Exhibit 1

                                  VASOGEN INC.

                            2505 Meadowvale Boulevard
                              Mississauga, Ontario
                                     L5N 5S2
                                     CANADA

                                      2005

                             ANNUAL INFORMATION FORM

                               (February 21, 2006)

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                                TABLE OF CONTENTS

                                                                            Page

FORWARD-LOOKING INFORMATION...................................................2
CORPORATE STRUCTURE...........................................................3
GENERAL DEVELOPMENT OF THE BUSINESS...........................................3
DESCRIPTION OF THE BUSINESS...................................................4
   SUMMARY....................................................................4
   PRODUCTS AND MARKETS.......................................................4
   SCIENTIFIC ADVISORY BOARD..................................................8
   COMPETITIVE ENVIRONMENT....................................................9
   MANUFACTURING.............................................................10
   INTELLECTUAL PROPERTY.....................................................10
   REGULATORY REQUIREMENTS...................................................10
   ENVIRONMENTAL PROTECTION..................................................12
   EMPLOYEES.................................................................12
   FACILITIES................................................................12
   ROYALTIES.................................................................12
   STRATEGIC ALLIANCES.......................................................12
   BANKRUPTCIES AND REORGANIZATIONS..........................................13
   CODES OF CONDUCT..........................................................13
RISK FACTORS.................................................................13
RISKS RELATING TO OUR SECURITIES.............................................21
DIVIDENDS....................................................................23
CAPITAL STRUCTURE............................................................24
DESCRIPTION OF THE NOTES.....................................................24
DESCRIPTION OF THE WARRANTS ISSUED ON THE PRIVATE PLACEMENT OF NOTES.........25
MARKET FOR SECURITIES........................................................26
ESCROWED SECURITIES..........................................................26
DIRECTORS AND OFFICERS.......................................................27
   COMPENSATION, NOMINATING, AND CORPORATE GOVERNANCE COMMITTEE..............29
   AUDIT COMMITTEE...........................................................29
LEGAL PROCEEDINGS............................................................37
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS...................37
TRANSFER AGENTS AND REGISTRARS...............................................38
MATERIAL CONTRACTS...........................................................38
INTERESTS OF EXPERTS.........................................................38
ADDITIONAL INFORMATION.......................................................39

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                           FORWARD-LOOKING INFORMATION

Certain  statements   contained  in  this  annual  information  form  constitute
"forward-looking  statements"  within the meaning of the United  States  Private
Securities Litigation Reform Act of 1995.

These  statements  include,   without  limitation,   statements  concerning  our
strategy,  future  operations,   future  financial  position,  future  revenues,
projected costs, prospects,  plans and objectives of management.  In some cases,
you can  identify  forward-looking  statements  by  terminology  such as  "may",
"will", "should", "expects", "plans",  "anticipates",  "believes",  "estimated",
"predicts", "potential", "continue", "intends", "could", or the negative of such
terms or other  comparable  terminology.  You should not place undue reliance on
our forward-looking statements.  Forward-looking statements,  particularly those
concerning  anticipated  events relating to the  development,  clinical  trials,
regulatory  approval,  and marketing of our products and the timing or magnitude
of those events, are inherently risky and uncertain. The factors discussed below
and other considerations  discussed in the "Risk Factors" section of this annual
information  form could cause our actual  results to differ  significantly  from
those contained in any forward-looking statements.

In this report,  "we," "us," and "our" refer to Vasogen Inc.  ("Vasogen" or "the
Company") and its subsidiaries.

Specifically,  this annual  information  form and the documents  incorporated by
reference in this annual  information  form contain  forward-looking  statements
regarding:

            o     our plan to complete and report the results of clinical trials
                  of our  Celacade(TM)  technology  for the treatment of chronic
                  heart failure ("HF") and peripheral arterial disease ("PAD");

            o     our  plan to  continue  preclinical  development  of  VP025 in
                  models of neuro-inflammatory disease;

            o     our intention to continue the clinical development of VP025;

            o     our  intention  to seek  regulatory  approvals  in the  United
                  States and Canada for our products; and

            o     our  intention  to seek  corporate  alliances  to support  the
                  commercialization of our products.

Such forward-looking statements involve known and unknown risks,  uncertainties,
and  other  factors  that  may  cause  our  actual  results,   performance,   or
achievements  to differ  materially  from any future  results,  performance,  or
achievements expressed or implied by such forward-looking statements.  Important
factors  that could cause such  differences  include,  among other  things,  the
following:

            o     the need for  additional  capital  and the  effect of  capital
                  market conditions and other factors on capital availability;

            o     difficulties,  delays,  or failures we may  experience  in the
                  conduct of and reporting the results of our clinical trials of
                  our Celacade technology for chronic HF and PAD;

            o     difficulties,  delays,  or failures we may  experience  in our
                  further investigation of the impact of VP025 on several models
                  of neuro-inflammatory disease;

            o     difficulties,  delays,  or failures we may  experience  in the
                  conduct of clinical  trials for VP025 and the  commencement of
                  further clinical trials for VP025;

            o     difficulties,  delays,  or  failures in  obtaining  regulatory
                  approvals  for the  initiation  of clinical  trials or for our
                  products;

            o     difficulties,  delays,  or  failures in  obtaining  regulatory
                  approvals to market our products;

            o     difficulties  we may experience in completing the  development
                  of, and  commercializing,  our Celacade  technology to address
                  the treatment of chronic HF and PAD;

            o     insufficient acceptance of and demand for our products;

            o     difficulties,  delays,  or failures in  obtaining  appropriate
                  reimbursement for our products; and

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            o     difficulties we may experience in identifying and successfully
                  securing  appropriate   corporate  alliances  to  support  the
                  commercialization of our products.

Although  we believe  that the  expectations  reflected  in the  forward-looking
statements  are  reasonable,  we  cannot  guarantee  future  results,  levels of
activity,  performance,  or achievements.  We are under no duty to update any of
the forward-looking  statements  contained in this annual information form after
the  date of  this  annual  information  form to  conform  such  forward-looking
statements to our actual results.

As used herein, unless otherwise stated, the terms "quarter", "half", and "year"
refer to  calender  quarter,  half,  and year,  respectively.  Unless  otherwise
stated, the information  contained herein is at November 30, 2005. Celacade is a
registered or unregistered  trademark of Vasogen Ireland Limited, and is used by
permission by Vasogen Inc.

                               CORPORATE STRUCTURE

Vasogen Inc. was incorporated under the Business  Corporations Act (Ontario) and
was continued  under the Canada  Business  Corporations  Act by certificate  and
articles  of  continuance  dated  August  9,  1999.  We  have  two-wholly  owned
subsidiaries:  Vasogen,  Corp.,  incorporated  under the laws of  Delaware,  and
Vasogen Ireland Limited, incorporated under the laws of the Republic of Ireland.
Vasogen Ireland Limited owns certain of our intellectual property related to our
products and  technologies.  Our registered  principal office is located at 2505
Meadowvale Boulevard,  Mississauga,  Ontario, Canada L5N 5S2. We are currently a
"reporting  issuer" in all of the  provinces  and  territories  of  Canada.  Our
telephone  number is (905) 817-2000 and our facsimile  number is (905) 607-6147.
Our website is www.vasogen.com. Any information contained on our website is not,
and will be deemed not to be,  incorporated  herein by  reference.  All currency
figures herein are in Canadian dollars, unless otherwise noted.

                      GENERAL DEVELOPMENT OF THE BUSINESS

We are  focused on the  research  and  commercial  development  of  technologies
targeting the chronic  inflammation  underlying  cardiovascular and neurological
disease.  We are currently in the final stages of  completing  two pivotal phase
III clinical programs utilizing our lead product, the Celacade technology. These
trials  are  designed  to  support  regulatory  approval  in North  America  and
commercialization  in North  America  and  Europe.  The  550-patient  phase  III
SIMPADICO trial, which was closed out early on August 30th, 2005, is a 50-center
North  American study  designed to further  investigate  the use of our Celacade
technology  to  improve  intermittent   claudication,   a  debilitating  symptom
associated with peripheral arterial disease. The 2,400-patient phase III ACCLAIM
trial is a 176-center  international  study designed to further  investigate the
use of our Celacade  technology to reduce the risk of death and  hospitalization
in patients with advanced  chronic heart failure.  We are also  developing a new
class of drugs for the treatment of neuro-inflammatory  disorders.  VP025 is the
lead product candidate from this new class of drugs.

We manage the development and manufacture of our products for use in preclinical
and clinical research and we continue to advance our product development program
to support future commercial scale production.  Patent applications are filed to
protect our products and processes. Our policy is to file patent applications to
protect  inventions,  technology,  and  improvements  that are  important to the
development  of  our  business  and  with  respect  to  the  application  of our
technologies to the treatment of a number of disease indications. We own patents
and patent applications  relating to our products and technologies in the United
States,  Canada,  and other  jurisdictions  around the world.  We may  establish
corporate  alliances,  primarily to support marketing and sales of our products,
in the United States, Canada, and elsewhere. We expect that the primary point of
use of our Celacade technology will be the hospital clinic and/or cardiology and
interventional  cardiology practices.  To develop a potential secondary point of
use of our Celacade  technology,  in 2001 we entered  into a strategic  alliance
with Quest Diagnostics  Incorporated  ("Quest  Diagnostics") of New Jersey. This
secondary point of use may be used in the future to facilitate referrals outside
hospital  clinics and cardiology  practices in the United States on an exclusive
basis. See "Quest Diagnostics Strategic Alliance".

Over the past three fiscal years, we have raised  approximately  $213 million in
net proceeds from the issuance of debt and equity  securities to investors,  and
through the exercise of options and warrants. Our common shares are

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listed on the Toronto Stock  Exchange  under the symbol "VAS" and are quoted for
trading on the NASDAQ National Market under the symbol "VSGN".

                          Vasogen Development Pipeline

Product Candidate       Indication                         Developmental Stage
Celacade technology     Peripheral Arterial Disease        Phase III*
Celacade technology     Chronic Heart Failure              Phase III*

VP025                   Neuro-inflammatory Diseases        Phase I completed

*Phase  III  clinical  trials are  multi-center  studies  undertaken  to confirm
efficacy and safety in large patient groups.

                           DESCRIPTION OF THE BUSINESS

SUMMARY

We are  focused on the  research  and  commercial  development  of  technologies
targeting the chronic  inflammation  underlying  cardiovascular and neurological
disease.  We are currently in the final stages of  completing  two pivotal phase
III clinical programs utilizing our lead product, the Celacade technology. These
trials  are  designed  to  support  regulatory  approval  in North  America  and
commercialization  in North  America  and  Europe.  The  550-patient  phase  III
SIMPADICO trial, which was closed out early on August 30th, 2005, is a 50-center
North  American  study  designed  to  further  investigate  the use of  Celacade
technology  to  improve  intermittent   claudication,   a  debilitating  symptom
associated with peripheral arterial disease. The 2,400-patient phase III ACCLAIM
trial is a 176-center  international  study designed to further  investigate the
use of Celacade  technology to reduce the risk of death and  hospitalization  in
patients with advanced chronic heart failure. We are also developing a new class
of drugs for the treatment of  neuro-inflammatory  disorders.  VP025 is the lead
product candidate from this new class of drugs.

PRODUCTS AND MARKETS

Our Celacade  technology,  which is currently in pivotal  phase III programs for
the  treatment  of chronic HF and PAD, is being  developed to target the chronic
inflammation underlying certain cardiovascular diseases.

During a brief  outpatient  procedure,  a small  sample of a patient's  blood is
drawn into our Celacade single-use disposable  cartridge,  exposed to controlled
oxidative   stress  utilizing  our  proprietary   Celacade   device,   and  then
re-administered  intramuscularly.  Following  an  initial  course  of  treatment
comprising three consecutive outpatient procedures  administered over a two-week
period, treatments are continued once per month.

In phase II studies, this  anti-inflammatory  treatment strategy demonstrated an
impact on a number of key  clinical  endpoints  associated  with  cardiovascular
disease,  which  formed  the basis for our two  phase III  programs.  Use of our
Celacade  technology has also been shown to reduce  systemic  inflammation  in a
broad range of preclinical  models of inflammatory  disease by up-regulating the
production of  anti-inflammatory  cytokines  and  decreasing  the  production of
pro-inflammatory cytokines.

Our Celacade technology is designed to be integrated at multiple points of care,
including  outpatient  hospital  clinics  and  cardiology   practices.   We  are
collaborating  with opinion  leaders in  cardiovascular  medicine to conduct our
phase III clinical  trials and we believe that  successful  completion  of these
clinical  trials will enhance the  potential  for our Celacade  technology to be
adopted  as part of the  standard  of care in these  conditions.  Our  phase III
clinical  trials  are  designed  to  support  regulatory  approvals  and  market
introduction  in North America and market  introduction  in the European  Union,
where  regulatory  approvals have already been obtained.  We may establish sales
and  marketing  capability  needed  to  promote  the  use of our  technology  by
cardiologists and other physicians through corporate  alliances with established
healthcare companies.

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We are also developing a new class of drugs designed to regulate cytokine levels
and  control  inflammation.  Our new  class  of  drugs  is  based  on  synthetic
three-dimensional  phospholipid-based structures with specific groups of surface
molecules that are designed to modulate cytokine levels. VP025, the lead product
candidate from this new class of drugs,  is being developed for the treatment of
neuro-inflammatory disorders.

Note:  The use of the term  "significant"  or  "significantly"  when  describing
clinical  and   preclinical   results  in  the  following   sections  refers  to
"statistical significance," in which there is a 5% or lower probability that the
observed  difference  between  groups  on a  certain  outcome  measure  occurred
randomly.

Celacade Peripheral Arterial Disease Program

Peripheral arterial disease is a serious condition of impaired blood flow to the
extremities  resulting from  atherosclerosis.  It is now well  established  that
inflammatory  pathways are  implicated in the  development  and  progression  of
atherosclerosis.  Known risk factors such as aging,  obesity,  smoking,  lack of
exercise,  and diabetes  contribute to the increasing  incidence of PAD. Reduced
blood flow to the lower limbs often leads to intermittent claudication (leg pain
on walking), reducing mobility and causing a marked impairment in the ability of
patients to undertake the basic activities of daily independent living.

It is estimated  that in the United States alone,  PAD affects over nine million
people,  with annual related  healthcare  costs in the billions of dollars.  The
condition is associated with a high level of morbidity,  and an estimated 30% of
patients diagnosed with PAD will die within five years. Patients with PAD have a
six-fold  increase  in risk of  death  from  cardiovascular  disease  and  often
experience the symptom of intermittent  claudication  (leg pain on walking).  In
approximately  80,000  patients each year, the progression of PAD results in the
need for  amputation.  Currently,  there are limited  effective  pharmacological
therapies available for the treatment of intermittent claudication, and there is
a need for a more effective treatment option.

We have completed a double-blind,  placebo-controlled pivotal phase III clinical
trial of our Celacade  technology in patients with PAD. The SIMPADICO  (Study of
Immune  Modulation  Therapy in  Peripheral  Arterial  Disease  and  Intermittent
Claudication  Outcomes) trial investigated the use of our Celacade technology to
improve the symptom of intermittent  claudication.  The trial has been conducted
at cardiac and vascular centers throughout the United States and Canada, and was
designed to support  regulatory  approval  and  marketing  in North  America and
marketing in the European  Union,  where  regulatory  approval (the CE Mark) has
already been  obtained for use of our Celacade  technology  for the treatment of
PAD.

The  SIMPADICO  trial  enrolled  553  patients  with  Fontaine  stage II disease
(symptomatic  PAD) with  intermittent  claudication.  The  primary  endpoint  of
SIMPADICO  is the change in maximal  treadmill  walking  distance at six months.
Maximal treadmill walking distance is a primary efficacy endpoint  recognized by
the United  States Food and Drug  Administration  ("FDA")  and other  regulatory
authorities  for approving new  treatments for  symptomatic  PAD. The trial also
measured  additional  endpoints,   including  peripheral  arterial  disease  and
cardiovascular-related  events,  and  quality  of  life.  All  patients  in  the
SIMPADICO trial completed their six-month  primary endpoint  assessments in July
2005. The final assessments were completed for all active patients at the end of
2005. The Principal  Investigator and Chairman of the Steering Committee for the
SIMPADICO  trial is Dr.  Jeffrey  W. Olin,  Director  of the  Vascular  Medicine
Program at The Zena and Michael A. Wiener Cardiovascular Institute,  Mount Sinai
School of Medicine in New York.

On August 30, 2005, we announced  that the SIMPADICO  trial was being closed out
early.  The  decision  to close  out the  trial  was  based on a  recommendation
received  from  the  SIMPADICO  Steering  Committee.  The  Steering  Committee's
recommendation was based on a recommendation by the External Safety and Efficacy
Monitoring  Committee (the "ESEMC") who cited a potential safety concern and the
absence of a sufficiently  strong  efficacy signal to warrant the continuance of
the study. Based on the Steering  Committee's own review, and the findings of an
independent  expert,  the Steering  Committee  concluded  that no safety concern
existed.  However,  given that the ESEMC's analysis also  incorporated  efficacy
information  and all patients had  completed the  assessments  necessary for the
analysis of the primary endpoint,  the Steering Committee  recommended the early
close  out of  the  trial.  The  preliminary  and  limited  efficacy  evaluation
conducted  by the ESEMC was  performed on an unlocked  database  that was in the
process of quality control and verification and was therefore subject to change.

On January 4, 2006, we announced that database lock for the SIMPADICO  trial had
been  completed.  On February 1, 2006, we announced that the SIMPADICO trial had
been accepted for presentation at a Late-Breaking Clinical

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Trial session of the 55th Annual  Scientific  Session of the American College of
Cardiology  (ACC) to be held in March.  The  initial  results  of this study are
expected to be presented by Dr. Jeffrey Olin March 12th, 2006, at the ACC.

The  initiation  of our  SIMPADICO  trial was based on  results  from our double
blind,  placebo-controlled phase II clinical trial conducted in 85 patients with
moderate to severe PAD.  Results of this study were  published  in the  European
Journal of Vascular and Endovascular Surgery. The article reported that patients
in the  Celacade  group  walked  further  before the onset of pain  compared  to
placebo.  Furthermore,  the article  revealed that treatment was well tolerated,
and there were no reports of treatment-related serious adverse side effects.

Celacade Chronic Heart Failure Program

Chronic heart failure, most frequently resulting from coronary artery disease or
hypertension,  is a  debilitating  condition  in which the  heart's  ability  to
function  as a pump is  impaired.  Patients  with  heart  failure  experience  a
continuing  decline in their  health,  resulting  in an  increased  frequency of
hospitalization and premature death.

In North  America  alone,  HF  affects  more than  five  million  people  and is
associated  with  more  than  300,000  deaths  each  year.  The  direct  cost of
healthcare  primarily resulting from  hospitalization is estimated to exceed $25
billion  annually.   These  statistics   suggest  that  important   pathological
mechanisms,  including  inflammation,  remain active and unmodified by available
therapies,  particularly  when the  disease  has reached  advanced  stages.  The
2,400-patient  double-blind,   placebo-controlled,  pivotal  phase  III  ACCLAIM
(Advanced  Chronic  Heart  Failure  CLinical  Assessment  of  Immune  Modulation
Therapy)  trial has been  completed  at 176 clinical  centers in North  America,
Europe,  and Israel.  The study is designed to assess the impact of our Celacade
technology on reducing the risk of death and  cardiovascular  hospitalization in
patients  with  advanced  chronic  HF.  The study is also  intended  to  support
regulatory approval and marketing in North America and marketing in the European
Union, where regulatory approval (the CE Mark) has already been obtained for use
of our Celacade technology for the treatment of chronic HF.

The primary  outcome  measure of ACCLAIM is the composite  endpoint of all-cause
mortality or hospitalization  for  cardiovascular  causes (time to first event).
ACCLAIM was designed to conclude when at least 701 patients  sustained a primary
endpoint   event,   defined   as   either  a  death   or  first   cardiovascular
hospitalization,  and all  patients  had been in the study for a minimum  of six
months.  The ACCLAIM trial completed patient enrollment in May 2005. On November
14th,  2005,  we  announced  that the  pre-specified  objective  of 701  primary
endpoint  events had been  reached.  This  allowed the trial to be  completed by
year-end.  The final  patient  assessments  were  completed  in January 2006 and
preparations for database lock and data analysis have commenced.  The results of
the study and plans for presentation and publication of the data are expected to
be made  public  during  the  second  quarter  of  2006.

The Global  Principal  Investigator  and Chairman of the Steering  Committee for
ACCLAIM is Dr. James B. Young,  Chairman,  Division of Medicine at The Cleveland
Clinic  Foundation  and Medical  Director,  Kaufman  Center for Heart Failure in
Cleveland.

The  initiation  of the  ACCLAIM  trial was based on the  outcomes of our double
blind,  placebo-controlled  phase II trial in 73-patients  with advanced chronic
heart failure.  The trial,  which was conducted at The Cleveland Clinic,  Baylor
College of Medicine, the Texas Heart Institute,  and the University of Montreal,
was  designed to  investigate  the use of our  Celacade  technology  to impact a
number of endpoints associated with chronic heart failure. All patients enrolled
into this study were receiving  stable doses of  pharmaceuticals  that reflected
the standard of care.

Results of the study were  published in the Journal of the  American  College of
Cardiology in 2004. The article reported a significant  reduction in the risk of
death  (p=0.022;  1 vs. 7  deaths)  and  all-cause  hospitalization  (12 vs.  21
hospitalizations) for patients in the Celacade group compared to those receiving
placebo.  In addition to the  observed  reduction  in the risk of major  events,
there  was  also  an  observation  that  patients  in  the  Celacade  group  had
significant improvements in key electrocardiogram (ECG) measures.  Approximately
50% of patients diagnosed with chronic heart failure experience sudden death due
to  serious  ventricular  arrhythmia  (irregular  heartbeat  originating  in the
ventricles of the heart),  which has been linked to specific ECG  abnormalities,
including an increased QTc interval.  The article stated that the study showed a
significant  reduction  in mean QTc  interval of 18  milliseconds  (msec)  among
assessable patients in the active treatment group, compared to an increase of 12
msec in the placebo group, resulting in a significant  between-group  difference
at the end of the study (429+/-45 vs. 463+/-45 msec, n=35;

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p=0.035).  There were no reports of treatment-related  serious adverse events or
withdrawals  from  the  trial,  and  treatment  was  shown  to be safe  and well
tolerated.

In September  2005, at a symposium at the 9th Annual  Scientific  Meeting of the
Heart  Failure  Society of America,  Guillermo  Torre-Amione,  MD, PhD,  Medical
Director, The Methodist DeBakey Heart Center, and principal investigator for the
U.S.  arm  of  the  ACCLAIM  trial,   reported  that  the  preliminary  baseline
characteristics of patients enrolled in the pivotal phase III ACCLAIM study were
consistent with those of patients enrolled in our previous phase II trial.

VP025 Drug Development Program

Our VP series of investigational  drugs is designed to regulate tissue levels of
cytokines  and  control  the   inflammation   underlying  a  number  of  medical
conditions.  VP025,  the lead  product  candidate  from  this  series,  is being
developed  for the  treatment of  neuro-inflammatory  disorders.  Among the many
neurological  conditions associated with an inflammatory response in the nervous
system are Alzheimer's  disease,  Parkinson's  disease,  and amyotrophic lateral
sclerosis. It is estimated that neurological  conditions,  which are expected to
increase in prevalence as the population  ages,  currently affect more than five
million  people in North  America  and  generate  costs of care that  exceed $75
billion annually.

During   the   past   year,   we   successfully    completed   a   double-blind,
placebo-controlled  phase I trial of VP025. This dose-escalation  trial examined
the safety and  tolerability  of three doses of VP025 in 24 healthy  volunteers.
Results of the study  demonstrated that multiple  administrations of either low,
mid-level,  or high doses of VP025 were safe and well tolerated when compared to
placebo. No drug-related serious adverse events were reported.

Results from a number of  preclinical  models  demonstrating  that VP025 reduces
inflammation  across the blood-brain  barrier and improves  correlates of memory
and learning  function  were  presented at  Neuroscience  2005,  the 35th Annual
Meeting of the Society for Neuroscience. Preclinical research carried out by Dr.
Marina  Lynch's  team from the Trinity  College  Institute  of  Neuroscience  in
Ireland  demonstrated the ability of VP025 to reverse  detrimental  neurological
effects of chronic beta-amyloid exposure. Beta-amyloid is the major component of
the plaques found in brains of Alzheimer's disease patients and is implicated in
the development and  progression of this condition.  Beta-amyloid  has also been
linked to increased activation of microglial cells (inflammatory immune cells in
the brain and nervous  system) and reduced  memory and  learning  function.  Dr.
Lynch's research  demonstrated that VP025 both prevented  microglial  activation
and preserved memory and learning function.

Dr. Lynch's team also presented results at Neuroscience 2005 showing the ability
of VP025 to reverse age-related  inflammation in the brain. The process of aging
is associated with increased inflammation in the brain resulting from activation
of microglial  cells, as evidenced by increases in inflammatory  cytokines and a
reduction in memory and learning function (measured as long-term  potentiation).
CD200, a protein that controls inflammation and maintains microglial cells in an
unactivated  state,   decreases  with  aging.   Treatment  with  VP025  in  this
preclinical model reversed  age-related  decreases in CD200 levels in the brain,
reduced levels of microglial cell  activation,  and restored memory and learning
function.

A  second   group,   led  by  Dr.   Yvonne   Nolan   from  the   Department   of
Anatomy/Neuroscience,  University College, Cork, Ireland, also presented data at
Neuroscience  2005  demonstrating  the ability of VP025 to prevent  increases in
levels of p38 MAP kinase, a key component of the inflammation-signaling pathway,
regulating  IL-1beta,  TNF-alpha,  and other immune system responses  associated
with  many  inflammatory  conditions.  In a  preclinical  model  of  Parkinson's
disease,  pre-treatment with VP025 was shown to prevent both the increase in p38
levels  and  the  associated  death  of  dopaminergic   neurons.  The  death  of
dopaminergic  neurons  in this  model  system  leads to the  onset  of  movement
abnormalities that mimic those seen in Parkinson's disease.

Plans  to  advance  VP025  into  phase II  clinical  development  are  currently
underway.

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SCIENTIFIC ADVISORY BOARD

We have an independent  Scientific  Advisory Board ("SAB") to advise  management
and the Board of Directors on our scientific,  technical, research, development,
and  commercialization  endeavors.  Members of the SAB are entitled to an annual
honorarium  and  reimbursement  for  their  reasonable   out-of-pocket  expenses
incurred on our business, and are eligible to receive stock options.  Members of
the SAB  through  their  affiliation  with  universities,  hospitals,  and other
centers of biomedical research may, from time to time,  collaborate on or direct
independent basic research,  preclinical  studies,  and/or feasibility  clinical
trials  involving  our  technologies  and  receive,  in  connection   therewith,
professional fees at market rates. The members of our SAB are:

Robert Roberts, MD, FRCP(C), FACC, Chairman

Dr.  Roberts  is the  President  and  CEO  of the  University  of  Ottawa  Heart
Institute,  one of  Canada's  leading  centers in  cardiovascular  medicine.  Dr
Roberts was formerly Chief of Cardiology,  Don W. Chapman Professor of Medicine,
and  Professor of  Molecular  Physiology  and  Biophysics  at Baylor  College of
Medicine  in  Houston,   Texas,   one  of  the  world's   leading   centers  for
cardiovascular care, research, and education. Dr. Roberts is an active clinician
and researcher  recognized for his  groundbreaking  research on cardiac creatine
kinase (CK-MB),  a key diagnostic  marker for cardiac injury, as well as for his
original  contributions to the molecular  biology and genetics of heart disease.
He and his research  team are credited  with  uncovering  the genetic  basis for
several  inherited  cardiac  disorders.  He is  the  author  of  more  than  600
scientific  publications and sits on several key editorial  boards.  Dr. Roberts
has received many honors and awards,  including the prestigious American College
of  Cardiology's  1998  Distinguished   Scientist  Award.  In  addition  to  his
contributions  to basic  research,  Dr. Roberts is also well  recognized for his
role as a principal  investigator in several pivotal  clinical trials related to
the introduction of new therapies for heart disease.

Stanley H. Appel, MD

Dr. Appel is Chair of the Department of Neurology at the Methodist  Neurological
Institute,  and  Professor  of  Neurology  at Weill  Medical  College of Cornell
University.  He serves as the  Director of the  MDA/ALS  Research  and  Clinical
Center and is the former Director of the Alzheimer's  Disease Research Center at
Baylor  College of Medicine and  previously  served as the Director of the Jerry
Lewis  Neuromuscular  Research  Center at Baylor College of Medicine in Houston,
Texas. Dr. Appel is a leading expert on degenerative neurological diseases, such
as Parkinson's, Alzheimer's, and amyotrophic lateral sclerosis (ALS), also known
as Lou Gehrig's  disease.  Specifically,  Dr. Appel focuses on the importance of
neurotrophic  factors and immune mechanisms,  including the role of inflammatory
cytokines in these  diseases.  He has served as an Advisory  Board member of the
Alzheimer's Disease and Related Disorders Association and as a Council member of
the  American   Society  of   Neurochemistry.   For  ten  years,   he  acted  as
Editor-in-Chief  for Current  Neurology.  Dr. Appel  received his medical degree
from  Columbia  College of Physicians  and Surgeons and has over 350  scientific
publications to his credit.

Valentin Fuster, MD, PhD

Dr.  Fuster is the  director of the Zena and  Michael A.  Wiener  Cardiovascular
Institute,  the Marie-Josee and Henry R. Kravis Center for Cardiovascular Health
and the Richard Gorlin,  MD/Heart Research Foundation Professor of Cardiology at
Mount Sinai  School of Medicine.  He is  past-President  of the  American  Heart
Association,  President of the World Heart Federation, a member of the Institute
of Medicine of the National Academy of Sciences, a former member of the National
Heart,  Lung and Blood Institute  Advisory  Council,  and former Chairman of the
Fellowship Training Directors Program of the American College of Cardiology. Dr.
Fuster is the recipient of three major ongoing NIH grants. He has published more
than 400 articles on the subjects of coronary  artery  disease,  atherosclerosis
and thrombosis,  and he has recently been appointed the lead Editor of two major
textbooks on cardiology,  'The Heart' (previously edited by Dr. J. Willis Hurst)
and  "Atherothrombosis and Coronary Artery Disease" (with Dr. Eric Topol and Dr.
Elizabeth Nabel). Thirteen distinguished  universities throughout the world have
granted him honoris causa. He has also received the Andreas Gruntzig  Scientific
Award of the European Society of Cardiology,  the Lewis A. Conner Memorial Award
for  scientific  accomplishments  by the  American  Heart  Association,  and the
Distinguished  Scientist Award from the American  College of Cardiology.  Prince
Felipe of the Asturias awarded Dr. Fuster the 1996 Principe de Asturias Award of
Science and Technology, the highest award given to Spanish-speaking  scientists.
In 2001,  Dr. Fuster  received the James B. Herrick  Achievement  Award from the
Council of Clinical Cardiology of the American Heart Association. Most recently,
he was selected as a Distinguished  Scientist of the American Heart Association,
one  of  the  highest  awards  given  by  the  Association,  presented  to a few
scientists  for their work in  cardiovascular  research over the last few years.
Following an

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                                       9


exhaustive search, Dr. Fuster has been appointed Editor-in-Chief of a new Nature
journal that focuses on cardiovascular medicine.

Richard G. Miller, PhD, FRSC

Dr.  Miller  is  Professor  and  past-Chairman  of  the  Department  of  Medical
Biophysics and Professor and founding Chairman  (1984-1990) of the Department of
Immunology at the University of Toronto.  He is a past-President of the Canadian
Society  of  Immunology  and a Fellow  of the Royal  Society  of  Canada.  As an
internationally  recognized scientist and leader in the field of immunology,  he
has received many honors,  including  being  invited as a visiting  scientist to
many of the world's  leading  immunology  centers.  He is the author of over 150
publications  and numerous  book chapters and has been a member of the editorial
board of several key scientific  journals in the areas of immunology and cancer.
Dr.  Miller is a gold medal  graduate in Physics from the  University of Alberta
and was awarded his PhD at the California Institute of Technology.

Milton Packer, MD

Dr. Packer is the Director of the Center for  Biostatistics and Clinical Science
and the Gayle and Paul Stoffel  Distinguished Chair in Cardiology,  Southwestern
Medical  Center,  University of Texas. He is the former Chief of the Division of
Circulatory  Physiology at the Columbia  University  College of  Physicians  and
Surgeons,   and  the  former  Director  of  the  Heart  Failure  Center  at  the
Columbia-Presbyterian  Medical  Center  in New  York  City.  One of the  leading
experts in the  pathophysiology  and treatment of heart failure,  Dr. Packer has
made   significant   contributions  to  heart  failure  research  and  has  been
instrumental in the  introduction  of a number of new treatments.  The author of
more than 200 papers,  he has won numerous  honors for teaching and has lectured
around the world,  including a number of prestigious named lectureships,  on the
treatment of heart failure. He has served, or currently serves, on the editorial
boards of many major medical journals,  including Circulation and Journal of the
American  College  of  Cardiology.  He has also  been  elected  to a  number  of
societies,  including  the American  Society for Clinical  Investigation.  He is
currently on the executive committees of both the American Heart Association and
the American  College of Cardiology and is  past-President  of the Heart Failure
Society  of  America.  Dr.  Packer  is a  primary  consultant  to  the  National
Institutes of Health and the Food and Drug  Administration  on the management of
heart  failure  and on  matters  related  to  cardiovascular  research  and drug
development and health care policy.

David Wofsy, MD

Dr. Wofsy is Professor of Medicine and Microbiology/Immunology,  Director of the
Clinical Trials Center, and George A. Zimmerman  Distinguished  Professor at the
University of California, San Francisco. He also serves as Chief of Rheumatology
at the San Francisco  Veterans  Affairs Medical  Center.  Dr. Wofsy is a leading
authority  on  the  cellular  and  molecular  mechanisms  underlying  autoimmune
diseases.  Based on extensive research, he has developed novel approaches to the
use of immune modulation therapies in the treatment of this very common group of
diseases.  Much of Dr. Wofsy's research has been on systemic lupus erythematosus
(SLE),  an autoimmune  disease,  where he was the first to  demonstrate  the key
pathological role of CD4+T cells in a standard animal model of this disease. His
most recent  research has extended to  additional  novel  methods for blocking T
cell activation.  These  approaches are currently in clinical trials.  He is the
author  of  numerous  key  publications  and book  chapters  and  serves  on the
editorial  and advisory  boards of several  major  immunology  journals.  He has
received  many  distinguished  awards and his  visiting  professorships  include
Harvard University and the National Institutes of Health.

COMPETITIVE ENVIRONMENT

The   pharmaceutical,   medical  device,   and   biotechnology   industries  are
characterized  by rapidly  evolving  technology  and intense  competition.  Many
companies,  including major pharmaceutical as well as specialized  biotechnology
companies,  are engaged in activities focused on medical conditions that are the
same as, or similar  to,  those  targeted by us.  Many of these  companies  have
substantially  greater  financial  and  other  resources,  larger  research  and
development staff, and more extensive marketing and manufacturing  organizations
than we do. Many of these companies have  significant  experience in preclinical
testing,   human  clinical   trials,   product   manufacturing,   marketing  and
distribution,  and other regulatory approval procedures. In addition,  colleges,
universities,  government  agencies,  and  other  public  and  private  research
organizations  conduct research and may market commercial  products on their own
or through collaborative agreements. These institutions are becoming more active
in seeking patent protection

<PAGE>
                                       10


and licensing  arrangements to collect royalties for use of technology that they
have  developed.  These  institutions  also  compete with us in  recruiting  and
retaining highly qualified scientific personnel.

MANUFACTURING

We  maintain a quality  system  that is  registered  to  ISO9001,  EN46001,  and
ISO13485. These quality system registrations are necessary to support regulatory
approvals (see "Regulatory Dependence").  For entry into the U.S. market, we are
also ensuring the necessary  compliance of our quality system to the FDA Quality
System  Regulation   ("QSR").   In  addition,   our  medical  devices  meet  the
requirements  of the European Union Medical Devices  Directive  93/42/EEC for CE
Marking.

We  currently  rely  upon  subcontractors  for  the  manufacture  of our  device
technology.  The  subcontractors  operate  quality  systems in  accordance  with
ISO9001, EN 46001,  ISO13485,  and/or the FDA QSR, as necessary.  Manufacturing,
testing,  and  maintenance of our medical  devices are verified and validated as
appropriate to ensure conformance to defined specifications.

The manufacturing of VP025 is performed  according to current Good Manufacturing
Practice  ("cGMP")  at  contract  manufacturing  organizations  that  have  been
approved by our quality  assurance  department,  following audits in relation to
the appropriate regulations. Manufactured product is tested for conformance with
product specifications prior to release by our quality assurance department. GMP
batches  of  VP025  are  subjected  to  prospectively  designed  stability  test
protocols.

INTELLECTUAL PROPERTY

Because of the substantial length of time and expense associated with developing
new products, the pharmaceutical,  medical device, and biotechnology  industries
place   considerable   importance  on  obtaining   patent   protection  for  new
technologies, products, and processes. Our policy is to file patent applications
to protect  inventions,  technology,  and improvements that are important to the
development of our business and with respect to the  application of our products
and  technologies to the treatment of a number of disease  indications.  We seek
patent  protection  in various  jurisdictions  of the world.  We own patents and
patent  applications  relating to our  products and  technologies  in the United
States,  Canada,  Europe,  and other  jurisdictions  around  the  world.  We own
trademark  registrations and trademark  applications for our Celacade technology
in various  jurisdictions,  and rely on our legal rights in other jurisdictions.
The scope and duration of our  intellectual  property rights varies from country
to country  depending  on the nature  and  extent of our  intellectual  property
filings,   the  applicable   statutory  provisions  governing  the  intellectual
property,  and the nature and extent of our legal  rights.  We will  continue to
seek intellectual property protection as appropriate.

We require our employees,  consultants,  members of the SAB, outside  scientific
collaborators,   and  sponsored   researchers  to  enter  into   confidentiality
agreements  with us that  contain  assignment  of  invention  clauses  outlining
ownership  of any  intellectual  property  developed  during  the  course of the
individual's relationship with us.

REGULATORY REQUIREMENTS

Before medical products can be distributed commercially,  a submission providing
detailed information must be reviewed and approved by the applicable  government
or agency  in the  jurisdiction  in which the  product  is to be  marketed.  The
regulatory   review  and  approval  process  varies  from  country  to  country.
Similarly, we are also subject to separate regulations where we conduct clinical
trials.  We are pursuing  pre-market  approvals and comply with  clinical  study
requirements in a number of jurisdictions;  namely,  Europe,  Israel, the United
States, and Canada, where activities are being planned or are being conducted by
us or on our  behalf.  We cannot  predict or give any  assurances  as to whether
further regulatory approvals will be received or how long the process of seeking
regulatory approvals will take.

<PAGE>
                                       11


Europe

Medical  products that are placed on the market in the European Union ("EU") are
subject to one of two mutually exclusive regulatory regimes:  either the Medical
Devices Directive ("MDD"),  Council Directive 93/42/EEC, for medical devices, or
the Medicinal Products Directive, Council Directive 65/65/EEC for pharmaceutical
products. Our Celacade technology has been classified as a medical device in the
EU.

We are  required to  demonstrate  compliance  with the  requirements  of the MDD
93/42/EEC  and  affix a CE mark to our  medical  devices  in order to place  our
medical  device  products  on the market  within  the  member  states of the EU,
Norway,  and  Switzerland.  We have  received CE Mark  approval for our Celacade
device in chronic heart failure and in peripheral arterial disease.  The CE Mark
attests that our medical device  products meet the "essential  requirements"  of
the MDD relating to safety and efficacy. We must also demonstrate our regulatory
compliance ("conformity assessment") annually through a qualified third party (a
"Notified Body") selected by us. We have demonstrated our regulatory  compliance
with these  requirements for devices placed in Europe for clinical  trials,  and
our quality  system was  registered to ISO9001 and EN46001 in February  1998. In
addition, our quality system was registered to ISO13485 in August 2001.

We are  subject  to  annual  surveillance  audits by our  Notified  Body and are
required   to  report  any   device-related   serious   adverse   incidents   or
near-incidents to the appropriate authorities.

To  place  a  CE-Marked   medical   device  in  clinics   within  most  European
jurisdictions,  we are required to provide notification to national authorities.
In addition,  before a clinical study can commence each clinical center's ethics
review board must approve the clinical protocol and other related documents.

United States

In the United States,  clinical trials and  commercialization of medical devices
require the  approval of the FDA.  We are subject to  regulation  by the FDA, as
well as state and local  authorities.  Our  medical  devices  are subject to the
FDA's  Pre-Market  Approval  ("PMA")  process  prior to  marketing in the United
States.  The PMA approval  process is a multi-step  process that  requires us to
submit to the FDA  preclinical,  clinical,  and design and  manufacturing  data,
which we have been compiling to demonstrate the safety and  effectiveness of our
devices for the stated medical indications or uses.

The clinical  studies that generate the clinical data for the PMA are subject to
regulation  under the  investigational  device  exemption  ("IDE")  regulations.
Before  clinical  studies of our device can begin,  an IDE  application  must be
submitted to, and approved by, the FDA. In addition, before a study can commence
at each participating  clinical center, the center's  institutional review board
("IRB") must approve the clinical protocol and other related  documents.  During
the PMA review process, the FDA will conduct an inspection of the manufacturer's
facilities  to ensure that the device design and  manufacture  are in compliance
with  applicable  QSR  requirements.   The  QSR  requirements  mandate  that  we
manufacture  our devices and maintain our documents in a prescribed  manner with
respect to design,  manufacturing,  testing, and control activities. The FDA may
also  conduct  inspections  of the  clinical  trial  sites  and the  preclinical
laboratories  conducting  pivotal safety studies to ensure  compliance with Good
Clinical  Practice and Good Laboratory  Practice  requirements  and may seek the
advice of one of their Advisory Committees or other Centers with the FDA. If the
FDA  evaluations  of the PMA  application  and the  results of  inspections  are
favourable,  the FDA may issue an approvable  letter,  which usually  contains a
number of conditions  that must be met in order to secure final  approval of the
PMA. Only when those  conditions have been fulfilled to the  satisfaction of the
FDA will the FDA issue a PMA approval order, authorizing commercial marketing of
the device  for stated  indications.  The FDA also has the  authority  to impose
certain post-approval  requirements,  such as post-market  surveillance clinical
trials,  in the PMA approval order. FDA approval can be withdrawn for failure to
comply with any  post-approval  requirements  or for other reasons,  such as the
discovery of significant adverse effects.

Canada

In Canada, clinical trials and the commercialization of medical products require
the approval of Health Canada. The Therapeutic  Products  Directorate ("TPD") of
Health Canada  regulates the  manufacture and sale of medical devices in Canada.
The  Canadian  Medical  Device  Regulations  are  similar to those of the United
States and require that clinical  studies be conducted to demonstrate the safety
and  effectiveness of devices prior to marketing.  There must also be documented
evidence  that the devices  are  developed,  manufactured,  and  produced  under
current quality

<PAGE>
                                       12


system  regulations and guidelines in order to ensure the quality of the product
made available for sale.  Approval of such  technology is a multi-step  process,
and we are prohibited  from promoting or  commercializing  our products prior to
regulatory approval.  For any clinical investigation and testing of our products
in Canada, authorization by the TPD is required. In addition, before a study can
commence at each  participating  clinical center,  the center's IRB must approve
the clinical protocol and other related documents.

We must  manufacture  our devices under approved  quality system  conditions and
must validate the performance  characteristics of the devices to ensure that the
devices perform safely, consistently, and reliably. The TPD has adopted ISO13485
and  relies  upon  accredited  registrars  to certify  manufacturers  of medical
devices.  Our quality  system was  registered to ISO13485 in August 2001.  Also,
manufacturers of marketed  devices must be licensed by Health Canada.  Licensing
is contingent upon successful certification by an accredited registrar.

In addition to the regulatory product approval framework, we are also subject to
municipal,   provincial,   and  federal  laws  governing   occupational  safety,
laboratory  practices,  the use, handling,  and disposition of biological waste,
environmental protection,  and hazardous substance control. We may be subject to
other  current  and  future  regulations,  including  future  regulation  of the
biotechnology/pharmaceutical  and/or medical device industry.  We believe we are
in material compliance with all such existing regulations.

ENVIRONMENTAL PROTECTION

We  believe  we  are  in  material  compliance  with  applicable   environmental
protection  laws,  and  we  believe  that  ongoing  compliance  with  applicable
environmental   protection   laws  will  not  have  a  material  effect  on  us.
Expenditures for environmental compliance have not been, and are not anticipated
to be,  material.  We are  unable  to  predict  what  changes  may  be  made  to
environmental  laws in the  jurisdictions in which we operate and may operate in
the  future,  although  we  anticipate  that such laws will  likely  become more
stringent.

EMPLOYEES

As at  November  30,  2005,  we had 172  full-time  employees,  representing  an
increase  from the 149 we had as at November 30,  2004.  Our  employees  are not
governed by a collective agreement.  We have not experienced a work stoppage and
believe our employee relations are satisfactory.

FACILITIES

We lease facilities at 2505 Meadowvale  Boulevard,  Mississauga,  Ontario Canada
L5N 5S1, at 2155 Dunwin Drive, Mississauga,  Ontario, Canada L5L 4M1, and at the
MaRS Discovery District, 101 College Street,  Toronto,  Ontario, Canada M5G 1L7.
Effective  November 30, 2005,  the lease  commitments  at these premises cover a
total of 51,901  square  feet.  In  addition,  Vasogen  Ireland  Limited  leases
premises in Ireland  totaling  approximately  5,500 square feet. We  continually
monitor our facility  requirements  in the context of our growth and the results
of our research and development activities,  and we expect these requirements to
grow commensurately with our activities.

ROYALTIES

We have granted royalties to unrelated third parties on gross amounts receivable
by us on future  commercial sales of our products,  comprising 1.5% on all sales
to a maximum of $1.3  million  per annum and an  additional  2% with  respect to
revenue  derived from certain  applications  of our  Celacade  technology,  to a
maximum  royalty of $5.0 million per annum.  To date,  no royalties  are or have
been due or payable.

STRATEGIC ALLIANCES

We expect that the primary point of use for our Celacade  technology will be the
hospital  clinic and/or  cardiology  and  interventional  cardiology  practices.
During the year ended  November 30, 2001,  we entered into a strategic  alliance
with  Quest  Diagnostics  Incorporated  ("Quest  Diagnostics")  of New Jersey to
establish a potential  secondary  point of use for our  Celacade  technology  to
service patient referrals  outside hospital clinics and cardiology  practices in
the  United  States on an  exclusive  basis.  The final  terms of the  strategic
alliance with Quest  Diagnostics  are not yet established and are the subject of
continued discussion between the two companies. We remain free to pursue

<PAGE>
                                       13


marketing  arrangements with other parties to support the  commercialization  of
our Celacade  technology in the United  States and in the rest of the world.  As
part of the agreement, Quest Diagnostics made a US$7.5 million investment in our
Company and received  1,406,783 common shares.  Quest  Diagnostics also received
625,237 warrants at an exercise price of $12.73,  expiring in November 2006. The
fair value of the warrants on the day of grant was negligible.

BANKRUPTCIES AND REORGANIZATIONS

There have been no bankruptcy,  receivership,  or similar proceedings against us
or our  subsidiaries,  or any  voluntary  bankruptcy,  receivership,  or similar
proceedings by us or our subsidiaries within our three most recent fiscal years.
There have been no material reorganizations of us or our subsidiaries within our
three most recent fiscal years.

CODES OF CONDUCT

The Code of Conduct  for the Board of  Directors  and the Code of Ethics for our
employees have been implemented. The codes of ethics and business conduct may be
viewed on our website at  www.vasogen.com.  No material  amendments to the codes
were made in the fiscal year ended November 30, 2005, and no waivers or requests
for  exemptions  from the Codes of Conduct and Ethics were either  requested  or
granted.

                                  RISK FACTORS

The risks and uncertainties  described below are those that we currently believe
may materially affect us. Additional risks and uncertainties that we are unaware
of or that we currently deem immaterial may also become  important  factors that
affect  us.  If  any of the  following  risks  actually  occurs,  our  business,
operating results or financial condition could be materially adversely affected.

We will require additional funds in our business that may be difficult to obtain
when needed or on terms acceptable to us.

We will need to raise  additional  funds to conduct  research  and  development,
preclinical  studies,  and  clinical  trials  necessary  to bring our  potential
products to market and establish marketing, sales and distribution capabilities.
Our future capital requirements will depend on many factors, including continued
scientific  progress in our research  and  development  programs,  the scope and
results of preclinical  studies and clinical trials, the time and costs involved
in obtaining regulatory  approvals,  the costs involved in filing,  prosecuting,
and enforcing patent claims,  competing  technological and market  developments,
the cost of manufacturing scale-up,  effective commercialization  activities and
arrangements,  and other  factors  not within  our  control.  The US$40  million
aggregate  principal  amount of 6.45% senior  convertible  notes  ("notes")  due
October 7, 2007, issued by our wholly-owned subsidiary, Vasogen Ireland Limited,
include a  requirement  that,  if the  ACCLAIM  trial  fails to meet its primary
endpoint,  then  beginning in  September  2006 and until the notes are no longer
outstanding,  we must  maintain a net cash  balance  of 110% of the  outstanding
principal  amount on the notes.  We do not anticipate  generating  revenues from
operations  in the  foreseeable  future,  and we have no  committed  sources  of
capital.

Adequate funds may not be available when needed or on terms acceptable to us. In
particular,  the notes  substantially  limit  our  ability  to incur  additional
secured or unsecured debt while the notes are  outstanding.  Insufficient  funds
may require us to scale back or  eliminate  some,  or all, of our  research  and
development  programs or license to third parties products or technologies  that
we would  otherwise seek to develop.  Any future debt financing  arrangements we
enter into likely would contain  restrictive  covenants that impose  significant
operating and financial restrictions on us.

In order to obtain financing, if it is even available, it is likely that we will
sell additional common shares or financial instruments that are exchangeable for
or convertible into common shares or enter into strategic alliance arrangements.
Also, in order to provide incentives to current employees and induce prospective
employees and  consultants to work for us, we have granted options and intend to
offer and issue options to purchase common shares and/or rights exchangeable for
or convertible into common shares.  These activities could result in substantial
dilution to all our shareholders.



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                                       14


We are a  development-stage  company  with a  history  of  losses,  we have  not
recognized any product revenues, and we may never achieve profitability.

Our  products  are in the  development  stage  and,  accordingly,  our  business
operations  are subject to all of the risks  inherent in the  establishment  and
maintenance  of a  developing  business  enterprise,  such as those  related  to
competition and viable  operations  management.  We have incurred a loss in each
year since our inception and have received no cash flow from operations to date,
and  there  is no  assurance  that we will  have  earnings  or  cash  flow  from
operations  in the future.  These  losses have  resulted in, and are expected to
continue  to  cause  decreases  in,  our cash  balances,  working  capital,  and
shareholders'  equity.  The future earnings and cash flow from operations of our
business are dependent, in part, on our ability to further develop our products.
There can be no assurance that we will grow and be profitable.

At November 30,  2005,  we had an  accumulated  deficit of  approximately  C$285
million.  We have  not  generated  revenues  from the  commercialization  of any
products. Our net operating losses over the near-term and the next several years
are  expected to continue  and  increase as a result of  completing  current and
initiating new clinical  trials and activities  necessary to support  regulatory
approval and  commercialization of our products.  There can be no assurance that
we will be able to generate  sufficient  product revenue to become profitable at
all or on a sustained basis. We expect to have  quarter-to-quarter  fluctuations
in expenses, some of which could be significant,  due to research,  development,
and clinical  trial  activities,  as well as  regulatory  and  commercialization
activities.

Substantial  cash  payments  may be  required  under the notes  upon an event of
default or change of control.  Such cash payments may leave us with little or no
working capital in our business or make us insolvent.

Holders of the notes  ("noteholders")  may require that the principal  amount of
the notes be repaid in cash or that all or a portion of the notes be redeemed in
cash upon the occurrence of various  events of default  (subject to certain cure
periods), including but not limited to:

      o     the  failure  to  maintain  the  effectiveness  of the  registration
            statement  in respect  of common  shares  issuable  under the notes,
            subject to permitted grace periods;

      o     the  suspension  of the common  shares  from  trading on the TSX and
            Nasdaq (or the Nasdaq SmallCap Market);

      o     the failure to deliver  common shares to the  noteholders  within 10
            trading days after the conversion date;

      o     the failure to pay principal and/or interest due under the notes;

      o     any material  default under any indebtedness of ours in an aggregate
            principal amount of US$5,000,000 or greater;

      o     upon our breach in any material  respect of any covenant,  including
            the  covenant  to  maintain  a cash  balance  in  the  circumstances
            described  above,  under the transaction  documents (as such term is
            defined in the securities  purchase  agreements,  as filed on SEDAR,
            dated October 7, 2005 among us, Vasogen  Ireland  Limited,  Vasogen,
            Corp., and the subscribers for the notes and the warrants)  relating
            to the notes and warrants; and

      o     upon any  guarantee  of the notes  ceasing  to be in full  force and
            effect.

Upon the  occurrence  and during the  continuance  of an event of  default,  the
interest  rate on the notes will be increased to 12%. The  noteholders  may also
require  all or a  portion  of the  notes be  redeemed  in cash upon a change of
control. We have not established a sinking fund for payment of the notes, nor do
we anticipate doing so. In addition, upon certain fundamental  transactions such
as a merger or sale of  substantially  all assets of our  Company , the  warrant
holders would be entitled to require us (or our successor  entity) to redeem the
warrants  for cash.  Any such cash  payments  could  leave us with  little or no
working capital for our business or make us insolvent.

<PAGE>
                                       15


Our  substantial  debt  could  impair  our  financial  condition.  We are highly
leveraged and have substantial debt service obligations.

As of  February  1, 2006,  we had  approximately  US$34.5  million of  principal
indebtedness outstanding under the notes that bear interest at 6.45% per annum.

This  substantial  indebtedness  could have important  consequences  for us. For
example, it could:

      o     increase our  vulnerability to general adverse economic and industry
            conditions;

      o     impair our ability to obtain additional  financing in the future for
            working capital needs,  capital  expenditures  or general  corporate
            purposes;

      o     require us to dedicate a  significant  portion of our existing  cash
            and proceeds from any future  financing  transactions to the payment
            of principal and interest on our debt,  which would reduce the funds
            available for our operations;

      o     limit our  flexibility  in planning for, or reacting to,  changes in
            the business and the industry in which we operate; and

      o     place us at a competitive  disadvantage  compared to our competitors
            that have less debt.

Despite current  indebtedness levels and the terms of the notes, we may still be
able to incur  substantially  more debt. This could further exacerbate the risks
associated with our substantial leverage.

Despite current  indebtedness levels and the terms of the notes, we may still be
able to incur  substantial  additional  indebtedness  in the  future.  Under the
notes,  we  are  permitted  to  incur,   among  other  types  of   indebtedness,
indebtedness  that is pari  passu with or  subordinate  to the notes and that is
repayable on or after 91 days  following the maturity date of the notes.  If new
debt is added to our current  debt  levels,  the related  risks that we now face
could increase.

We are subject to stringent ongoing government regulation.

Biotechnology,  medical  device,  and  pharmaceutical  companies  operate  in  a
high-risk  regulatory  environment.  The FDA,  Health  Canada,  and other health
agencies  can be very slow to approve a product  and can also  withhold  product
approvals.  In addition,  these health  agencies also oversee many other medical
product operations, such as research and development, manufacturing, and testing
and safety  regulation  of medical  products.  As a result,  regulatory  risk is
normally higher than in other industry sectors.

We have incurred, and expect to continue to incur, substantial clinical research
and other  costs in  connection  with  obtaining  regulatory  approvals  for our
medical products in Canada, the United States, and other jurisdictions. While we
are not aware of any pending or threatened governmental action against us in any
country, any enforcement action by regulatory  authorities with respect to past,
or any future, regulatory non-compliance could have a material adverse effect on
our business, financial condition, and results of operations.

To date, our Celacade technology has been regulated by the FDA and Health Canada
as a medical device.  There can be no assurance that this regulatory status will
not change in the future or that additional regulatory bodies beyond the medical
device  authorities  will  not  have  input  into the  approval  of our  medical
products. If the FDA or Health Canada decides to regulate our Celacade device as
a drug,  biologic,  or  combination  product,  we could be  obligated to conduct
additional clinical trials, implement changes to the technology, or make changes
to the end user procedures.  In any event, the cost and time required to achieve
regulatory  approval,  if our  Celacade  device  is  approved  at all,  could be
substantially increased.

There can be no assurance that we will be able to achieve or maintain regulatory
compliance  with respect to all or any part of our current or future products or
that we will  be able to  timely  and  profitably  produce  our  products  while
complying  with  applicable  regulatory  requirements.  If we fail  to  maintain
compliance,  regulatory authorities can institute proceedings to detain or seize
products,  issue a recall,  enjoin future violations,  assess civil and criminal
penalties against us and our directors,  officers, and employees,  or require us
to make substantial changes to our

<PAGE>
                                       16


manufacturing operations.  Any such actions could have a material adverse effect
on our business, financial condition, and results of operations.

We do not yet have all the required approvals to market our product  candidates,
and our  clinical  trials may not yield  results  that will  enable us to obtain
regulatory approval.

We have not  completed  the  development  of any  products  and  there can be no
assurance that any products will be successfully developed. None of our products
has received  regulatory  approval for commercial use and sale in North America.
We cannot market a pharmaceutical  or medical device product in any jurisdiction
until it has  completed  thorough  preclinical  testing and  clinical  trials in
addition  to that  jurisdiction's  extensive  regulatory  approval  process.  In
general,  significant research and development and clinical studies are required
to demonstrate the safety and effectiveness of our products before we can submit
any  regulatory  applications.  We may  never  obtain  the  required  regulatory
approvals for any of our products in North America.  Our product candidates will
require  significant  additional  research and  development  efforts,  including
clinical trials, prior to regulatory approval and potential commercialization in
North  America.  However,  there can be no  assurance  that the  results  of all
required clinical trials will demonstrate that these product candidates are safe
and  effective  or, even if the results of the  clinical  trials are  considered
successful  by us,  that the FDA  will  not  require  us to  conduct  additional
large-scale  clinical  trials  before it will  consider  approving  such product
candidates  for  commercial  use.  Approval  or  consent  by the  FDA  or  other
regulatory  authorities  to commence a clinical trial does not indicate that the
device,  drug, or treatment  being  studied can or will be approved.  Preparing,
submitting,  and  advancing  applications  for  regulatory  approval is complex,
expensive, and time intensive and entails significant uncertainty.

The results of our completed  preclinical studies and clinical trials may not be
indicative  of future  clinical  trial  results.  A  commitment  of  substantial
resources to conduct time-consuming research,  preclinical studies, and clinical
trials will be required if we are to complete development of our products.

There can be no assurance that  unacceptable  toxicities or adverse side effects
will  not  occur at any  time in the  course  of  preclinical  studies  or human
clinical trials or, if any products are successfully  developed and approved for
marketing,  during  commercial  use of our products.  The appearance of any such
unacceptable  toxicities or adverse side effects could interrupt,  limit, delay,
or abort the  development  of any of our  products or, if  previously  approved,
necessitate  their  withdrawal  from the  market.  Furthermore,  there can be no
assurance that disease resistance or other unforeseen factors will not limit the
effectiveness  of our  potential  products.  Any  products  resulting  from  our
programs are not  expected to be  successfully  developed  or made  commercially
available  in the  near  term  and may  not be  successfully  developed  or made
commercially available at all.

On August 30, 2005, we announced  that the pivotal  phase III  SIMPADICO  trial,
which is designed to further investigate the use of Celacade technology for PAD,
was being  closed out early.  The decision to close out the trial was based on a
recommendation by the ESEMC who cited a potential safety concern and the absence
of a  sufficiently  strong  efficacy  signal to warrant the  continuance  of the
study.  The initial  results of this study are  expected to be  presented by Dr.
Jeffrey Olin, Principal  Investigator and Chairman of the Steering Committee for
the SIMPADICO trial, on March 12th, 2006, at the ACC.

The science underlying our Celacade technology is relatively new and unproven.

Definitive proof of the precise  mechanism of action of our Celacade  technology
will require  considerably more basic scientific research than we or others have
accomplished  to date.  We have  not,  nor has any other  company,  successfully
commercialized a technology similar to that using the Celacade technology. There
can be no  assurance  that the  products  we are  currently  developing  will be
approved by additional  regulatory  agencies or that further  testing will yield
positive  results.   Should  one  of  our  product   candidates  prove  to  have
insufficient  benefit and/or have an unsafe profile, its development will likely
be discontinued.

A setback in either of our  clinical  trials of our  Celacade  technology  would
likely cause a drop in the price of our common shares.

We intend to rely  substantially on the exploitation of our Celacade  technology
for our future earnings. If our Celacade technology does not become commercially
viable for any  reason,  including  the failure of our  clinical  trials for the
treatment of chronic HF and PAD, we may not achieve profitability and our common
share price would

<PAGE>
                                       17


likely decline.  For example,  on August 30, 2005, we announced that the pivotal
phase III SIMPADICO trial,  which is designed to further  investigate the use of
our Celacade  technology was being closed out early because of a  recommendation
by the  ESEMC  who  cited  a  potential  safety  concern  and the  absence  of a
sufficiently strong efficacy signal to warrant the continuance of the study. The
closing  price of our common  shares on the  Nasdaq  decreased  from  US$4.25 on
August 29, 2005, to US$2.38 on August 30, 2005,  and was US$3.08 on February 17,
2006.

We are reliant on our key personnel.

The operations of our business are highly  dependent upon the  participation  of
our key  personnel.  The loss of the service of any one of our key personnel may
materially  affect the ability of our Company to complete the development of our
products,  successfully  commercialize our products,  and to grow and expand our
business  operations.  There is intense competition for qualified management and
skilled employees,  and our failure to recruit, train, and retain such employees
could have a  material  adverse  effect on our  business,  financial  condition,
and/or results of operations.

Our intellectual  property may not provide meaningful protection for our product
candidates. We may infringe others' patents. Patent litigation is time consuming
and expensive.

We have  filed a number of patent  applications  in the  United  States and many
other  countries  relating to our products and processes and we have been issued
patents covering certain aspects of our immune modulation technology and medical
devices.  Our  success  may depend,  in part,  on our  ability to obtain  patent
protection  for our products and  processes.  There can be no assurance that our
patent applications will be issued as patents or that any of our issued patents,
or any patent that may be issued in the future,  will  provide us with  adequate
protection for our products,  processes, or technology.  The patent positions of
biotechnology,  pharmaceutical,  and  medical  device  companies  can be  highly
uncertain  and involve  complex  legal and  factual  questions.  Therefore,  the
breadth of claims allowed in  biotechnology,  pharmaceutical  and medical device
patents  cannot be  predicted.  We also rely upon  unpatented  trade secrets and
know-how,  and no  assurance  can be given that  others  will not  independently
develop substantially equivalent trade secrets or know-how. In addition, whether
or not our patents  are issued,  or issued  with  limited  coverage,  others may
receive patents that contain claims applicable to our products.  Our competitors
may  attempt to  circumvent  our  patents by means of  alternative  designs  and
processes  or  challenges  to the  validity  of  our  patents.  There  can be no
assurance  that any of our patents,  or any patents  issued to us in the future,
will afford meaningful protection against competitors. There can be no assurance
that our  patents  will be held  valid or  enforceable  by a court of  competent
jurisdiction.  The  patents of our  competitors  may  impair  our  ability to do
business  in a  particular  area.  We  also  rely  in  part  on  confidentiality
agreements with our corporate collaborators, employees, consultants, and certain
contractors  to protect our  proprietary  technology.  There can be no assurance
that these agreements will not be breached,  that we will have adequate remedies
for any breach,  or that our trade  secrets will not  otherwise  become known or
independently discovered by our competitors.

It is possible that our products or processes will infringe, or will be found to
infringe,  patents not owned or  controlled by us. In addition,  because  patent
applications  are often  maintained in secrecy and may take many years to issue,
there may be  currently  pending  patent  applications  that may later result in
issued patents that our products infringe. If any relevant claims of third-party
patents  that relate to our  products  are upheld as valid and  enforceable,  we
could be prevented  from  practicing the subject matter claimed in such patents,
or would be required to obtain licenses or redesign our products or processes to
avoid  infringement.  There  can be no  assurance  that such  licenses  would be
available  at all or on  terms  commercially  reasonable  to us or that we could
redesign  our products or processes  to avoid  infringement.  Litigation  may be
necessary to defend against claims of infringement, to enforce patents issued to
us, or to protect trade  secrets.  Such  litigation  could result in substantial
costs and  diversion of  management  efforts  regardless  of the results of such
litigation, and an adverse result could subject us to significant liabilities to
third parties,  require  disputed rights to be licensed,  or require us to cease
using our technology.

If we fail to obtain  acceptable  prices or  appropriate  reimbursement  for our
products,  our  ability  to  successfully  commercialize  our  products  will be
impaired.

Government  and insurance  reimbursements  for healthcare  expenditures  play an
important  role for all  healthcare  providers,  including  physicians,  medical
device companies, drug companies,  medical supply companies, and companies, such
as ours,  that plan to offer  various  products  in the United  States and other
countries in the future.

<PAGE>
                                       18


Our ability to earn  sufficient  returns on our products  will depend in part on
the  extent  to which  reimbursement  for the  costs of such  products,  related
therapies  and related  treatments  will be  available  from  government  health
administration  authorities,  private  health  coverage  insurers,  managed care
organizations,  and other  organizations.  In the United States,  our ability to
have our products and related  treatments and therapies eligible for Medicare or
private insurance  reimbursement  will be an important factor in determining the
ultimate success of our products. If, for any reason,  Medicare or the insurance
companies  decline  to  provide  reimbursement  for  our  products  and  related
treatments,  our  ability  to  commercialize  our  products  would be  adversely
affected.  There can be no assurance  that our  products and related  treatments
will be eligible for reimbursement.

There  has  been a trend  toward  declining  government  and  private  insurance
expenditures  for many healthcare  items.  Third-party  payors are  increasingly
challenging the price of medical products and services.

If  purchasers or users of our products and related  treatments  are not able to
obtain appropriate reimbursement for the cost of using such products and related
treatments,  they may forgo or reduce such use. Even if our products and related
treatments are approved for reimbursement by Medicare and private  insurers,  of
which there can be no assurance,  the amount of reimbursement  may be reduced at
times,  or even  eliminated.  This would have a material  adverse  effect on our
business, financial condition, and results of operations.

Significant  uncertainty exists as to the reimbursement status of newly approved
healthcare  products,  and there can be no assurance  that adequate  third-party
coverage will be available.

Competition  in our  target  markets  is  intense,  and  developments  by  other
companies could render our product candidates obsolete.

The industry  that we compete in is not a static  environment,  and market share
can  change  rapidly  if  competing  products  are  introduced.  There can be no
assurance that we can avoid intense  competition  from other medical  technology
companies,  pharmaceutical or biotechnology companies, universities,  government
agencies, or research organizations,  and from other technological advances that
could render our technology  uneconomical or obsolete. Many of these competitors
have substantially greater financial and/or other resources. Our competitors may
succeed in  developing  technologies  and  products  that are more  effective or
cheaper to use than any that we may develop. These developments could render our
products obsolete and uncompetitive,  which would have a material adverse effect
on our business,  financial  condition and results of  operations.  In addition,
there are numerous  existing  therapies  for chronic HF, PAD,  and  neurological
diseases, and others are being developed.

We rely on third parties for a variety of functions and we may enter into future
collaborations.  We may not  receive  the  benefits  that we expect  from  these
arrangements.

We currently rely on clinical research organizations ("CROs") for the conduct of
our clinical  trials.  All of our CROs operate in accordance  with good clinical
management  practices  mandated by the FDA and are subject to regular  audits by
the FDA, similar regulatory authorities and the Company.

Our  strategy  for  the  research,  development,  and  commercialization  of our
products   requires   entering   into  various   arrangements   with   corporate
collaborators,  licensors,  licensees, and others, and our commercial success is
dependent upon these outside parties  performing  their  respective  contractual
responsibilities.  The amount and timing of  resources  such third  parties will
devote  to these  activities  may not be  within  our  control.  There can be no
assurance that such parties will perform their  obligations  as expected.  There
can be no assurance that our collaborators will devote adequate resources to our
programs.   In  addition,   we  could  become  involved  in  disputes  with  our
collaborators,  which  could  result in a delay or  termination  of the  related
development  programs  or result  in  litigation.  We intend to seek  additional
collaborative  arrangements to develop and  commercialize  some of our products.
There  can be no  assurance  that we will  be  able to  negotiate  collaborative
arrangements on favorable  terms, or at all, in the future,  or that our current
or future collaborative arrangements will be successful.

We are subject to exposure to product liability claims.

We face an inherent  business  risk of exposure to product  liability  and other
claims in the event that the development or use of our technology or prospective
products  or  therapies  results,  or is  alleged to have  resulted,  in adverse
effects.  While we have taken,  and will  continue to take,  what we believe are
appropriate  precautions,   there  can  be  no  assurance  that  we  will  avoid
significant  liability  exposure.  Although we currently carry product liability
insurance

<PAGE>
                                       19


for clinical trials, there can be no assurance that we have sufficient coverage,
or can in the  future  obtain  sufficient  coverage  at a  reasonable  cost.  An
inability to obtain  product  liability  insurance at an  acceptable  cost or to
otherwise  protect against  potential  product liability claims could prevent or
inhibit the  commercialization of products we develop. A product liability claim
could have a material adverse effect on our business,  financial condition,  and
results of  operations.

On August 30, 2005, we announced  that the pivotal  phase III  SIMPADICO  trial,
which is designed to further  investigate the use of our Celacade technology was
being  closed  out  early  at  50  centres  in  North   America   because  of  a
recommendation  by the  ESEMC,  who cited a  potential  safety  concern  and the
absence of a sufficiently  strong  efficacy signal to warrant the continuance of
the study.

We do not have commercial-scale manufacturing capability, and we lack commercial
manufacturing experience.

We currently  rely upon single  sources for the supply of some of the components
required to manufacture and use our products.  For example, we currently rely on
a single subcontractor for the disposable  cartridges that are components of the
Celacade  technology.  The establishment of additional or replacement  suppliers
for certain  materials,  components,  subassemblies,  assemblies,  supplies,  or
finished products cannot be accomplished quickly,  largely due to the regulatory
approval systems and the complex nature of the manufacturing  processes employed
by many  suppliers.  The failure to obtain  sufficient  quantities  of component
materials on commercially  reasonable terms could have a material adverse effect
on  our  clinical  studies,  business,   financial  condition,  and  results  of
operations.

If we are successful in developing  the markets for our products,  we would have
to arrange for their  scaled-up  manufacture.  At the present  time, we have not
arranged  for the  large-scale  manufacture  of our  products.  There  can be no
assurance that we will, on a timely basis,  be able to make the transition  from
manufacturing  clinical  trial  quantities to commercial  production  quantities
successfully  or be able to arrange for contract  manufacturing.  We believe our
contractors  will  be  able to  manufacture  our  medical  devices  for  initial
commercialization if the products obtain FDA and other regulatory approvals, but
we have not yet  demonstrated  the capability to manufacture the medical devices
in  commercial  quantities.   Potential   difficulties   experienced  by  us  in
manufacturing  scale-up,  including  recalls  or  safety  alerts,  could  have a
material  adverse effect on our business,  financial  condition,  and results of
operations.

The  manufacture  of our  products  involves  a  number  of steps  and  requires
compliance with stringent quality control  specifications imposed by the FDA and
other regulatory agencies.  Moreover, our products can only be manufactured in a
facility  that has undergone a  satisfactory  inspection by the FDA and/or other
relevant regulatory authorities,  as applicable. For these reasons, we would not
be able to replace our  manufacturing  capacity quickly if we were unable to use
our manufacturing  facilities as a result of a fire, natural disaster (including
an earthquake),  equipment failure,  or other difficulty,  or if such facilities
are  deemed  not  in  compliance  with  the  regulatory   requirements  and  the
noncompliance could not be rapidly rectified.  Our inability or reduced capacity
to  manufacture  our  products  would  have a  material  adverse  effect  on our
business, financial condition, and results of operations.

We expect to enter into  additional  arrangements  with  contract  manufacturing
companies  in order to meet  requirements  for our  products,  or to  attempt to
improve  manufacturing  efficiency.  If we choose to contract for  manufacturing
services and encounter delays or difficulties in establishing relationships with
manufacturers to produce,  package,  and distribute our finished products,  then
clinical  trials,  market  introduction,  and subsequent  sales of such products
would be adversely affected.  Further,  contract manufacturers must also operate
in compliance with the FDA and other regulatory  requirements.  Failure to do so
could result in, among other things,  the  disruption of product  supplies.  Our
potential dependence upon third parties for the design and/or manufacture of our
products may adversely  affect our profit margins and our ability to develop and
deliver such products on a timely and competitive basis.

We have limited sales, marketing, and distribution experience.

We  have  limited  experience  in the  sales,  marketing,  and  distribution  of
pharmaceutical  or medical  device  products.  There can be no assurance that we
will be able to establish sales,  marketing,  and  distribution  capabilities or
make arrangements with our collaborators,  licensees,  or others to perform such
activities or that such efforts will be  successful.  If we decide to market any
of our  products  directly,  we must  either  acquire  or  internally  develop a
marketing  and  sales  force  with  technical   expertise  and  with  supporting
distribution capabilities. The acquisition or

<PAGE>
                                       20


development of a sales and distribution infrastructure would require substantial
resources,  which may divert the attention of our  management and key personnel,
and have a negative impact on our product  development  efforts.  If we contract
with third  parties for the sales and  marketing of our  products,  our revenues
will be dependent on the efforts of these third  parties,  whose efforts may not
be  successful.   If  we  fail  to  establish  successful  marketing  and  sales
capabilities or to make arrangements with third parties, our business, financial
condition and results of operations will be materially adversely affected.

Our  strategic   alliance  with  Quest  Diagnostics   Incorporated  may  not  be
successful.

On November 6, 2001, we entered into a strategic alliance with Quest Diagnostics
regarding the potential  establishment of an outpatient  services delivery model
to support the commercialization of the Celacade technology in the United States
on an exclusive  basis.  The terms of this strategic  alliance have not yet been
finalized and are the subject of continued  discussions between the parties. The
success of the strategic  alliance  will depend in part on the  resources  Quest
Diagnostics  invests in the strategic  alliance.  If finalized,  there can be no
assurance that our strategic alliance will be successful. Should we not finalize
the terms of this  strategic  alliance,  or should the  strategic  alliance  not
ultimately be successful, our business may be adversely affected.

Two of our  directors'  relationships  with  Quest  Diagnostics  could  create a
conflict of interest.

Certain of the  directors  and  officers of our Company are also  directors  and
officers of other companies.  One of our directors is also Chairman of the Board
and Chief Executive Officer of Quest  Diagnostics.  However,  he is not standing
for re-election at the Annual and Special Meeting of Shareholders  scheduled for
March 22, 2006.  In addition,  our current  Chairman is also a director of Quest
Diagnostics.  Another  director  will  assume the  chairmanship  of our Board of
Directors following the Annual and Special Meeting of Shareholders scheduled for
March 22, 2006.  There exists the possibility for such directors and officers to
be in a  conflict  of  interest  position.  Any  decision  made  by any of  such
directors  and  officers  involving  our Company is subject to their  duties and
obligations  to deal  fairly and in good faith with our  Company  and such other
companies.

In  addition,  each of our  directors  is required to declare a conflict in, and
refrain from voting on, any matter in which such director may have a conflict of
interest.

If our  products  do not gain  market  acceptance,  we may be unable to generate
significant revenues.

We do not believe that we currently have the required  clinical data and results
to  successfully  market our  product  candidates  in any  jurisdiction;  future
clinical or preclinical  results may be negative or  insufficient to allow us to
successfully market any of our product candidates; and obtaining needed data and
results may take longer than planned, and may not be obtained at all.

Even if our products are approved for sale,  they may not be  successful  in the
marketplace. Market acceptance of any of our products will depend on a number of
factors,  including  demonstration  of clinical  effectiveness  and safety;  the
potential   advantages  of  our  products  over  alternative   treatments;   the
availability of acceptable pricing and adequate third-party  reimbursement;  and
the effectiveness of marketing and distribution methods for the products. If our
products do not gain market acceptance among physicians, patients, and others in
the medical  community,  our ability to generate  significant  revenues from our
products would be limited.

We may not  achieve  our  projected  development  goals  in the time  frames  we
announce and expect.

We  set  goals  for  and  make  public   statements   regarding  timing  of  the
accomplishment of objectives  material to our success,  such as the commencement
and completion of clinical trials,  anticipated  regulatory  approval dates, and
time of product launch.  The actual timing of these events can vary dramatically
due to  factors  such  as  delays  or  failures  in  our  clinical  trials,  the
uncertainties  inherent  in the  regulatory  approval  process,  and  delays  in
achieving product development,  manufacturing, or marketing milestones necessary
to  commercialize  our  products.  There can be no  assurance  that our clinical
trials will be completed,  that we will make  regulatory  submissions or receive
regulatory  approvals  as  planned,  or that we  will be able to  adhere  to our
current  schedule  for the  scale-up of  manufacturing  and launch of any of our
products.  If we fail to achieve one or more of these milestones as planned, the
price of our common shares could decline.

<PAGE>
                                       21


Our business involves the use of hazardous material, which requires us to comply
with environmental regulations.

Although we do not currently manufacture  commercial quantities of our products,
we produce  limited  quantities  of such products for our clinical  trials.  Our
research and  development  processes  involve the controlled  storage,  use, and
disposal  of  hazardous  materials.  We are  subject  to  laws  and  regulations
governing the use, manufacture,  storage,  handling,  transport, and disposal of
such  materials  and  certain  waste  products.  Although  we  believe  that our
procedures  for  handling  and  disposing  of such  materials  comply  with  the
standards  prescribed  by such  laws and  regulations,  the  risk of  accidental
release,  contamination  or injury  from these  materials  cannot be  completely
eliminated.  In the event of such an  accident,  we could be held liable for any
damages that result,  and any such liability  could exceed our resources.  There
can be no assurance that we will not be required to incur  significant  costs to
comply with past, current or future environmental laws and regulations,  or that
our  business,  financial  condition,  and  results  of  operations  will not be
materially or adversely affected by past,  current or future  environmental laws
or regulations.

Our insurance may not provide  adequate  coverage with respect to  environmental
matters.

Environmental  laws and regulations  could have a material adverse effect on the
results of our operations and our financial position.

We are subject to a broad range of environmental laws and regulations imposed by
international,  federal, state, provincial,  and local governmental authorities.
Such  environmental  regulation  relates to, among other  things,  the handling,
transport,  and storage of hazardous  materials,  the disposal of waste, and the
discharge of potential  contaminants  into the environment.  Although we believe
that we are in  material  compliance  with  applicable  environmental  laws  and
regulations,  as a result of the  potential  existence of unknown  environmental
issues  and  frequent  changes  to  environmental  laws and  regulation  and the
interpretation  and  enforcement  thereof,   there  can  be  no  assurance  that
compliance  with  environmental  laws  and  regulation  or  obligations  imposed
thereunder will not have a material adverse effect on us in the future.

There are risks related to the handling of blood.

Our  clinical  trials  involve the  withdrawal  of a small sample of a patient's
blood cells into our Celacade single-use disposable cartridge,  exposure of such
blood  cells to our  controlled  treatment  process  utilizing  our  proprietary
Celacade device, and then  re-administration  of such blood cells to the patient
intramuscularly.  There are risks  associated  with the  handling of human blood
that may contain  infectious  agents,  notwithstanding  the  sterile  techniques
employed in our clinical trials.  While we believe that our processes and safety
procedures for handling human blood are adequate to ensure against  infection of
the patient and our clinical  staff,  there is a risk that such  procedures will
fail and will result in infection.  In the event of such infection,  we could be
held liable for any damages that result, and any such liability could exceed our
resources.

                        RISKS RELATING TO OUR SECURITIES

Our share price has been highly  volatile and an investment in our common shares
could suffer a decline in value.

The  trading  price of our common  shares  has been  highly  volatile  and could
continue  to be subject to wide  fluctuations  in price in  response  to various
factors, many of which are beyond our control, including:

            o     actual  or  anticipated   period-to-period   fluctuations   in
                  financial results;

            o     litigation or threat of litigation;

            o     failure to achieve,  or changes  in,  financial  estimates  by
                  securities analysts;

            o     announcements  regarding new or existing  products or services
                  or technological innovations by us or our competitors;

            o     comments  or  opinions   by   securities   analysts  or  major
                  shareholders;

<PAGE>
                                       22


            o     conditions or trends in the pharmaceutical,  biotechnology and
                  life science industries;

            o     announcements  by us of  significant  acquisitions,  strategic
                  partnerships, joint ventures or capital commitments;

            o     announcements  by us of results of, and  developments  in, our
                  research  and  development  efforts,   including  results  and
                  adequacy  of, and  developments  in, our  clinical  trials and
                  applications for regulatory approval;

            o     additions or departures of key personnel;

            o     sales of our common shares,  including by holders of the notes
                  on conversion or repayment by us in common shares;

            o     economic and other external factors or disasters or crises;

            o     limited daily trading volume; and

            o     developments  regarding  our  patents  or  other  intellectual
                  property or that of our competitors.

In  addition,  the stock  market in general  and the  market  for  biotechnology
companies  in  particular,   have  experienced   significant  price  and  volume
fluctuations that have often been unrelated or disproportionate to the operating
performance of those companies.  Further,  there has been significant volatility
in the market prices of securities  of life science  companies.  Factors such as
the results and adequacy of our preclinical studies and clinical trials, as well
as those of our collaborators,  or our competitors; other evidence of the safety
or effectiveness  of our products or those of our competitors;  announcements of
technological innovations or new products by us or our competitors; governmental
regulatory actions; developments with our collaborators; developments (including
litigation)  concerning patent or other proprietary rights of our Company or our
competitors;  concern  as  to  the  safety  of  our  products;  period-to-period
fluctuations  in operating  results;  changes in estimates of our performance by
securities analysts;  market conditions for biotechnology stocks in general; and
other  factors not within the control of our  Company  could have a  significant
adverse  impact on the market  price of our  common  shares,  regardless  of our
operating  performance.  In the past,  following  periods of  volatility  in the
market price of a company's  securities,  securities class action litigation has
often been instituted. A securities class action suit against us could result in
substantial  costs,  potential  liabilities  and the  diversion of  management's
attention and resources.

We may be unable to meet our obligations under our outstanding notes.

At February 1, 2006,  we have an  aggregate  principal  amount of  approximately
US$34.5 million in outstanding  notes that bears interest at 6.45% per annum and
interest on the notes must be paid monthly in cash.  There is no guarantee  that
we will have adequate resources to meet these obligations on a timely basis.

Under the terms of the notes and in the event that we are unable to issue shares
at the conversion  price  stipulated by the notes,  we must make additional cash
payments to the noteholders.

If, due to  restrictions  promulgated by any of the Nasdaq,  The Nasdaq SmallCap
Market,  or the TSX,  we are unable to issue a  sufficient  number of our common
shares  at the  conversion  price  stipulated  by the  notes to  noteholders  on
conversion  of their notes into common  shares,  we are  required to pay to such
noteholders  an amount in cash to  compensate  for those shares we are unable to
issue.

There may not be an active, liquid market for our common shares.

There is no guarantee  that an active  trading market for our common shares will
be maintained on the Nasdaq or the TSX.  Investors may not be able to sell their
shares  quickly or at the latest market price if trading in our common shares is
not active.

Future  issuances of our common shares could adversely  affect the trading price
of  our  common  shares  and  could  result  in  substantial   dilution  to  our
shareholders.

We expect to issue substantial  amounts of common shares in the future.  Holders
of any remaining  outstanding notes may elect to convert their notes into common
shares at US$3.00 per share, subject to adjustment. In addition, the

<PAGE>
                                       23


principal  amount of any  outstanding  notes is  repayable  at the  election  of
Vasogen  Ireland   Limited  by  the  issuance  of  common  shares,   subject  to
satisfaction of certain  conditions.  If the outstanding notes are repaid by the
issuance of common shares,  the common shares will be issued at a 5% discount to
the arithmetic average of the weighted average price of the common shares during
each of the twelve consecutive  trading days preceding the time of issuance (the
"twelve-day  market  price"),  or, in the event  that the common  shares  have a
twelve-day  market price of less than  US$1.00,  then the common  shares will be
issued at a 10% discount to the twelve-day  market price. To the extent that the
market price of the common shares declines,  we will need to issue an increasing
number of common shares per dollar of principal to be repaid. Subject to certain
restrictions,  noteholders  may engage in short  sales of the common  stock that
negatively  impact the market price of the common shares,  thereby causing us to
have to issue more common shares to repay any outstanding notes.

We issued  warrants to purchase  3,333,334  common  shares to the  investors who
subscribed  for the notes.  Each  warrant  entitles  the holder to purchase  one
common  share at an  exercise  price of  US$3.00,  subject  to  adjustment.  The
warrants have a five-year term.  Further,  additional warrants will be issued in
the event that Vasogen Ireland Limited elects to accelerate the repayment of the
notes. If Vasogen  Ireland Limited elects to accelerate  repayment of the notes,
we are obligated,  subject to regulatory approval,  to issue additional warrants
generally having an exercise price equal to US$3.00, subject to adjustment,  and
a five-year term commencing upon the date of issuance. The number of warrants to
be issued upon Vasogen Ireland Limited's election to accelerate repayment of the
notes is equal to that  number of warrants  sufficient  to entitle the holder to
acquire that number of common  shares equal to 65% of the number  obtained  when
the  accelerated  amount  being  repaid  is  divided  by  US$3.00,   subject  to
adjustment.

In addition to common shares issuable in connection with conversion or repayment
of the notes  and  exercise  of the  warrants,  our  investors,  employees,  and
directors hold rights to acquire  substantial  amounts of our common shares.  In
order to obtain  future  financing,  it is likely that we will issue  additional
common shares or financial  instruments that are exchangeable for or convertible
into common shares. Such issuances may constitute "Dilutive Issuances" under the
terms of the notes and  trigger an  adjustment  to the  conversion  price of the
notes.  Also,  in order to provide  incentives  to current  employees and induce
prospective  employees  and  consultants  to work for us, we intend to offer and
issue  options to purchase  common  shares  and/or  rights  exchangeable  for or
convertible into common shares.

Future issuances of substantial  amounts of our common shares, or the perception
that such issuances are likely to occur,  could affect prevailing trading prices
of our common  shares.  Future  issuances  of our common  shares could result in
substantial  dilution to our  shareholders.  In addition,  the  existence of the
notes and warrants may encourage short selling by market participants.

If there are  substantial  sales of our common  shares,  the market price of our
common shares could decline.

Sales of  substantial  numbers of our common shares could cause a decline in the
market price of our common shares. Any sales by existing shareholders or holders
of notes,  options,  or  warrants  may have an adverse  effect on our ability to
raise capital and may adversely affect the market price of our common shares.

We have not paid dividends.

We have never paid cash  dividends  on our common  shares and do not  anticipate
paying any cash  dividends in the  foreseeable  future.  We currently  intend to
retain  our  future  earnings,  if any,  to  finance  further  research  and the
expansion of our business.

                                    DIVIDENDS

The  Company has not paid,  and has no current  plans to pay,  dividends  on its
common shares. We currently intend to retain future earnings, if any, to finance
the  development of our business.  Any future dividend policy will be determined
by the Board of  Directors,  and will  depend  upon,  among other  factors,  the
Company's  earnings,  if any, financial  condition,  capital  requirements,  any
contractual restrictions with respect to the payment of dividends, the impact of
the  distribution  of  dividends  on  the  Company's  financial  condition,  tax
liabilities,  and such  economic  and  other  conditions  as the  Board may deem
relevant.

<PAGE>
                                       24


                                CAPITAL STRUCTURE

Our authorized  share capital  consists of an unlimited number of common shares,
all without nominal or par value.

      Common  Shares.  Each common share entitles the holder thereof to one vote
      at any meeting of the  shareholders  of the  Company,  except  meetings at
      which only  holders of a specified  class of shares are  entitled to vote.
      The common  shares are  entitled to receive,  as and when  declared by our
      Board of  Directors,  dividends in such amounts as shall be  determined by
      our Board of  Directors.  The  holders of common  shares have the right to
      receive the remaining property of the Company in the event of liquidation,
      dissolution   or   winding-up  of  the  Company,   whether   voluntary  or
      involuntary.  All common shares now outstanding and to be outstanding upon
      exercise of the  outstanding  options and warrants  are, or will be, fully
      paid and non-assessable. As at February 13, 2006, 83,148,559 common shares
      were issued and outstanding.

      Warrants.  At November 30,  2005,  warrants to purchase  4,318,571  common
      shares were outstanding. The warrants are held by Needham & Company, Inc.,
      Quest Diagnostics,  and certain investors. Of these warrants,  360,000 are
      exercisable  at a price of  US$4.69  per share and expire on July 2, 2006,
      625,237  are  exercisable  at a price of  C$12.73  per share and expire on
      November 6, 2006, and 3,333,334 are  exercisable at a price of US$3.00 per
      share and expire on October 7, 2010.

      Options. At November 30, 2005, there were 4,311,551 common shares issuable
      upon the exercise of  outstanding  options  granted under our stock option
      plans which have a weighted  average  exercise  price of C$5.60 per common
      share and up to  2,506,634  additional  common  shares were  reserved  for
      issuance  under  our  stock  option  plans.  At  our  Annual  and  Special
      Shareholders'  Meeting scheduled for March 22, 2006, we intend to seek the
      approval  of our  shareholders  to  increase  the number of common  shares
      reserved  for  issuance  upon the  exercise of options  granted  under our
      Employee  Stock  Option Plan by  3,000,000  common  shares,  and under our
      Directors' Stock Option Plan, by 250,000.

      Directors'  Deferred Share Units. At November 30, 2005,  there were 78,285
      common shares  issuable upon the exercise of  outstanding  deferred  share
      units granted  under our  Directors'  Deferred  Share Unit and Stock Plan,
      which have a fair market value of C$201,975  and up to 171,715  additional
      common shares were  reserved for issuance  under our  Directors'  Deferred
      Share Unit and Stock Plan.

      Shareholder  Rights  Plan.  We adopted,  effective  November  22,  2000, a
      shareholder  rights  plan which was  subsequently  amended on May 7, 2003.
      Unless  otherwise  extended  with the  approval of our  shareholders,  the
      Shareholder  Rights Plan and the rights issued  thereunder  will expire at
      the close of our Annual Meeting of Shareholders to be held in 2006, unless
      the rights are terminated,  redeemed, or exchanged earlier by our Board of
      Directors.  At our Annual and Special  Shareholders' meeting scheduled for
      March 22,  2006,  we intend to seek the  approval of our  shareholders  to
      extend the  Shareholder  Rights Plan to the close of our Annual Meeting of
      Shareholders in 2009.

Subsequent  to  November  30,  2005,  and  prior  to the  date  of  this  annual
information  form,  1.7  million  options to  purchase  our common  shares  were
granted,  no options to  purchase  our common  shares  were  exercised,  175,693
options to purchase our common shares  expired,  and 18,977  options to purchase
our common shares were cancelled.

                            DESCRIPTION OF THE NOTES

The notes were issued by our  wholly-owned  Irish  subsidiary,  Vasogen  Ireland
Limited,  and  guaranteed  by us as well as by our wholly  owned  United  States
subsidiary,  Vasogen,  Corp. Interest at 6.45% has been and will be paid in cash
only. If pre-market  approval is given by the U.S. Food and Drug  Administration
("FDA  Approval")  for the  marketing  of Celacade  for use in the  treatment of
chronic  heart failure the maturity date of the notes may be extended to October
7, 2010.  The notes are  unsecured.  We have obtained an  irrevocable  letter of
credit in the  amount of US$10  million  in favour of the  noteholders.  Upon an
event of default  under the notes,  noteholders  may draw  against the letter of
credit.  The letter of credit will be released in full to us in the event of FDA
Approval.  In the event that the aggregate principal amount of the notes that is
converted,  redeemed or repaid is in excess of US$23 million, then the amount of
the letter of credit shall also be reduced by an amount equal one-half of the

<PAGE>
                                       25


difference between US$17 million and the aggregate principal amount of the notes
then outstanding. If our ACCLAIM trial fails to meet its primary endpoint, then,
beginning  on September  1, 2006 until the notes are no longer  outstanding,  we
must maintain a net cash balance of 110% of the principal  outstanding under the
notes.  Vasogen Ireland Limited began to repay the principal amount of the notes
in equal monthly  installments in December,  2005. If an event of default should
occur,  as defined  under the notes,  the notes shall bear interest at a rate of
12.0% per annum until such default is cured. In addition, if an event of default
should occur,  noteholders  will be entitled to require the  redemption of their
notes, in whole or in part, at a price  determined  according to a formula under
the notes.  The notes are  convertible  by their  holders into common  shares at
US$3.00 per share, subject to adjustment.  In the event that a noteholder elects
to convert  their  notes,  in whole or in part,  into  common  shares and we are
unable to issue the  required  number of common  shares  due to an  insufficient
number of common shares being covered under this annual  information form or any
amendments  thereto,  then we shall be required  to make a cash  payment to such
electing  noteholders,  and such cash payment shall be in an amount that is at a
premium to the value of the common shares that would have otherwise been issued.
The principal  amount of the notes is repayable in monthly  installments in cash
or, at Vasogen Ireland Limited's election and subject to satisfaction of certain
conditions,  by the  issuance of common  shares.  If the notes are repaid by the
issuance of common shares,  the common shares will be issued at a 5% discount to
the arithmetic average of the weighted average price of the common shares during
each of the twelve consecutive  trading days preceding the time of issuance (the
"twelve-day  market  price"),  or, in the event  that the common  shares  have a
twelve-day  market price of less than  US$1.00,  then the common  shares will be
issued at a 10% discount to the  twelve-day  market  price.  Our option to issue
common  shares at either  discount  rate to repay the notes is contingent on the
condition that the aggregate number of common shares issued at a discount to the
market price with respect to the notes and the warrants cannot exceed 20,370,313
common shares, representing 25% of the issued common share capital as calculated
on an undiluted  basis prior to the issuance of the notes.  If this condition is
not met then any common shares being issued that would exceed the 25% limit will
be issued at the arithmetic  average of the weighted average price of the common
shares during each of the five  consecutive  trading days  preceding the date of
issuance and will not be subject to any discount.

Vasogen Ireland Limited also has, subject to certain  conditions,  the option to
accelerate  the  repayment of the notes,  in which case we are then  required to
issue acceleration warrants to the noteholders. See "Description of the Warrants
Issued on the Private Placement of Notes".

      DESCRIPTION OF THE WARRANTS ISSUED ON THE PRIVATE PLACEMENT OF NOTES

In connection with the private  placement,  we issued 3,333,334 initial warrants
to those investors who subscribed for the notes entitling each holder to acquire
pro rata that number of common shares equal to 25% of the total number of shares
that may be issued  on  conversion  by the  holder of the  notes.  Each  initial
warrant entitles the holder to purchase one common share at an exercise price of
US$3.00,  subject to adjustment.  In the event that a warrant  holder  exercises
their  warrants,  in whole or in part,  and we are unable to issue the  required
number of common  shares due to an  insufficient  number of common  shares being
covered under our  prospectus of November 18, 2005, or any  amendments  thereto,
then we shall be  required  to make a cash  payment to such  exercising  warrant
holders, and such cash payment shall be in an amount that is at a premium to the
value of the common shares that would have  otherwise  been issued.  The initial
warrants have a five-year term.

Acceleration  warrants shall be issued in the event that Vasogen Ireland Limited
elects to accelerate  the  repayment of the notes.  If Vasogen  Ireland  Limited
elects  to  accelerate  repayment,  we  are  obligated,  subject  to  regulatory
compliance,  to issue  warrants  generally  having an  exercise  price  equal to
US$3.00, subject to adjustment, and a five-year term commencing upon the date of
issuance.  The number of warrants to be issued upon  Vasogen  Ireland  Limited's
election to  accelerate  repayment of the notes shall be that number of warrants
sufficient  to entitle the holder to acquire that number of common  shares equal
to 65% of the  number  obtained  when the  accelerated  amount  being  repaid is
divided by US$3.00, subject to adjustment.

<PAGE>
                                       26


                              MARKET FOR SECURITIES

Our common  shares are listed on the  Toronto  Stock  Exchange  (the  "TSX") and
quoted for trading on the NASDAQ  National  Market.  Prior to December 17, 2003,
our common shares were listed on the American Stock Exchange.

The following table sets forth, for the periods indicated, the reported high and
low prices (in Canadian dollars) and volume traded on the TSX.

                 Month       $ High       $ Low      Close      Volume
                 Dec 04       6.64        5.61       6.10     1,658,848
                 Jan 05       6.85        5.70       6.19     1,607,634
                 Feb 05       6.30        5.20       5.45     1,469,494
                 Mar 05       5.60        4.86       4.90     2,251,317
                 Apr 05       5.45        4.33       4.71     1,585,220
                 May 05       5.64        4.50       5.63     1,839,440
                 Jun 05       6.50        5.40       5.99     2,187,637
                 Jul 05       7.34        5.76       6.75     2,383,004
                 Aug 05       7.15        2.27       2.49     6,361,679
                 Sep 05       2.77        2.08       2.43     9,086,896
                 Oct 05       3.50        2.43       3.11     3,455,610
                 Nov 05       3.41        2.50       2.58     1,579,028

The following table sets forth, for the periods indicated, the reported high and
low prices (in United States dollars) and volume traded on NASDAQ.

                  Month       $ High      $ Low      $ Close      Volume
                  Dec 04       5.46        4.67       5.08       3,344,815
                  Jan 05       5.59        4.63       4.99       5,430,102
                  Feb 05       5.10        4.22       4.34       4,969,556
                  Mar 05       4.58        3.98       4.05       5,969,007
                  Apr 05       4.40        3.64       3.73       4,841,435
                  May 05       4.50        3.62       4.45       5,973,843
                  Jun 05       5.25        4.30       4.91       8,049,871
                  Jul 05       6.08        4.70       5.48       9,816,387
                  Aug 05       5.78        2.07       2.11      20,647,671
                  Sep 05       2.38        1.75       2.11      24,149,974
                  Oct 05       3.00        2.06       2.68      14,388,299
                  Nov 05       2.87        2.14       2.24       6,312,778

                               ESCROWED SECURITIES

To our knowledge, none of our securities are held in escrow.

<PAGE>
                                       27


                             DIRECTORS AND OFFICERS

The names and  municipalities  of residence of all our directors and officers as
at the date hereof, the offices presently held, principal  occupations,  and the
year each  director  or officer  first  became a director or officer are set out
below.  Each director was elected to serve until the next annual  meeting of our
shareholders  or until his  successor  is elected  or  appointed.  Officers  are
appointed annually and serve at the discretion of the Board of Directors.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------

                       Position with the Company and Principal                                 Director/Officer
Name and Residence(3)  Occupation for the last five years        Other Public Company Boards   Since
--------------------------------------------------------------------------------------------------------------------
<S>                    <C>                                       <C>                           <C>
William R. Grant(1)    Chairman of the Board and Director of     Advanced Medical Optics,      November 1998;
New York,              the Company.  Vice Chairman of Galen      Inc.                          Chairman since
New York               Associates.                               Massey Energy Company         March 2001
                                                                 Quest Diagnostics
                                                                     Incorporated
--------------------------------------------------------------------------------------------------------------------
Andre Berard(1)        Director of the Company.  Mr. Berard      Banque Saradar France         November 2000
Iles des Soeurs,       spent over four decades with the          BCE Inc.
Quebec                 National Bank of Canada, formerly as      Groupe BMTC Inc.
                       CEO and Chairman of the Board, and now    Groupe Saputo Inc.
                       serves as a Corporate Director.           Kruger Inc.
                                                                 Le Groupe Canam Manac Inc.
                                                                 LMS Medical Systems Inc.
                                                                 National Bank of Canada
                                                                 Noranda Inc.
                                                                 Societe financiere Bourgie
                                                                 Inc.
                                                                 TransForce Income Fund
--------------------------------------------------------------------------------------------------------------------
Dr. Ronald M.          Director of the Company.  Dr. Cresswell    None                         January 10, 2006
Cresswell(1)           is the former Senior Vice President and
Ann Arbor, Michigan    Chief Scientific Officer of Warner
                       Lambert.
--------------------------------------------------------------------------------------------------------------------
David G. Elsley        President, Chief Executive Officer, and   None                          January 1991
Oakville, Ontario      a Director of the Company.
--------------------------------------------------------------------------------------------------------------------
Terrance H. Gregg(2)   Vice-Chairman of the Board and Director   Amylin Pharmaceuticals,       September 1999
Los Angeles,           of the Company.  Mr. Gregg is the         Inc.
California             former President of Medtronic MiniMed.    DexCom Inc.
                       He became President and Chief Operating   LMS Medical Systems Limited
                       Officer of Minimed in 1996.               Patton Medical Devices, LC.
--------------------------------------------------------------------------------------------------------------------
Benoit La Salle(1)     Director of the Company.  Chairman and    Contact Image Inc.            January 1997
Montreal, Quebec       Chief Executive Officer of SEMAFO Inc.    ART Research Technologies
                                                                 LMS Medical Systems Limited
                                                                 Pebercan Inc.
                                                                 SEMAFO Inc..
                                                                 20/20 Technologies Inc.
--------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>
                                       28

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
                     Position with the Company and
Name and             Principal Occupation for the last five     Other Public Company         Director/Officer
Residence(3)         years                                      Boards                       Since
-----------------------------------------------------------------------------------------------------------------
<S>                  <C>                                        <C>                          <C>
Surya N.             Director of the Company. Chief             Quest Diagnostics            March 2002
Mohapatra(2)         Executive Officer and Chairman of the      Incorporated
Saddle River,        Board of Quest Diagnostics. Mr.
New Jersey           Mohapatra is the former President and
                     Chief Operating Officer of Quest
                     Diagnostics.
-----------------------------------------------------------------------------------------------------------------
Eldon R. Smith       Vice President, Scientific Affairs, and a  Canadian Natural             July 1998
Calgary, Alberta     Director of the Company.                   Resources Limited
                                                                Overlord Financial Inc.
                                                                Pheromone Sciences Corp.
-----------------------------------------------------------------------------------------------------------------
Dr. Calvin R.        Director of the Company. Dr. Stiller is    NPS Pharmaceuticals, Inc.    January 2006
Stiller(2)           the former Chairman and Chief              Spectral Diagnostics Inc.,
London, Ontario      Executive Officer of Canadian Medical      Residence Retirement
                     Discoveries Fund Inc.                      REIT CPL Trust
-----------------------------------------------------------------------------------------------------------------
John C.              Director of the Company. Former            EduNeering Inc.              March 2001
Villforth(2)         President and Executive Director, Food
Derwood,             and Drug Law Institute.
Maryland
-----------------------------------------------------------------------------------------------------------------
Dr. Jay H.           Chief Medical Officer of the Company.      None                         December 2004
Kleiman              Dr. Kleiman was formerly Vice
Lake Forest,         President, Clinical Affairs of Northfield
Illinois             Laboratories, and formerly Medical
                     Director, Cardiovascular/Metabolic
                     Clinical Research for the G. D. Searle
                     division of Pharmacia (now Pfizer).
-----------------------------------------------------------------------------------------------------------------
Susan F.             Vice President, Regulatory Affairs of      None                         May 2003
Langlois             the Company. Ms. Langlois was
Bolton, Ontario      formerly Vice-President, Clinical and
                     Regulatory Affairs at Hemosol and
                     Director, Global Regulatory Affairs at
                     Connaught Laboratories Ltd.
-----------------------------------------------------------------------------------------------------------------
Jacqueline H.R.      Vice-President , Corporate & Legal         None                         July 2005
Le Saux              Affairs. Ms Le Saux was formerly a
Toronto, Ontario     legal and business development
                     executive with sanofi-aventis Canada,
                     Zinc Therapeutics, Ellipis
                     Biotherapeutics and Draxis Health.
-----------------------------------------------------------------------------------------------------------------
Bernard Lim          Senior Vice President, Operations,         None                         March 2001
Oakville, Ontario    formerly, Vice-President Technology of
                     the Company. Mr. Lim was formerly
                     the Managing Director of WELMED
                     (IVAC), and formerly Managing
                     Consultant of Belle Consulting.
-----------------------------------------------------------------------------------------------------------------
Michael Martin       Vice President, Marketing and Business     None                         June 2001
Montclair,           Development of the Company. Mr.
New Jersey           Martin was formerly the Global
                     Business Director, Immunology and
                     Oncology, for BASF Pharma (Knoll
                     Pharmaceuticals).
-----------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>
                                       29

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
                     Position with the Company and
Name and             Principal Occupation for the last five       Other Public Company              Director/Officer
Residence(3)         years                                        Boards                            Since
--------------------------------------------------------------------------------------------------------------------------
<S>                  <C>                                          <C>                               <C>
Dr. Michael E.       Vice President, Medical Affairs of the       None                              September 2004
Shannon              Company. Dr. Shannon was formerly
Picton, Ontario      Vice President, Medical Sciences for
                     Hemosol Inc., Senior Medical Advisor
                     and Principal for the Canadian Auditor
                     General, and the Director General of the
                     Laboratory Center for Disease Control,
                     Health Canada.
--------------------------------------------------------------------------------------------------------------------------
Paul J. Van          Vice-President, Finance, and Chief           None                              December 2005
Damme                Financial Officer. Mr. Van Damme was
Toronto, Ontario     formerly Chief Financial Officer of
                     Lorus Therapeutics Inc., Affinity
                     Express Inc. and Electrovaya Inc.
--------------------------------------------------------------------------------------------------------------------------
Christopher J.       Chief Operating Officer and formerly         None                              March 1997
Waddick,             Executive Vice President, Chief
Georgetown,          Financial Officer, and Treasurer of the
Ontario              Company.
--------------------------------------------------------------------------------------------------------------------------
</TABLE>

Notes:

1.    Member of the Audit Committee of the Board of Directors.

2.    Member of the Compensation,  Nominating and Corporate Governance Committee
      of the Board of Directors.

3.    The  Company  does  not  have  an  executive  committee  of the  Board  of
      Directors.

As of November 30, 2005, the directors and executive  officers of the Company as
a group  beneficially  own,  directly  or  indirectly,  or  exercise  control or
direction over 1,645,440  common shares,  approximately  2% of the issued common
shares of the Company.

On  December 9, 2002,  BridgePoint  International  Inc.,  a company of which Mr.
Benoit La Salle was a director and  chairman,  announced in a press release that
cease trade orders had been issued with respect to its shares by the  securities
regulatory  authorities  in each of  Quebec,  Ontario,  Manitoba,  Alberta,  and
British Columbia as a consequence of its default in filing its audited financial
statements for the year ended June 30, 2002 within the  prescribed  time period.
On or before  April 1,  2003,  all cease  trade  orders  were  revoked  by these
securities regulatory authorities.

COMPENSATION, NOMINATING, AND CORPORATE GOVERNANCE COMMITTEE

The charter of the Compensation,  Nominating, and Corporate Governance Committee
can be found on our website at www.vasogen.com.

AUDIT COMMITTEE

The Audit  Committee of the Board monitors our financial  activities,  policies,
and  internal  control  procedures.  The audit  committee  is  comprised of four
independent directors:  William R. Grant, Benoit La Salle, Ronald Cresswell, and
Andre Berard.

Mr Grant  joined our Board of  Directors  in 1998 and became  Chairman  in March
2001. He is Vice Chairman and Co-founder of Galen  Associates,  a New York-based
private equity firm that focuses  exclusively on the  healthcare  industry.  Mr.
Grant  has more  than 40 years  of  experience  in the  investment  banking  and
healthcare fields.  During his 25 years with Smith Barney, Mr. Grant was elected
President, then Vice-Chairman, and participated in the

<PAGE>
                                       30


financing of many  healthcare  companies.  Mr. Grant then joined  MacKay-Shields
Financial Corporation as President and was later elected Chairman of the Board.

Mr. La Salle is a chartered  accountant  and is a member of the Quebec  Order of
Chartered Accountants,  the Canadian Institute of Chartered Accountants, and the
Order of Chartered  Administrators  of Quebec.  He holds a Commerce  degree from
McGill  University  and  a  Master  of  Business   Administration   from  IMEDE,
Switzerland.   In  1980,  he  founded  Grou  La  Salle  &  Associes,   Chartered
Accountants. Mr. La Salle joined our Board of Directors in 1997.

Mr.  Berard  has spent  over four  decades  with the  National  Bank of  Canada.
Formerly  Chief  Executive  Officer and  Chairman,  he now serves as a Corporate
Director.  Mr.  Berard  also  serves on the  boards of a number of other  public
companies.  He is a member of the Advisory  Committee  to the Prime  Minister of
Canada on the Business/Government Executive Exchange Program, and is a member of
the Policy Committee of the Business Council on National Issues, the Conseil des
gouverneurs  associes  of the  Universite  de  Montreal,  the Jeune  Chambre  de
commerce de Montreal,  and the Chambre de commerce du Quebec.  Mr. Berard joined
our Board of Directors in 2000.

Dr. Cresswell  brings over three decades of research and commercial  development
experience in  cardiovascular  and other  therapeutic  areas. In his capacity of
Senior  Vice  President  and Chief  Scientific  Officer  of  Warner-Lambert,  he
developed an understanding of accounting  principles and, in particular,  gained
experience in the analysis and evaluation of financial statements,  particularly
as relates to health product related research and development activities and the
internal  controls and procedures  relevant to such  activities.  Dr.  Cresswell
joined our Board of Directors in 2006.

Under  the SEC  rules  implementing  the  Sarbanes-Oxley  Act of 2002,  Canadian
issuers  filing  reports in the United States must disclose  whether their audit
committees have at least one "audit committee  financial expert".  The Board has
determined  that  Benoit La Salle  qualifies  as a financial  expert  under such
rules.  In  addition,   all  members  of  the  Audit  Committee  are  considered
financially literate under applicable Canadian laws.

Under  the  Sarbanes-Oxley  Act of 2002,  the  independent  auditor  of a public
company is prohibited  from performing  certain  non-audit  services.  The Audit
Committee has adopted  procedures and policies for the pre-approval of non-audit
services, as described in the audit committee charter.

The charter of the Audit Committee is reproduced below, and can also be found on
our website at www.vasogen.com.

            Charter of the Audit Committee of the Board of Directors

      1.    PURPOSE
            -------

            The  Audit  Committee  shall  provide  assistance  to the  Board  of
            Directors in fulfilling its oversight function with respect to:

            (a)   the integrity of Vasogen's financial statements;

            (b)   Vasogen's compliance with legal and regulatory requirements;

            (c)   the External Auditor's qualifications and independence; and

            (d)   the  performance of Vasogen's  internal audit function and the
                  External Auditor.

      2.    COMMITTEE MEMBERSHIP
            --------------------

      2.1   Number of Members
            -----------------

            The  Audit  Committee  will be  comprised  of no  fewer  than  three
            Directors.

<PAGE>
                                       31


2.2   Independence of Members
      -----------------------

      Each  Committee  member  will  be  independent  for  the  purposes  of all
      applicable  regulatory and stock exchange  requirements  and in accordance
      with such additional criteria for independence as the Board may establish.

2.3   Financial Literacy
      ------------------

      All  members  shall  be  "financially  literate"  (either  at the  time of
      appointment  or within a reasonable  time  thereafter),  meaning that such
      member  has  the  ability  to  read  and  understand  a set  of  financial
      statements  that present a breadth and level of  complexity  of accounting
      issues that are generally  comparable to the breadth and complexity of the
      issues that can reasonably be expected to be raised by Vasogen's financial
      statements.

2.4   Restrictions
      ------------

      No holder of 20% or more of the  Company's  capital stock (nor any general
      partner,  controlling  shareholder or officer of any such holder) may be a
      voting member or Chairperson of the Audit Committee.

2.5   Audit Committee Financial Expert
      --------------------------------

      (a)   To the extent  possible,  the Board will appoint to the Committee at
            least one Director who has the following attributes:

            (i)   an understanding of generally accepted  accounting  principles
                  and financial statements;

            (ii)  ability to assess the general  application of such  principles
                  in connection with the accounting for estimates,  accruals and
                  provisions;

            (iii) experience  preparing,   auditing,   analyzing  or  evaluating
                  financial  statements  that  present  a  breadth  and level of
                  complexity of accounting issues that are generally  comparable
                  to the breadth and complexity of issues that can reasonably be
                  expected to be raised by Vasogen's  financial  statements,  or
                  experience actively supervising one or more persons engaged in
                  such activities;

            (iv)  an  understanding  of internal  controls  and  procedures  for
                  financial reporting; and

            (v)   an understanding of audit committee functions.

      (b)   Experience of the Audit Committee  Financial  Expert.  To the extent
            possible,  the  attributes  described  above will have been acquired
            through:

            (i)   education  and  experience as a principal  financial  officer,
                  principal accounting officer, controller, public accountant or
                  auditor or  experience in one or more  positions  that involve
                  the   performance   of  similar   functions   (or  such  other
                  qualification  as the Board interprets to be equivalent in its
                  business judgment);

            (ii)  experience actively supervising a principal financial officer,
                  principal accounting officer,  controller,  public accountant,
                  auditor or person performing similar functions;

            (iii) experience   overseeing  or  assessing  the   performance   of
                  companies   or  public   accountants   with   respect  to  the
                  preparation,  auditing or evaluation of financial  statements;
                  or

            (iv)  other relevant experience.

<PAGE>
                                       32


      2.6   Appointment of Members
            ----------------------

            The Committee members and their Chairman will be elected annually by
            the Board at the first  meeting of the Board of Directors  following
            the annual general meeting of shareholders.

3.    AUTHORITY OF THE COMMITTEE
      --------------------------

3.1   Retaining and Compensating Advisors
      -----------------------------------

      The  Audit  Committee  shall  have the  authority  to  engage  independent
      counsel,  experts and other advisors as the Committee may deem appropriate
      in its  sole  discretion  and to set  and  pay  the  compensation  for any
      advisors employed by the Audit Committee, and to communicate directly with
      internal and external auditors.

3.2   Subcommittees
      -------------

      The Audit Committee may form and delegate  authority to  subcommittees  if
      deemed appropriate by the Committee.

4.    REMUNERATION OF COMMITTEE MEMBERS

4.1   Remuneration of Committee Members
      ---------------------------------

      Members of Audit  Committee and the Chairman of the Audit  Committee shall
      receive such  remuneration for their service on the Audit Committee as the
      Board may determine from time to time.

4.2   Directors' Fees
      ---------------

      No  member of the  Committee  may earn  fees  from  Vasogen  or any of its
      subsidiaries  other than  director's  fees (which  fees may  include  cash
      and/or  shares  or  options  or  other  in-kind  consideration  ordinarily
      available to directors,  as well as all of the regular benefits that other
      directors  receive).  For  greater  certainty,  no  member  of  the  Audit
      Committee shall accept, directly or indirectly,  any consulting,  advisory
      or other compensatory fee from Vasogen.

5.    RESPONSIBILITIES

5.1   Integrity of Financial Statements
      ---------------------------------

                  (a) Annual  Financial  Statements.  The Committee shall review
                  and  discuss  with   management  and  the  External   Auditor,
                  Vasogen's  audited  financial   statements  and  related  MD&A
                  together with the report of the External  Auditor thereon and,
                  if  appropriate,  recommend  to the Board that it approve  the
                  audited financial statements.

                  (b) Interim Financial  Statements.  The Committee shall review
                  and discuss with  management and the External  Auditor and, if
                  appropriate,  approve,  Vasogen's interim unaudited  financial
                  statements and related MD&A.

                  (c) Material Public Financial Disclosure.  The Committee shall
                  discuss with management and the External Auditor:

                        (i)   the types of  information  to be disclosed and the
                              type of presentation to be made in connection with
                              earnings press releases;

                        (ii)  financial information and earnings (loss) guidance
                              (if any) provided to analysts and rating agencies;
                              and

<PAGE>
                                       33


                        (iii) press releases  containing  financial  information
                              (paying  particular  attention  to any use of "pro
                              forma" or "adjusted" non-GAAP information).

                  (d)  Procedures for Review.  The Committee  shall be satisfied
                  that  adequate  procedures  are in  place  for the  review  of
                  Vasogen's  disclosure  of financial  information  extracted or
                  derived  from  Vasogen's  financial   statements  (other  than
                  financial statements,  MD&A and earnings press releases, which
                  are  dealt  with   elsewhere   in  this   Charter)  and  shall
                  periodically assess the adequacy of those procedures.

                  (e)  General.  The  Committee  shall  review and discuss  with
                  management and the External Auditor:

                        (i)    major issues regarding accounting  principles and
                               financial statement presentations,  including any
                               significant  changes in  Vasogen's  selection  or
                               application of accounting principles;

                        (ii)   major  issues  as to the  adequacy  of  Vasogen's
                               internal  controls over  financial  reporting and
                               any special audit procedures  adopted in light of
                               material control deficiencies;

                        (iii)  analyses   prepared  by  management   and/or  the
                               External   Auditor   setting  forth   significant
                               financial  reporting issues and judgments made in
                               connection  with the preparation of the financial
                               statements,  including analyses of the effects of
                               alternative   GAAP   methods  on  the   financial
                               statements;

                        (iv)   the effect on Vasogen's financial  statements of:
                               regulatory    and     accounting     initiatives;
                               off-balance   sheet   transactions;   structures,
                               obligations  (including  contingent  obligations)
                               and   other   relationships   of   Vasogen   with
                               unconsolidated  entities  or other  persons  that
                               have a  material  current  or  future  effect  on
                               Vasogen's   financial   condition,   changes   in
                               financial   condition,   results  of  operations,
                               liquidity, capital resources, capital reserves or
                               significant  components of Vasogen's  revenues or
                               expenses;

                        (v)    the extent to which  changes or  improvements  in
                               financial or accounting practices, as approved by
                               the Committee, have been implemented;

                        (vi)   any financial information or financial statements
                               in prospectuses and other offering documents;

                        (vii)  the  management  certifications  of the financial
                               statements as required by the  Sarbanes-Oxley Act
                               of  2002,  under  applicable  securities  laws in
                               Canada or otherwise; and

                        (viii) any   other   relevant   reports   or   financial
                               information   submitted   by   Vasogen   to   any
                               governmental body, or the public.

5.2   External Auditor
      ----------------

      (a) Authority with Respect to External  Auditor.  As a  representative  of
      Vasogen's  shareholders,  the Committee shall be directly  responsible for
      the appointment  (through  nomination to the shareholders),  compensation,
      retention  and oversight of the work of the External  Auditor  engaged for
      the purpose of preparing or issuing an audit  report or  performing  other
      audit,  review or attest  services for Vasogen.  In the  discharge of this
      responsibility, the Committee shall:

            (i)   have sole  responsibility  for  recommending  to the Board the
                  firm to be proposed to Vasogen shareholders for appointment as
                  External Auditor for the  above-described  purposes as well as
                  the  responsibility  for recommending such External  Auditor's
                  compensation  and  determining  at any time  whether the Board
                  should recommend to

<PAGE>
                                       34


                  Vasogen's  shareholders whether the incumbent External Auditor
                  should be removed from office;

            (ii)  review  the  scope  and  terms  of  the   External   Auditor's
                  engagement,  discuss the audit fees with the External  Auditor
                  and  be  solely   responsible  for  pre-approving  such  audit
                  services fees; and

            (iii) require  the  External  Auditor to  confirm in its  engagement
                  letter each year that the External  Auditor is  accountable to
                  the   Board   and  the   Committee   as   representatives   of
                  shareholders.

      (b)   Independence.   The  Committee   shall  satisfy  itself  as  to  the
      independence  of the  External  Auditor.  As  part  of  this  process  the
      Committee shall:

            (i)   assure  the  regular  rotation  of the lead  audit  partner as
                  required  by law and  consider  whether,  in order  to  ensure
                  continuing  independence  of  the  External  Auditor,  Vasogen
                  should  rotate  periodically,  the audit  firm that  serves as
                  External Auditor;

            (ii)  require the External  Auditor to submit on a periodic basis to
                  the Committee,  a formal  written  statement  delineating  all
                  relationships  between  the  External  Auditor and Vasogen and
                  that the Committee is responsible  for actively  engaging in a
                  dialogue  with  the  External  Auditor  with  respect  to  any
                  disclosed  relationships  or  services  that  may  impact  the
                  objectivity and  independence of the External  Auditor and for
                  recommending  that  the  Board  take  appropriate   action  in
                  response to the External Auditor's report to satisfy itself of
                  the External Auditor's independence;

            (iii) unless  the  Committee   adopts   pre-approval   policies  and
                  procedures,  approve any  non-audit  services  provided by the
                  External  Auditor and may delegate such approval  authority to
                  one or  more  of its  independent  members  who  shall  report
                  promptly to the Committee  concerning  their  exercise of such
                  delegated authority; and

            (iv)  review and approve Vasogen's hiring policy regarding partners,
                  employees  and former  partners  and  employees  of  Vasogen's
                  present and former External Auditor.

      (c) Issues Between External Auditor and Management. The Committee shall:

            (i)   review and discuss any  problems  experienced  by the External
                  Auditor in conducting the audit, including any restrictions on
                  the scope of the External  Auditor's  activities or any access
                  to requested information;

            (ii)  review any significant  disagreements  with management and, to
                  the  extent  possible,   resolve  any  disagreements   between
                  management and the External Auditor; and

            (iii) review with the External Auditor:

                  (A)   any  accounting  adjustments  that were  proposed by the
                        External Auditor, but were not made by management;

                  (B)   any  communications  between  the  audit  team and audit
                        firm's national office respecting auditing or accounting
                        issues arising from the engagement; and

                  (C)   any management or internal  control  letter  issued,  or
                        proposed  to  be  issued  by  the  External  Auditor  to
                        Vasogen.

      (d)   Non-Audit Services.

            (i)   The Committee shall either:

<PAGE>
                                       35


                  (A)   pre-approve  any  non-audit  services  provided  by  the
                        External    Auditor    to   Vasogen    (including    its
                        subsidiaries); or

                  (B)   adopt specific  pre-approval policies and procedures for
                        the engagement of non-audit services, provided that such
                        pre-approval  policies and procedures are detailed as to
                        the particular service,  the audit committee is informed
                        of each  non-audit  service  and the  procedures  do not
                        include    delegation    of   the   audit    committee's
                        responsibilities to the management.

            (ii)  The Committee may delegate to one or more independent  members
                  of  the  Committee  the  authority  to  pre-approve  non-audit
                  services in  satisfaction  of the  requirement in the previous
                  section, provided that such member or members must present any
                  non-audit  services so approved to the full audit committee at
                  its first scheduled meeting following such pre-approval.

            (iii) The Committee  shall instruct  management to promptly bring to
                  its attention any services  performed by the External  Auditor
                  which  were  not  recognized  by  Vasogen  at the  time of the
                  engagement as being non-audit services.

      (e)  Evaluation  of External  Auditor.  The Committee  shall  evaluate the
      External  Auditor each year, and present its  conclusions to the Board. In
      connection with this evaluation, the Committee shall:

            (i) review and evaluate the  performance  of the lead partner of the
            External Auditor;

            (ii)  obtain  the  opinions  of   management   and  of  the  persons
            responsible  for  Vasogen's  internal  audit  with  respect  to  the
            performance of the External Auditor; and

            (iii) obtain and review a report by the External Auditor describing:

                  (A)   the   External   Auditor's   internal    quality-control
                        procedures; and

                  (B)   any material  issues raised by the most recent  internal
                        quality-control  review, or peer review, of the External
                        Auditor's  firm or by any  inquiry or  investigation  by
                        governmental  or  professional  authorities,  within the
                        preceding five years, respecting one or more independent
                        audits carried out by the External  Auditor's  firm, and
                        any steps taken to deal with any such issues.

      (f) Review of Management's Evaluation and Response. The Committee shall:

            (i)   review management's evaluation of the External Auditor's audit
                  performance;

            (ii)  review  the  External  Auditor's  recommendations,  and review
                  management's  response  to  and  subsequent  follow-up  on any
                  identified weaknesses;

            (iii) receive regular  reports from management and receive  comments
                  from the External Auditor, if any, on:

                  (A)   Vasogen's principal financial risks;

                  (B)   the systems implemented to monitor those risks; and

                  (C)   the strategies  (including hedging  strategies) in place
                        to manage those risks; and

<PAGE>
                                       36


            (iv)  recommend  to the Board  whether any new  material  strategies
                  presented  by   management  to  manage   Vasogen's   principal
                  financial risks should be considered appropriate and approved.

      (g)   Internal Controls. The Committee shall:

            (i)   in consultation with the External Auditor, review the adequacy
                  of  Vasogen's   internal  control   structure  and  procedures
                  designed to ensure  compliance  with laws and  regulations and
                  any  special   audit  steps   adopted  in  light  of  material
                  deficiencies and controls;

            (ii)  review management's  response to significant  internal control
                  recommendations of the External Auditor;

            (iii) review (i) the internal control report prepared by management,
                  including  management's  assessment  of the  effectiveness  of
                  Vasogen's   internal  control  structure  and  procedures  for
                  financial   reporting   and   (ii)  the   External   Auditor's
                  attestation, and report, on the assessment made by management.

6.    MEETINGS
      --------

6.1   Committee Meetings
      ------------------

      The Audit  Committee will meet regularly at times necessary to perform the
duties described above in a timely manner, but not less than quarterly. Meetings
may be held at any time deemed  appropriate by the Committee.  A majority of the
Members of the Audit  Committee shall  constitute a quorum to transact  business
and such meetings may be telephonic or by video conferencing. Notice of at least
48 hours shall be provided for all  meetings.  Minutes of every meeting shall be
kept with Vasogen's corporate records.

6.2   In Camera Meetings
      ------------------

      As a part of each  meeting  of the  Audit  Committee  at which  the  Audit
      Committee  recommends that the Board approve the annual audited  financial
      statements  or  at  which  the  Audit  Committee  approves  the  quarterly
      financial statements,  the Audit Committee shall meet separately with each
      of:

            (i)   Management; and

            (ii)  the External Auditor.

      The External  Auditor will have direct  access to the Committee at its own
      initiative,  shall receive  notice of each meeting of the Audit  Committee
      and shall be entitled to attend any such meeting at Vasogen's expense.

6.3   Regular Reporting
      -----------------

      The  Chairman  of the  Committee  will  regularly  report the  Committee's
      findings and recommendations to the Board of Directors.

7.    OTHER
      -----

7.1   Related Party Transactions
      --------------------------

      The  Audit   Committee   shall  review  and  approve  all  related   party
      transactions  in which  Vasogen is involved or which  Vasogen  proposes to
      enter into.

<PAGE>
                                       37


7.2   Whistle Blowing
---   ---------------

      The Audit Committee shall put in place procedures for:

            (i)   the receipt,  retention,  and treatment of complaints received
                  by Vasogen regarding accounting, internal accounting controls,
                  or auditing matters; and

            (ii)  the confidential, anonymous submission by employees of Vasogen
                  of  concerns  regarding  questionable  accounting  or auditing
                  matters.

8.    ANNUAL PERFORMANCE EVALUATION

      On  an  annual  basis,  the  Audit  Committee  shall  follow  the  process
established  by the Board and  overseen  by the  Compensation,  Nominating,  and
Corporate Governance Committee for assessing the performance of the Committee.

9.    CHARTER REVIEW

      The  Committee  shall  review  and  assess the  adequacy  of this  Charter
annually and recommend to the Board any changes it deems appropriate.

                                LEGAL PROCEEDINGS

There are no  outstanding  legal  proceedings  to which we are party nor, to our
knowledge, are any such proceedings contemplated.

           INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS

We have a strategic  alliance with Quest  Diagnostics  Incorporated to develop a
potential  secondary  point of use of our Celacade  technology.  This  secondary
point of use may be used in the future to facilitate  referrals outside hospital
clinics and cardiology practices in the United States on an exclusive basis.

The final terms of the  strategic  alliance with Quest  Diagnostics  are not yet
established and are the subject of continuing discussion between the parties. In
connection  with  this  strategic  alliance,  Quest  Diagnostics  made a US $7.5
million  investment  in  the  Company  and  received  1,406,783  shares.   Quest
Diagnostics  also  received  625,237  warrants at an  exercise  price of $12.73,
expiring in November  2006.  The fair value of the  warrants on the day of grant
was negligible.

Vasogen Ireland Limited has entered into clinical trial services agreements with
Quest Diagnostics to provide central  laboratory testing and related services in
connection with the ACCLAIM and SIMPADICO clinical trials. The agreements are on
terms customary for agreements of this nature.

As at February 13, 2006,  Quest owns 3,056,783  common shares,  or approximately
3.67% of our common shares and warrants to purchase 625,237 at $12.73 per share.
One of our directors is also Chairman of the Board and Chief  Executive  Officer
of Quest Diagnostics.  However, he is not standing for re-election at Annual and
Special Meeting of Shareholders  scheduled for March 22, 2006. In addition,  our
current Chairman is also a director of Quest Diagnostics.  Another director will
assume  the  chairmanship  of the board of  directors  following  the Annual and
Special Meeting of Shareholders scheduled for March 22, 2006.

<PAGE>
                                       38


                         TRANSFER AGENTS AND REGISTRARS

Our Canadian transfer agent and registrar is CIBC Mellon Trust Company, P.O. Box
7010, Adelaide Street Postal Station, Toronto Ontario, Canada M5C 2W. Our United
States  co-transfer  agent and  registrar is Mellon  Investor  Services LLC, 480
Washington Blvd., Jersey City, NJ 07310 U.S.A.

                               MATERIAL CONTRACTS

We have not, during our financial year ended November 30, 2005, entered into any
material  contracts  other than contracts in the ordinary course of business and
other than the issuance of the notes and initial warrants on October 7, 2005 for
net  proceeds  of  approximately  US$36,400,000.  The  notes  and  warrants  are
described in detail under "Capital Structure".

                              INTERESTS OF EXPERTS

Our auditor is KPMG LLP,  Chartered  Accountants,  Yonge Corporate Centre,  4100
Yonge Street, Toronto,  Ontario M2P 2H3. To our knowledge,  our auditor does not
hold, in registered or beneficial interest,  directly or indirectly,  any common
shares of the Company.

KPMG provides  tax,  financial  advisory,  and other  non-audit  services to the
Company  and its  subsidiaries.  Our  Audit  Committee  has  concluded  that the
provision  of  these  non-audit   services  by  KPMG  is  compatible  with  KPMG
maintaining its independence.

The total  fees paid or  accrued  by the  Company  for audit and other  services
provided by KPMG during 2004 were:

         Audit Fees (1)                              $ 296,000
         Audit-Related Fees                          $       0
         Tax Fees (2)                                $ 217,425
         All Other Fees                              $       0
                                                     ---------
         Total Fees                                  $ 513,425
                                                     =========

(1)   Audit fees consist of fees related to the audit of the Company's financial
      statements,  reviews of quarterly interim financial statements and auditor
      involvement with a financing completed during 2004.

(2)   Tax fees consist of fees for tax consultation and tax compliance  services
      for Vasogen Inc. and Vasogen Ireland.

The total  fees paid or  accrued  by the  Company  for audit and other  services
provided by KPMG during 2005 were:

         Audit Fees (1)                              $ 383,027
         Audit-Related Fees                          $   1,750
         Tax Fees (2)                                $ 120,227
         All Other Fees                              $       0
                                                     ---------
         Total Fees                                  $ 505,004
                                                     =========

(1)   Audit-related  fees consist of fees related to the audit of the  Company's
      consolidated financial statements,  reviews of quarterly interim financial
      statements and auditor involvement with a financing completed during 2005.

(2)   Tax fees consist of fees for tax consultation and tax compliance  services
      for Vasogen Inc. and Vasogen Ireland.

<PAGE>
                                       39


                             ADDITIONAL INFORMATION

Additional  information   concerning  our  Company,   including  directors'  and
officers'  remuneration and indebtedness,  principal holders of securities,  and
securities authorized for issuance under equity compensation plans, is contained
in our 2005  Management  Proxy  Circular.  Additional  financial  information is
provided  in  the  consolidated   financial   statements  and  the  accompanying
Managements  Discussion  and Analysis for our financial  year ended November 30,
2005.  Copies of our 2005  Management  Proxy Circular and 2005 Annual Report are
filed  on Sedar at  www.sedar.com  and may be  obtained  upon  request  from our
Corporate Secretary at 2505 Meadowvale Boulevard, Mississauga, Ontario L5N 5S2.