EXCHANGE AND PURCHASE AGREEMENT
(Restricted Convertible Notes)
 
_________________________ (including any other persons or entities exchanging
Existing Notes (as defined below) or purchasing New Notes (as defined below)
hereunder for whom the undersigned Holder holds contractual and investment
authority, the “Holder”) enters into this Exchange and Purchase Agreement (the
“Agreement”) with PDL BioPharma, Inc., a Delaware corporation (the “Company”),
on _____, 2010 whereby the Holder will (a)  exchange (the “Exchange”) the
Company’s 2.00% Convertible Senior Notes due 2012 (the “Existing Notes”) for a
portion of the Company’s new ______% Convertible Senior Notes due 2015 (the “New
Notes”) that will be issued pursuant to the provisions of an Indenture dated as
of ____________, 2010 (the “Indenture”) between the Company and The Bank of New
York Mellon Trust Company, N.A., as Trustee (the “Trustee”), and (b) purchase
for cash (the “Purchase”) an additional portion of the New Notes.
 
On and subject to the terms hereof, the parties hereto agree as follows:
 
Article I:  Exchange of Existing Notes and Purchase of New Notes
 
Section 1.1           Exchange.  At the Closing (as defined herein), the Holder
hereby agrees to exchange and deliver to the Company the following Existing
Notes, and in exchange therefor the Company hereby agrees to issue to the Holder
the principal amount of New Notes described below and to pay in cash the
following accrued but unpaid interest on such Existing Notes:
 
Principal Amount of Existing Notes to be Exchanged:
$
 
  (the “Exchanged Existing Notes”).

Principal Amount of New Notes to be Issued in the Exchange:
$
    (the “Exchanged New Notes”). 

Cash Payment of Accrued but Unpaid Interest on Exchanged Existing Notes:
$
 
  (the “Cash Payment”).

 
Section 1.2           Purchase.  At the Closing (as defined herein), the Holder
hereby agrees to purchase from the Company, and the Company hereby agrees to
issue and sell to the Holder, the following principal amount of the Notes for
the cash purchase price specified below:
 
Principal Amount of Notes to be Purchased:
$                                                                                                          
 
(the “Purchased New Notes”)
   
Purchase Price for Purchased New Notes:
______% of the principal amount of the Purchased New
Notes ($                                             ) (the “Purchase Price”).

 
Section 1.3           Closing.  The closing (the “Closing”) of the Exchange and
Purchase (collectively, the “Transactions”) shall occur on a date (the “Closing
Date”) no later than three business days after the date of this Agreement.  At
the Closing, (a) the Holder shall deliver or cause to be delivered to the
Company all right, title and interest in and to the Exchanged Existing Notes
free and clear of any mortgage, lien, pledge, charge, security interest,
encumbrance, title retention agreement, option, equity or other adverse claim
thereto (collectively, “Liens”), together with any documents of conveyance or
transfer that the Company may deem necessary or desirable to transfer to and
confirm in the Company all right, title and interest in and to the Exchanged
Existing Notes free and clear of any Liens and the Purchase Price, and (b) the
Company shall issue to the Holder the Exchanged New Notes and the Purchased New
Notes (collectively, the “Holder’s New Notes”) and shall deliver to the Holder
the Cash Payment; provided, however, that the parties acknowledge that the
issuance of the Holder’s New Notes to the Holder may be delayed due to
procedures and mechanics within the system of the Depository Trust Company and
that such delay will not be a default under this Agreement so long as (i) the
Company is using its best efforts to effect the issuance of one or more global
notes representing the New Notes, (ii) such delay is no longer than three
business days, and (iii) interest shall accrue on such New Notes from the
Closing Date.  Simultaneously with or after the Closing, the Company may issue
New Notes to one or more other holders of outstanding Existing Notes or to other
investors.

 
 

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Article II:  Covenants, Representations and Warranties of the Holder
 
The Holder hereby covenants as follows, and makes the following representations
and warranties, each of which is and shall be true and correct on the date
hereof and on the Closing Date, to the Company, Lazard Frères & Co. LLC and
Lazard Capital Markets LLC, and all such covenants, representations and
warranties shall survive the Closing.
 
Section 2.1           Power and Authorization.  The Holder is duly organized,
validly existing and in good standing, and has the power, authority and capacity
to execute and deliver this Agreement, to perform its obligations hereunder, and
to consummate the Transactions contemplated hereby.  If the Holder that is
signatory hereto is executing this Agreement to effect the exchange of Exchanged
Existing Notes beneficially owned by one or more other persons or entities or to
effect the purchase of the Purchased New Notes by one or more other persons or
entities (all of whom are thus included in the definition of “Holder”
hereunder), (a) such signatory Holder has all requisite discretionary authority
to enter into this Agreement on behalf of, and bind, each such other person or
entity that is a beneficial owner of Exchanged Existing Notes or that is
purchasing Purchased New Notes; (b) Exhibit A hereto is a true, correct and
complete list of (i) the name of each party delivering (as beneficial owner)
Exchanged Existing Notes hereunder, (ii) the principal amount of such Holder’s
Exchanged Existing Notes, (iii) the principal amount of Exchanged New Notes to
be issued to such Holder in respect of its Exchanged Existing Notes, and
(iv) the amount of the cash payment to be made to such Holder in respect of the
accrued interest on its Exchanged Existing Notes; and (c) Exhibit B hereto is a
true, correct and complete list of (i) the name of each party acquiring (as
beneficial owner) Purchased New Notes hereunder, and (ii) the principal amount
of Purchased New Notes being acquired by such Holder.
 
Section 2.2           Valid and Enforceable Agreement; No Violations.  This
Agreement has been duly executed and delivered by the Holder and constitutes a
legal, valid and binding obligation of the Holder, enforceable against the
Holder in accordance with its terms, except that such enforcement may be subject
to (a) bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium
or other similar laws affecting or relating to enforcement of creditors’ rights
generally, and (b) general principles of equity, whether such enforceability is
considered in a proceeding at law or in equity (the “Enforceability
Exceptions”).  This Agreement and consummation of the Transactions will not
violate, conflict with or result in a breach of or default under (i) the
Holder’s organizational documents, (ii) any agreement or instrument to which the
Holder is a party or by which the Holder or any of its assets are bound, or
(iii) any laws, regulations or governmental or judicial decrees, injunctions or
orders applicable to the Holder.
 
Section 2.3           Title to the Exchanged Existing Notes.  The Holder is the
sole legal and beneficial owner of the Exchanged Existing Notes, and the Holder
has good, valid and marketable title to the Exchanged Existing Notes, free and
clear of any Liens (other than pledges or security interests that the Holder may
have created in favor of a prime broker under and in accordance with its prime
brokerage agreement with such broker).  The Holder has not, in whole or in part,
except as described in the preceding sentence, (a) assigned, transferred,
hypothecated, pledged, exchanged or otherwise disposed of any of the Exchanged
Existing Notes or its rights in the Exchanged Existing Notes, or (b) given any
person or entity any transfer order, power of attorney or other authority of any
nature whatsoever with respect to the Exchanged Existing Notes.  Upon the
Holder’s delivery of the Exchanged Existing Notes to the Company pursuant to the
Exchange, the Exchanged Existing Notes shall be free and clear of all Liens
created by the Holder.
 
Section 2.4           Qualified Institutional Buyer.  The Holder is a “qualified
institutional buyer” within the meaning of Rule 144A promulgated under the
Securities Act of 1933, as amended (the “Securities Act”).

 
 

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Section 2.5           No Affiliate Status.  The Holder is not, and has not been
during the consecutive three month period preceding the date hereof, a director,
officer or “affiliate” within the meaning of Rule 144 promulgated under the
Securities Act (an “Affiliate”) of the Company.
 
Section 2.6           Restricted Stock.  The Holder (a) acknowledges that the
issuance of all the Holder’s New Notes pursuant to the Transactions (whether in
the Exchange or the Purchase), and the issuance of any of the shares of the
Company’s common stock, par value $0.01 per share (the “Common Stock”), upon
conversion of the Holder’s New Notes (the “Conversion Shares”), have not been
and will not be registered under the Securities Act or any state securities
laws, and the Holder’s New Notes and Conversion Shares are being offered and
sold in reliance upon exemptions provided in the Securities Act and state
securities laws for transactions not involving any public offering and,
therefore, cannot be sold, transferred, offered for sale, pledged, hypothecated
or otherwise disposed of unless they are subsequently registered and qualified
under the Securities Act and applicable state laws or unless an exemption from
such registration and qualification is available, and that evidence of the
Holder’s New Notes and Conversion Shares will bear a legend to such effect, and
(b) is acquiring the Holder’s New Notes and Conversion Shares for investment
purposes only, for the account of the Holder and not with any view toward a
distribution thereof or with any intention of selling, distributing or otherwise
disposing of the Holder’s New Notes or Conversion Shares in a manner that would
violate the registration requirements of the Securities Act.  The Holder is able
to bear the economic risk of holding the Holder’s New Notes and Conversion
Shares for an indefinite period and has sufficient knowledge and experience in
financial and business matters so as to be capable of evaluating the merits and
risks of its investment in the Holder’s New Notes and Conversion Shares.
 
Section 2.7           No Illegal Transactions.  The Holder has not, directly or
indirectly, and no person acting on behalf of or pursuant to any understanding
with the Holder has, engaged in any transactions in the securities of the
Company (including, without limitation, any Short Sales (as defined below)
involving any of the Company’s securities) since the time that such Holder was
first contacted by either the Company, Lazard Frères & Co. LLC or Lazard Capital
Markets LLC or any other person regarding an investment in the New Notes or the
Company.  Such Holder covenants that neither it nor any person acting on its
behalf or pursuant to any understanding with such Holder will engage, directly
or indirectly, in any transactions in the securities of the Company (including
Short Sales) prior to the time the transactions contemplated by this Agreement
are publicly disclosed.  “Short Sales” include, without limitation, all “short
sales” as defined in Rule 200 of Regulation SHO promulgated under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), and all types of direct
and indirect stock pledges, forward sale contracts, options, puts, calls, short
sales, swaps, derivatives and similar arrangements (including on a total return
basis), and sales and other transactions through non-U.S. broker-dealers or
foreign regulated brokers.  Solely for purposes of this Section 2.7, subject to
the Holder's compliance with its obligations under the U.S. federal securities
laws and the Holder's internal policies, “Holder” shall not be deemed to include
any subsidiaries or affiliates of the Holder that are effectively walled off by
appropriate “Chinese Wall” information barriers approved by the Holder's legal
or compliance department (and thus have not been privy to any information
concerning the Transactions).
 
Section 2.8           Adequate Information; No Reliance. The Holder acknowledges
and agrees that (a) the Holder has been furnished with all materials it
considers relevant to making an investment decision to enter into the
Transactions and to invest in the Holder’s New Notes and Conversion Shares and
has had the opportunity to review the Company’s filings with the Securities and
Exchange Commission (the “SEC”), including, without limitation, all filings made
pursuant to the Exchange Act, (b) the Holder has had a full opportunity to ask
questions of the Company concerning the Company, its business, operations,
financial performance, financial condition and prospects, and the terms and
conditions of the Transactions, (c) the Holder has had the opportunity to
consult with its accounting, tax, financial and legal advisors to be able to
evaluate the risks involved in the Transactions and to make an informed
investment decision with respect to the Transactions and (d) the Holder is not
relying, and has not relied, upon any statement, advice (whether accounting,
tax, financial, legal or other), representation or warranty made by the Company
or any of its affiliates or representatives including, without limitation,
Lazard Frères & Co. LLC and Lazard Capital Markets LLC, except for (A) the
publicly available filings made by the Company with the SEC under the Exchange
Act, and (B) the representations and warranties made by the Company in this
Agreement.

 
 

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Section 2.9           No Public Market. The Holder understands that no public
market exists for the New Notes, and that there is no assurance that a public
market will ever develop for the New Notes.
 
Article III:  Covenants, Representations and Warranties of the Company
 
The Company hereby covenants as follows, and makes the following representations
and warranties, each of which is and shall be true and correct on the date
hereof and on the Closing Date, to the Holder, Lazard Frères & Co. LLC and
Lazard Capital Markets LLC, and all such covenants, representations and
warranties shall survive the Closing.
 
Section 3.1           Power and Authorization.  The Company is duly
incorporated, validly existing and in good standing under the laws of its state
of incorporation, and has the power, authority and capacity to execute and
deliver this Agreement and the Indenture, to perform its obligations hereunder
and thereunder, and to consummate the Transactions contemplated hereby.
 
Section 3.2           Valid and Enforceable Agreements; No Violations.  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, except that such enforcement may be
subject to the Enforceability Exceptions.  At the Closing, the Indenture,
substantially in the form of Exhibit C hereto, will have been duly executed and
delivered by the Company and will govern the terms of the Holder’s New Notes,
and will constitute a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except that such
enforcement may be subject to the Enforceability Exceptions.  This Agreement,
the Indenture and consummation of the Transactions will not violate, conflict
with or result in a breach of or default under (i) the charter, bylaws or other
organizational documents of the Company, (ii) any agreement or instrument to
which the Company is a party or by which the Company or any of its assets are
bound, or (iii) any laws, regulations or governmental or judicial decrees,
injunctions or orders applicable to the Company
 
Section 3.3           Validity of the Holder’s New Notes.  The Holder’s New
Notes have been duly authorized by the Company and, when executed and
authenticated in accordance with the provisions of the Indenture and delivered
to the Holder pursuant to the Transactions against delivery of the Exchanged
Existing Notes and payment of the Purchase Price in accordance with the terms of
this Agreement, the Holder’s New Notes will be valid and binding obligations of
the Company, enforceable in accordance with their terms, except that such
enforcement may be subject to the Enforceability Exceptions, and the issuance of
the Holder’s New Notes will not be subject to any preemptive, participation,
rights of first refusal and other similar rights.  Assuming the accuracy of the
Holder’s representations and warranties hereunder, the Holder’s New Notes
(a) will be issued in the Transactions exempt from the registration requirements
of the Securities Act pursuant to Section 4(2) of the Securities Act and Rule
506 of Regulation D promulgated under the Securities Act, and (b) will be issued
in compliance with all applicable state and federal laws concerning the issuance
of the Holder’s New Notes.
 
Section 3.4           Validity of Underlying Common Stock .  The Holder’s New
Notes will be convertible into the Conversion Shares in accordance with the
terms of the Indenture.  The Conversion Shares have been duly authorized and
reserved by the Company for issuance upon conversion of the Holder’s New Notes
and, when issued upon conversion of the Holder’s New Notes in accordance with
the terms of the Holder’s New Notes and the Indenture, will be validly issued,
fully paid and non-assessable, and the issuance of the Conversion Shares will
not be subject to any preemptive, participation, rights of first refusal and
other similar rights.
 
Section 3.5           Listing Approval.  At the Closing Date, the Conversion
Shares shall be listed on the NASDAQ Stock Market.
 
Section 3.6           Disclosure.  On or before the first business day following
the date of this Agreement, the Company shall issue a publicly available press
release or file with the SEC a Current Report on Form 8-K disclosing all
material terms of the Transactions and certain other matters concerning the
Company (to the extent not previously publicly disclosed).

 
 

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Article IV:  Miscellaneous
 
Section 4.1           Entire Agreement.  This Agreement and any documents and
agreements executed in connection with the Transactions embody the entire
agreement and understanding of the parties hereto with respect to the subject
matter hereof and supersede all prior and contemporaneous oral or written
agreements, representations, warranties, contracts, correspondence,
conversations, memoranda and understandings between or among the parties or any
of their agents, representatives or affiliates relative to such subject matter,
including, without limitation, any term sheets, emails or draft documents.
 
Section 4.2           Construction.  References in the singular shall include
the plural, and vice versa, unless the context otherwise requires.  References
in the masculine shall include the feminine and neuter, and vice versa, unless
the context otherwise requires.  Headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meanings of the
provisions hereof.  Neither party, nor its respective counsel, shall be deemed
the drafter of this Agreement for purposes of construing the provisions of this
Agreement, and all language in all parts of this Agreement shall be construed in
accordance with its fair meaning, and not strictly for or against either party.
 
Section 4.3           Governing Law.  This Agreement shall in all respects be
construed in accordance with and governed by the substantive laws of the State
of New York, without reference to its choice of law rules.
 
Section 4.4           Counterparts.  This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.  Any counterpart or other
signature hereon delivered by facsimile shall be deemed for all purposes as
constituting good and valid execution and delivery of this Agreement by such
party.
 
 [Signature Page Follows]

 
 

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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed as of the date first above written.

“HOLDER”:
 
“COMPANY”:
     
   
 
PDL BIOPHARMA, INC.
     
By:
   
 
By:
   
     
Name:
   
 
Name:
   
     
Title:
   
  
Title:
   

 
 

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EXHIBIT A
Exchanging Beneficial Owners

Name of
Beneficial Owner
 
Principal Amount 
of Exchanged 
Existing Notes
 
Principal Amount of
Exchanged New Notes
 
Cash Interest Payment
                             
  
 
  
 
  
 

 
 

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EXHIBIT B
Purchasing Beneficial Owners

Name of
Beneficial Owner
 
Principal Amount of
Purchased New Notes 
                 

 
 

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EXHIBIT C
Form of Indenture

 
 

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