EXCHANGE AGREEMENT
 
___________________ (including any other persons or entities exchanging Existing
Notes hereunder for whom the undersigned Holder holds contractual and investment
authority, the “Holder”) enters into this Exchange Agreement (the “Agreement”)
with PDL BioPharma, Inc. (the “Company”) on ___________, 2010 whereby the Holder
will exchange (the “Exchange”) the Company’s 2.00% Convertible Senior Notes due
2012 (the “Existing Notes”) for 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”).
 
On and subject to the terms hereof, the parties hereto agree as follows:
 
Article I:  Exchange of the Existing Notes for New Notes
 
Subject to the terms set forth in this Agreement 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 Notes”).

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

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

 
The closing of the Exchange (the “Closing”) 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 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 Notes free and
clear of any Liens, and (b) the Company shall issue to the Holder 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 date of the Indenture.  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, subject to the terms of the
Indenture.
 
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 at the Closing, to the Company, Lazard Frères & Co. LLC and Lazard
Capital Markets LLC, and all such covenants, representations and warranties
shall survive the Closing.

 
 

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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 Exchange contemplated hereby.  If the Holder that is signatory
hereto is executing this Agreement to effect the exchange of Exchanged Notes
beneficially owned by one or more other persons or entities (who are thus
included in the definition of “Holder” hereunder), (a) such signatory Holder has
all requisite discretionary and contractual authority to enter into this
Agreement on behalf of, and bind, each such other person or entity that is a
beneficial owner of Exchanged Notes, and (b) Exhibit A hereto is a true, correct
and complete list of (i) the name of each party delivering (as beneficial owner)
Exchanged Notes hereunder, (ii) the principal amount of such Holder’s Exchanged
Notes, (iii) the principal amount of Holder’s New Notes to be issued to such
Holder in respect of its Exchanged Notes, and (iv) the amount of the cash
payment to be made to such Holder in respect of the accrued interest on its
Exchanged Notes.
 
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 Exchange 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 Notes.  The Holder is the sole legal
and beneficial owner of the Exchanged Notes.  The Holder has good, valid and
marketable title to the Exchanged 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 Notes or its rights in
the Exchanged 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 Notes.  Upon the Holder’s delivery of the Exchanged Notes to the
Company pursuant to the Exchange, the Exchanged Notes shall be free and clear of
all Liens created by the Holder.
 
Section 2.4         Accredited Investor.  The Holder is an “accredited investor”
within the meaning of Rule 501 of Regulation D (“Regulation D”) promulgated
under the Securities Act of 1933, as amended (the “Securities Act”).
 
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.  To its knowledge, the Holder
did not acquire any of the Exchanged Notes, directly or indirectly, from an
Affiliate of the Company.
 
Section 2.6         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 2.6, 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 Exchange).

 
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Section 2.7         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 Exchange
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 Exchange, (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 exchange of the Existing Notes pursuant hereto and to
make an informed investment decision with respect to such Exchange 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.
 
Section 2.8         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 at the Closing, 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 Exchange 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 B hereto, will have been duly executed and
delivered by the Company and will govern the terms of the New Notes, and the
Indenture 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 Exchange 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.

 
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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 Exchange against delivery of the Exchanged Notes
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 or 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 Exchange exempt from
the registration requirements of the Securities Act pursuant to Section 4(2) of
the Securities Act and Rule 506 of Regulation D, (b) will be free of any
restrictions on resale by the Holder pursuant to Rule 144 promulgated under the
Securities Act, and (c) 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 shares of the Company’s common stock, par value $0.01
per share (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 or 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 Exchange and certain other matters concerning the Company
(to the extent not previously publicly disclosed).
 
Article IV:  Miscellaneous
 
Section 4.1         Entire Agreement.  This Agreement and any documents and
agreements executed in connection with the Exchange 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:
 

 
Signature Pages to Exchange Agreement
[Name of Holder]

 
 

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EXHIBIT A
Exchanging Beneficial Owners

Name of
Beneficial Owner
 
Principal Amount of
Exchanged Notes
 
Principal Amount of
Holder’s New Notes 
 
Cash Interest Payment
                                         

 
 
 

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EXHIBIT B
Form of Indenture

 
 

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