses, claims, damages or liabilities to which the Company or such Selling Stockholder may become subject (under the Securities Act or otherwise) insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of, or are based upon any untrue statement of a material fact contained in the Registration Statement or any omission of a material fact required to be stated therein or necessary to make the statements therein not misleading to the extent, but only to the extent, that such untrue statement of a material fact or such omission of a material fact required to be stated therein or necessary to make the statements therein not misleading was made in reliance upon and in conformity with written information furnished to the Company (or a representative thereof) by the Current Stockholder directly or through a representative of the Current Stockholder specifically for use in the preparation thereof, and the Current Stockholder will reimburse such Selling Stockholder for any reasonable legal or other expenses reasonably incurred in investigating, defending or preparing to defend any such action, proceeding or claim, or preparing to defend any such action, proceeding or claim, provided, however, that the Current Stockholder shall not be liable to a Selling Stockholder in any such case to the extent that such loss, claim, damage or liability arises out of, or is based upon, an untrue statement or omission in any Prospectus that is corrected in any subsequent Prospectus that was delivered to the Selling Stockholder prior to the pertinent sale or sales by the Selling Stockholder and provided further that the Current Stockholder's obligation to indemnify the Selling Stockholders shall be limited to the amount received by the Current Stockholder from the sale of the Current Stockholder Shares hereunder. Subject to the foregoing limitation on the amount of the Current Stockholder's indemnity obligation, the Current Stockholder shall reimburse each Selling Stockholder for the amounts provided for herein on 30 days' notice as such expenses are incurred. (c) The Investor agrees to indemnify and hold harmless the Company and the Current Stockholder (and each person, if any, who controls the Company or the Current Stockholder within the meaning of Section 15 of the Securities Act, each officer of the Company who signs the Registration Statement and each director of the Company) from and against any losses, claims, damages or liabilities to which the Company or the Current Stockholder (or any such officer, director or controlling person) may become subject (under the Securities Act or otherwise), insofar as such losses, claims, damages or liabilities (or actions or proceedings in respect thereof) arise out of, or are based upon, (i) any failure to comply with the covenants and agreements contained in Section 7.2 hereof respecting sale of the Shares, or (ii) any untrue statement of a material fact contained in the Registration Statement or any omission of a material fact required to be stated therein or necessary to make the statements therein not misleading if such untrue statement or such omission of a material fact required to be stated therein or necessary to make the statements therein not misleading was made in reliance upon and in conformity with written information furnished by or on behalf of the Investor specifically for use in preparation of the Registration Statement, and the Investor will reimburse the Company (or such officer, director or controlling person) and the Current Stockholder (or such officer, director or controlling person), as the case may be, for any legal or other expenses reasonably incurred in investigating, defending or preparing to defend any such action, proceeding or claim; provided that the Investor's obligation to indemnify the Company shall be limited to the net amount received by the Investor from the sale of the Shares. (d) Promptly after receipt by any indemnified person of a notice of a claim or the beginning of any action in respect of which indemnity is to be sought against an indemnifying person pursuant to this Section 7.3, such indemnified person shall notify the indemnifying person in writing of such claim or of the commencement of such action, but the omission to so notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party under this Section 7.3 (except to the extent that such omission materially and adversely affects the indemnifying party's ability to defend such action) or from any liability otherwise than under this Section 7.3. Subject to the provisions hereinafter stated, in case any such action shall be brought against an -13- indemnified person, the indemnifying person shall be entitled to participate therein, and, to the extent that it shall elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, shall be entitled to assume the defense thereof, with counsel reasonably satisfactory to such indemnified person. After notice from the indemnifying person to such indemnified person of its election to assume the defense thereof, such indemnifying person shall not be liable to such indemnified person for any legal expenses subsequently incurred by such indemnified person in connection with the defense thereof, provided, however, that if there exists or shall exist a conflict of interest that would make it inappropriate, in the opinion of counsel to the indemnified person, for the same counsel to represent both the indemnified person and such indemnifying person or any affiliate or associate thereof, the indemnified person shall be entitled to retain its own counsel at the expense of such indemnifying person; provided, however, that no indemnifying person shall be responsible for the fees and expenses of more than one separate counsel (together with appropriate local counsel) for all indemnified parties. In no event shall any indemnifying person be liable in respect of any amounts paid in settlement of any action unless the indemnifying person shall have approved the terms of such settlement; provided that such consent shall not be unreasonably withheld. No indemnifying person shall, without the prior written consent of the indemnified person, effect any settlement of any pending or threatened proceeding in respect of which any indemnified person is or could have been a party and indemnification could have been sought hereunder by such indemnified person, unless such settlement includes an unconditional release of such indemnified person from all liability on claims that are the subject matter of such proceeding. (e) If the indemnification provided for in this Section 7.3 is unavailable to or insufficient to hold harmless an indemnified party under subsection (a), (b) or (c) above in respect of any losses, claims, damages or liabilities (or actions or proceedings in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of the Company and the Current Stockholder on the one hand and the Investor, as well as any other Selling Shareholders under such registration statement, on the other in connection with the statements or omissions or other matters which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, in the case of an untrue statement, whether the untrue statement relates to information supplied by the Company or the Current Stockholder on the one hand or an Investor or other Selling Shareholder on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement. The Company, the Current Stockholder and the Investor agree that it would not be just and equitable if contribution pursuant to this subsection (e) were determined by pro rata allocation (even if the Investor and other Selling Shareholders were treated as one entity for such purpose) or by any other method of allocation which does not take into account the equitable considerations referred to above in this subsection (e). The amount paid or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (e) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (e), (1) the Investor shall not be required to contribute any amount in excess of the amount by which the net amount received by the Investor from the sale of the Shares to which such loss relates exceeds the amount of any damages which such Investor has otherwise been required to pay by reason of such untrue statement and (2) the Current Stockholder shall not be required to contribute any amount in excess of the amount by which the amount received by the Current Stockholder from the sale of the Current Stockholder Shares in the Offering exceeds the amount of any damages which such Current Stockholder has otherwise been required to pay Investors by reason of such untrue statement. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Investor's obligations in this subsection to contribute shall be in proportion to its Investor sale of Shares to which such loss relates and shall not be joint with any other Selling Shareholders. (f) The parties to this Agreement hereby acknowledge that they are sophisticated business persons who were represented by counsel during the negotiations regarding the provisions hereof including, without limitation, the provisions of this Section 7.3, and are fully informed regarding said provisions. They further acknowledge that the provisions of this Section 7.3 fairly allocate the risks in light of the ability of the parties to investigate the Company and its business in order to assure that adequate disclosure is made in the Registration Statement as required by the Act and the Exchange Act. The parties are advised that federal or state public policy as -14- interpreted by the courts in certain jurisdictions may be contrary to certain of the provisions of this Section 7.3, and the parties hereto hereby expressly waive and relinquish any right or ability to assert such public policy as a defense to a claim under this Section 7.3 and further agree not to attempt to assert any such defense. 7.4 Termination of Conditions and Obligations. The conditions precedent imposed by Section 5 or this Section 7 upon the transferability of the Shares shall cease and terminate as to any particular number of the Shares when such Shares shall have been effectively registered under the Securities Act and sold or otherwise disposed of in accordance with the intended method of disposition set forth in the Registration Statement covering such Shares or at such time as an opinion of counsel satisfactory to the Company shall have been rendered to the effect that such conditions are not necessary in order to comply with the Securities Act. 7.5 Information Available. So long as the Registration Statement is effective covering the resale of Shares owned by the Investor, the Company will furnish to the Investor: (a) as soon as reasonably practicable after it is available, one copy of (i) its Annual Report to Stockholders (which Annual Report shall contain financial statements audited in accordance with generally accepted accounting principles by a national firm of certified public accountants), (ii) its Annual Report on Form 10-K and (iii) its Quarterly Reports on Form 10-Q (the foregoing, in each case, excluding exhibits); (b) upon the request of the Investor, all exhibits excluded by the parenthetical to subparagraph (a) of this Section 7.5 as filed with the SEC (excluding any unredacted version of an exhibit subject to a pending confidential treatment request or an order granting such a request) and all other information that is made available to shareholders; and (c) upon the reasonable request of the Investor, an adequate number of copies of the Prospectuses to supply to any other party requiring such Prospectuses; and upon the reasonable request of the Investor, the President or the Chief Financial Officer of the Company (or an appropriate designee thereof) will meet with the Investor or a representative thereof at the Company's headquarters to discuss all information relevant for disclosure in the Registration Statement covering the Shares and will otherwise reasonably cooperate with any Investor conducting an investigation for the purpose of reducing or eliminating such Investor's exposure to liability under the Securities Act, including the reasonable production of information at the Company's headquarters; provided, that the Company shall not be required to disclose any confidential information to or meet at its headquarters with any Investor until and unless the Investor shall have entered into a confidentiality agreement in form and substance reasonably satisfactory to the Company with the Company with respect thereto. 8. Notices. All notices, requests, consents and other communications hereunder shall be in writing, shall be mailed (A) if within domestic United States by first-class registered or certified airmail, or nationally recognized overnight express courier, postage prepaid, or by facsimile, or (B) if delivered from outside the United States, by International Federal Express or facsimile, and shall be deemed given (i) if delivered by first-class registered or certified mail domestic, three business days after so mailed, (ii) if delivered by nationally recognized overnight carrier, one business day after so mailed, (iii) if delivered by International Federal Express, two business days after so mailed, (iv) if delivered by facsimile, upon electronic confirmation of receipt and shall be delivered as addressed as follows: (a) if to the Company, to: Abgenix, Inc. 7601 Dumbarton Circle Fremont, CA 94555 Attn: Chief Executive Officer -15- with a copy to: O'Melveny & Myers LLP Embarcadero Center West 275 Battery Street San Francisco, CA 94111 Attn: Peter T. Healy, Esq. (b) if to the Current Stockholder: Cell Genesys, Inc. 342 Lakeside Drive Foster City, CA 9404 Attn: Chief Executive Officer with a copy to: Wilson Sonsini Goodrich & Rosati 650 Page Mill Road Palo Alto, CA 94304 Attn: Herbert P. Fockler, Esq. (b) if to the Investor, at its address on the signature page hereto, or at such other address or addresses as may have been furnished to the Company in writing. 9. Changes. This Agreement may not be modified or amended except pursuant to an instrument in writing signed by the Company, the Current Stockholder and the Investor. 10. Headings. The headings of the various sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be part of this Agreement. 11. Severability. In case any provision contained in this Agreement should be invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. 12. Governing Law. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of Delaware, without giving effect to the principles of conflicts of law. 13. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall constitute an original, but all of which, when taken together, shall constitute but one instrument, and shall become effective when one or more counterparts have been signed by each party hereto and delivered to the other parties. 14. Rule 144. The Company covenants that it will file the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder (or, if the Company is not required to file such reports, it will, upon the request of any Investor holding Shares purchased hereunder made after the first anniversary of the Closing Date, make publicly available such information as necessary to permit sales pursuant to Rule 144 under the Securities Act), and it will take such further action as any such Investor may reasonably request, all to the extent required from time to time to enable such Investor to sell Shares purchased hereunder without registration under the Securities Act within the limitation of the exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the SEC. Upon the request of the Investor, the Company will deliver to such holder a written statement as to whether it has complied with such information and requirements. -16- 15. Confidential Information. The Investor represents to the Company that, at all times during the Company's offering of the Shares, the Investor has maintained in confidence all non-public information regarding the Company received by the Investor from the Company or its agents, and covenants that it will continue so maintain in confidence such information until such information becomes generally publicly available other than through a violation of this provision by the Investor or its agents. -17- ABGENIX, INC. INVESTOR QUESTIONNAIRE (ALL INFORMATION WILL BE TREATED CONFIDENTIALLY) To: Abgenix, Inc. 7601 Dumbarton Circle Fremont, CA 94555 This Investor Questionnaire ("Questionnaire") must be completed by each potential investor in connection with the offer and sale of the shares of the common stock, par value $0.0001 per share, of Abgenix, Inc. (the "Securities"). The Securities are being offered and sold by Abgenix, Inc. (the "Corporation") and Cell Genesys, Inc. (the "Current Stockholder") without registration under the Securities Act of 1933, as amended (the "Act"), and the securities laws of certain states, in reliance on the exemptions contained in Section 4(2) of the Act and on Regulation D promulgated thereunder and in reliance on similar exemptions under applicable state laws. The Corporation and the Current Stockholder must determine that a potential investor meets certain suitability requirements before offering or selling Securities to such investor. The purpose of this Questionnaire is to assure the Corporation and the Current Stockholder that each investor will meet the applicable suitability requirements. The information supplied by you will be used in determining whether you meet such criteria, and reliance upon the private offering exemption from registration is based in part on the information herein supplied. This Questionnaire does not constitute an offer to sell or a solicitation of an offer to buy any security. Your answers will be kept strictly confidential. However, by signing this Questionnaire you will be authorizing the Corporation and the Current Stockholder to provide a completed copy of this Questionnaire to such parties as the Corporation or the Current Stockholder deems appropriate in order to ensure that the offer and sale of the Securities will not result in a violation of the Act or the securities laws of any state and that you otherwise satisfy the suitability standards applicable to purchasers of the Securities. All potential investors must answer all applicable questions and complete, date and sign this Questionnaire. Please print or type your responses and attach additional sheets of paper if necessary to complete your answers to any item. A. BACKGROUND INFORMATION Name: --------------------------------------------------------------------------- Business Address: --------------------------------------------------------------- (Number and Street) - -------------------------------------------------------------------------------- (City) (State) (Zip Code) Telephone Number: (___) -------------------------------------------------------- Residence Address: -------------------------------------------------------------- (Number and Street) - -------------------------------------------------------------------------------- (City) (State) (Zip Code) -18- Telephone Number: (___) -------------------------------------------------------- If an individual: Age: Citizenship: Where registered to vote: --------- ------------ --- If a corporation, partnership, limited liability company, trust or other entity: Type of entity: ----------------------------------------------------------- State of formation: Date of formation: ----------------------- --- Social Security or Taxpayer Identification No. ---------------------------------- Send all correspondence to (check one): ____ Residence Address ____ Business Address B. STATUS AS ACCREDITED INVESTOR The undersigned is an institutional "accredited investor" as such term is defined in Regulation D under the Act, as at the time of the sale of the Securities the undersigned falls within one or more of the following categories (Please initial one or more, as applicable): ____ (1) a bank as defined in Section 3(a)(2) of the Act, or a savings and loan association or other institution as defined in Section 3(a)(5)(A) of the Act whether acting in its individual or fiduciary capacity; a broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934; an insurance company as defined in Section 2(13) of the Act; an investment company registered under the Investment Corporation Act of 1940 or a business development company as defined in Section 2(a)(48) of that Act; a Small Business Investment Corporation licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958; a plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions for the benefit of its employees, if such plan has total assets in excess of $5,000,000; an employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 if the investment decision is made by a plan fiduciary, as defined in Section 3(21) of such Act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with the investment decisions made solely by persons that are accredited investors; ____ (2) a private business development company as defined in Section 202(a)(22) of the Investment Adviser Act of 1940; ____ (3) an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the Securities offered, with total assets in excess of $5,000,000; ____ (4) a trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the Securities offered, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii) of Regulation D; and ____ (5) an entity in which all of the equity owners are accredited investors (as defined above). C. REPRESENTATIONS The undersigned hereby represents and warrants to the Corporation and the Current Stockholder as follows: 1. Any purchase of the Securities would be solely for the account of the undersigned and not for the account of any other person or with a view to any resale, fractionalization, division, or distribution thereof. -19- 2. The information contained herein is complete and accurate and may be relied upon by the Corporation and the Current Stockholder, and the undersigned will notify the Corporation and the Current Stockholder immediately of any material change in any of such information occurring prior to the closing, if any, with respect to the purchase of Securities by the undersigned or any co-purchaser. 3. There are no suits, pending litigation, or claims against the undersigned that could materially affect the net worth of the undersigned as reported in this Questionnaire. 4. The undersigned acknowledges that there may occasionally be times when the Corporation determines that it must suspend the use of the Prospectus forming a part of the Registration Statement (as such terms are defined in the Stock Purchase Agreement to which this Questionnaire is attached), as set forth in Section 7.2(c) of the Stock Purchase Agreement. The undersigned is aware that, in such event, the Securities will not be subject to ready liquidation, and that any Securities purchased by the undersigned would have to be held during such suspension. The overall commitment of the undersigned to investments which are not readily marketable is not excessive in view of the undersigned's net worth and financial circumstances, and any purchase of the Securities will not cause such commitment to become excessive. The undersigned is able to bear the economic risk of an investment in the Securities. 5. The undersigned has carefully considered the potential risks relating to the Corporation and a purchase of the Securities, and fully understands that the Securities are speculative investments which involve a high degree of risk of loss of the undersigned's entire investment. Among others, the undersigned has carefully considered each of the risks identified under the caption "Additional Factors That Might Affect Future Results" in the report dated June 30, 2000 filed by the Corporation on Form 10-Q with the U.S. Securities and Exchange Commission. IN WITNESS WHEREOF, the undersigned has executed this Questionnaire this _____ day of October, 2000, and declares under oath that it is truthful and correct. Print Name By: ----------------------------------- Signature Title: -------------------------------- (required for any purchaser that is a corporation, partnership, trust or other entity) -20- [Company Letterhead] _________, 2000 Re: Abgenix, Inc.; Registration Statement Dear Selling Shareholder: Enclosed please find five (5) copies of a prospectus dated ______________, ____ (the "Prospectus") for your use in reselling your shares of common stock, $0.0001 par value (the "Shares"), of Abgenix, Inc. (the "Company"), under the Company's Registration Statement (Registration No. 333- ) (the "Registration Statement"), which has been declared effective by the Securities and Exchange Commission. As a selling shareholder under the Registration Statement, you have an obligation to deliver a copy of the Prospectus to each purchaser of your Shares, either directly or through the broker-dealer who executes the sale of your Shares. The Company is obligated to notify you in the event that it suspends trading under the Registration Statement in accordance with the terms of the Stock Purchase Agreement between the Company, Cell Genesys, Inc. and you. During the period that the Registration Statement remains effective and trading thereunder has not been suspended, you will be permitted to sell your Shares which are included in the Prospectus under the Registration Statement. Upon a sale of any Shares under the Registration Statement, you or your broker will be required to deliver to the Transfer Agent, ChaseMellon Shareholder Services, L.L.C. (1) your restricted stock certificate(s) representing the Shares, (2) instructions for transfer of the Shares sold, and (3) a representation letter from your broker, or from you if you are selling in a privately negotiated transaction, or from such other appropriate party, in the form of Exhibit A attached hereto (the "Representation Letter"). The Representation Letter confirms that the Shares have been sold pursuant to the Registration Statement and in a manner described under the caption "Plan of Distribution" in the Prospectus and that such sale was made in accordance with all applicable securities laws, including the prospectus delivery requirements. Please note that you are under no obligation to sell your Shares during the registration period. However, if you do decide to sell, you must comply with the requirements described in this letter or otherwise applicable to such sale. Your failure to do so may result in liability under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. Please remember that all sales of your Shares must be carried out in the manner set forth under the caption "Plan of Distribution" in the Prospectus if you sell under the Registration Statement. The Company may require an opinion of counsel reasonably satisfactory to the Company if you choose another method of sale. You should consult with your own legal advisor(s) on an ongoing basis to ensure your compliance with the relevant securities laws and regulations. In order to maintain the accuracy of the Prospectus, you must notify the undersigned upon the sale, gift, or other transfer of any Shares by you, including the number of Shares being transferred, and in the event of any other change in the information regarding you which is contained in the Prospectus. For example, you must notify the undersigned if you enter into any arrangement with a broker-dealer for the sale of shares through a block trade, special offering, exchange distribution or secondary distribution or a purchase by a broker-dealer. Depending on the circumstances, such transactions may require the filing of a supplement to the prospectus in order to update the information set forth under the caption "Plan of Distribution" in the Prospectus. -21- Should you need any additional copies of the Prospectus, or if you have any questions concerning the foregoing, please write to me at Abgenix, Inc., 7601 Dumbarton Circle, Fremont, CA 94555. Thank you. Sincerely, Chief Financial Officer -22- Exhibit A CERTIFICATE OF SUBSEQUENT SALE ChaseMellon Shareholder Services, L.L.C. 235 Montgomery Street, 23rd Floor San Francisco, CA 94101 Tel: (415) 743-1444 Attention: Asa Drew RE: Sale of Shares of Common Stock of Abgenix, Inc. (the "Company") pursuant to the Company's Prospectus dated _____________, ____ (the "Prospectus") Dear Sir/Madam: The undersigned hereby certifies, in connection with the sale of shares of Common Stock of the Company included in the table of Selling Shareholders in the Prospectus, that the undersigned has sold the shares pursuant to the Prospectus and in a manner described under the caption "Plan of Distribution" in the Prospectus and that such sale complies with all securities laws applicable to the undersigned, including, without limitation, the Prospectus delivery requirements of the Securities Act of 1933, as amended. Selling Shareholder (the beneficial owner): Record Holder (e.g., if held in name of nominee): ------------------------------ Restricted Stock Certificate No.(s): ------------------------------------------- Number of Shares Sold: --------------------------------------------------------- Date of Sale: ------------------------------------------------------------------ In the event that you receive a stock certificate(s) representing more shares of Common Stock than have been sold by the undersigned, then you should return to the undersigned a newly issued certificate for such excess shares in the name of the Record Holder and BEARING A RESTRICTIVE LEGEND. Further, you should place a stop transfer on your records with regard to such certificate. Very truly yours, Dated: By: ----------------------------- ---------------------------- Print Name: -------------------- Title: ------------------------- cc: Abgenix, Inc. 7601 Dumbarton Circle Fremont, CA 94555 Attn: Chief Financial Officer -23- -----END PRIVACY-ENHANCED MESSAGE-----