1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 22, 2000 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ XCYTE THERAPIES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 2834 91-170-7622 (STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER) 1124 COLUMBIA STREET, SUITE 130 SEATTLE, WASHINGTON 98104 (206) 262-6200 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ RONALD J. BERENSON, M.D. PRESIDENT AND CHIEF EXECUTIVE OFFICER XCYTE THERAPIES, INC. 1124 COLUMBIA STREET, SUITE 130 SEATTLE, WASHINGTON 98104 (206) 262-6200 (NAME, ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ COPIES TO: SONYA F. ERICKSON DANIELLE CARBONE VENTURE LAW GROUP SHEARMAN & STERLING A PROFESSIONAL CORPORATION 1550 EL CAMINO REAL, SUITE 100 4750 CARILLON POINT MENLO PARK, CA 94025 KIRKLAND, WA 98033 (650) 330-2200 (425) 739-8700 ------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] ------------------------ CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------ PROPOSED MAXIMUM TITLE OF EACH CLASS OF AGGREGATE OFFERING AMOUNT OF SECURITIES TO BE REGISTERED PRICE(1) REGISTRATION FEE - ------------------------------------------------------------------------------------------------------------------------ Common Stock $0.001 par value............. $86,250,000 $22,770.00 - ------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------ (1) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933. ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------

2 THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES, AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION, DATED PROSPECTUS SHARES [XCYTE LOGO] COMMON STOCK This is an initial public offering of shares of common stock of Xcyte Therapies, Inc. Xcyte Therapies expects that the initial public offering price will be between $ and $ per share. We have applied for approval for trading and quotation of our common stock on the Nasdaq National Market under the symbol "XCYT." OUR BUSINESS INVOLVES SIGNIFICANT RISKS. THESE RISKS ARE DESCRIBED UNDER THE CAPTION "RISK FACTORS" BEGINNING ON PAGE 5. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. ------------------------- PER SHARE TOTAL Public offering price....................................... $ $ Underwriting discounts and commissions...................... $ $ Proceeds, before expenses, to Xcyte Therapies............... $ $ The underwriters may also purchase up to an additional shares of common stock at the public offering price, less the underwriting discounts and commissions, to cover over-allotments. The underwriters expect to deliver the shares against payment in New York, New York on , 2001. ------------------------- SG COWEN U.S. BANCORP PIPER JAFFRAY DAIN RAUSCHER WESSELS FIRST SECURITY VAN KASPER , 2001

3 TABLE OF CONTENTS PAGE ---- Prospectus Summary.................... 1 Risk Factors.......................... 5 Special Note Regarding Forward-Looking Statements.......................... 17 Use of Proceeds....................... 18 Dividend Policy....................... 18 Capitalization........................ 19 Dilution.............................. 20 Selected Financial Data............... 21 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 22 PAGE ---- Business.............................. 27 Management............................ 43 Certain Transactions.................. 54 Principal Stockholders................ 56 Description of Capital Stock.......... 59 Shares Eligible for Future Sale....... 63 Underwriting.......................... 65 Legal Matters......................... 67 Experts............................... 67 Where You Can Find Additional Information......................... 68 Index to Financial Statements......... F-1 ------------------------- UNTIL , 2001, ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS REQUIREMENT IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. ------------------------- YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. WE ARE OFFERING TO SELL AND SEEKING OFFERS TO BUY SHARES OF OUR COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK. ------------------------- WE HAVE FILED FOR TRADEMARK REGISTRATION OF XCYTE, XCYTE THERAPIES, XCELLERATE AND THE XCYTE THERAPIES LOGO. THIS PROSPECTUS ALSO INCLUDES TRADEMARKS AND TRADENAMES OF OTHER PARTIES.

4 PROSPECTUS SUMMARY You should carefully read the more detailed information contained in this prospectus, including our financial statements and related notes included in this prospectus. Unless otherwise noted, all information in this prospectus assumes (1) the conversion of all outstanding shares of our preferred stock into 28,059,047 shares of common stock, (2) the issuance of 1,132,287 shares of common stock upon the exercise of warrants to purchase common stock, which warrants will expire at the closing of this offering, (3) the issuance of 380,725 shares of common stock upon the exercise of the warrants to purchase preferred stock, which warrants will expire at the closing of this offering, and the subsequent conversion of the preferred stock, (4) the conversion of preferred stock warrants into common stock warrants for the purchase of 280,029 shares of common stock and (5) no exercise by the underwriters of the over-allotment option. We also intend to effect a -for- reverse stock split that would be effected prior to consummation of this offering. This prospectus does not reflect this reverse split. OUR COMPANY We are utilizing novel technologies to develop therapeutic products that generate effective immune responses to treat cancer and infectious diseases. We use our proprietary technology, known as Xcellerate, to activate and grow T cells. T cells are specialized cells of the immune system that play a central role in fighting diseases and infections. Our Xcellerate Technology rapidly and reproducibly activates a patient's own T cells outside of the body by mimicking normal events of the immune system. T cells activated with our technology, known as Xcellerated T Cells, may be administered to treat patients who have either poorly functioning or low numbers of T cells. We believe we have developed an efficient and commercially viable process to produce Xcellerated T Cells. Our approach, known as Xcellerate Therapy, may allow us to treat a variety of medical conditions, including: - diseases characterized by poorly functioning immune systems, such as cancer and HIV; - conditions due to medical treatments, such as chemotherapy and the administration of drugs following transplantation, that suppress the immune system and cause patients to be vulnerable to infections; and - congenital disorders and advanced age that result in weakened immune systems. In July 2000, we initiated a Phase I clinical trial of our Xcellerate Therapy in patients with metastatic kidney cancer. We intend to enroll a total of 25 patients to test the safety as well as provide preliminary data on the therapeutic effects of our Xcellerate Therapy. In this clinical trial, patients are treated with two infusions of our Xcellerated T Cells approximately four weeks apart. As of December 15, 2000, 17 patients have received a total of 32 infusions of our Xcellerated T Cells. To date, there have been no significant adverse effects related to the administration of our Xcellerated T Cells and we have observed evidence of anti-tumor activity. We expect to complete this trial in the third quarter of 2001. Physicians have recently begun to recognize the important role that the immune system may play in controlling cancer and improving the body's defenses against infectious diseases. This has led to the development of a new therapeutic approach to cancer known as immunotherapy, which uses natural components of the immune system to fight disease. The American Cancer Society estimates that in 2000, 1.2 million new cases of cancer will occur in the United States. Surgery, radiation and chemotherapy are the primary approaches used to treat cancer patients. Chemotherapy is used to treat patients with more advanced forms of cancer, but has limited success and is associated with severe and sometimes life-threatening side effects. Infectious diseases are caused by viruses, bacteria and fungi and can be controlled in most people with antibiotics or antiviral drugs. However, when a patient's immune system is compromised, normally harmless microorganisms may cause potentially life-threatening infections. We intend to evaluate our Xcellerate Therapy as a potential treatment for a variety of cancers and infectious diseases. 1

5 Benefits of Our Xcellerate Therapy We provide a direct and reproducible method to activate T cells and we believe our Xcellerate Therapy may be an effective treatment to fight disease. We believe our Xcellerate Therapy has the following benefits: - Activated Immune System. We have demonstrated in the laboratory that our Xcellerated T Cells are highly responsive and generate potent immune responses because we mimic the natural process required to activate both helper T cells and killer T cells. - Broad Clinical Applications. Our Xcellerate Therapy targets T cells, which are important components of the immune system. We believe that our Xcellerated T Cells may be useful to treat a variety of medical conditions, including cancer and infectious diseases. - Minimal Toxicity. Our Xcellerated T Cells are produced from T cells originating from the patient. We believe that using a patient's own cells results in a safer product. - Easy Administration. Our Xcellerate Therapy can be administered in a simple outpatient procedure in less than 30 minutes. This process uses a standard intravenous procedure that is attractive to both physicians and patients. - Complementary to Other Technologies. The minimal toxicity associated with our Xcellerate Therapy may make it feasible to use our product with chemotherapy or antiviral drugs, as well as with other therapeutic products that are being used to activate the immune system. Benefits of Our Xcellerate Technology We believe our proprietary Xcellerate Technology can be developed into a commercially viable process. The benefits of our Xcellerate Technology are: - Rapid and Reproducible Process. Our Xcellerate Technology can be used to activate and grow T cells in eight days with minimal intervention. We believe this length of time is sufficient to generate the number of T cells necessary for a therapeutic effect. We use the same process and components for every patient, eliminating the need for patient-specific materials that must be obtained by surgery, such as samples of a patient's tumor. - Ex Vivo Process. Our Xcellerate Technology activates T cells outside of the body, or ex vivo. Activating and growing T cells outside of the body provides a more controlled environment away from tumor cells and infectious agents that can otherwise inhibit the activation and growth of T cells. In addition, therapeutic agents that are otherwise potentially toxic or fatal if administered directly to the patient can be used to improve the activity and growth of T cells. - Standard and Cost-effective Manufacturing Process. Our Xcellerate Technology incorporates primarily commercially available medical products and standard blood bank procedures, which enables us to efficiently manufacture our Xcellerated T Cells. We believe we are able to manufacture our Xcellerated T Cells in facilities that can be cost-effectively constructed, equipped and easily scaled. Our goal is to be a leader in the field of T cell therapy. We intend to use our expertise in T cell activation to develop and commercialize products to treat cancer, HIV and other serious illnesses. Key elements of our strategy include: - commercializing our Xcellerate Therapy for cancer and HIV; - expanding the Xcellerate Therapy to treat multiple diseases; - leveraging complementary technologies and therapies; - retaining key commercialization rights; - evaluating collaboration opportunities for our products; and - expanding our intellectual property. 2

6 THE OFFERING Common stock we are offering............ shares Common stock to be outstanding after this offering........................... shares Underwriters' over-allotment option..... shares Use of proceeds......................... We intend to use the net proceeds for clinical trials, research and development activities, expansion of our manufacturing capacity and general corporate purposes and working capital Proposed Nasdaq National Market symbol.................................. XCYT The number of shares of our common stock to be outstanding immediately after this offering is based on the number of shares outstanding on September 30, 2000. This number: - includes 5,965,234 shares of our outstanding common stock; - includes an aggregate of 28,059,047 shares of common stock issuable upon the automatic conversion of all outstanding shares of preferred stock upon the closing of this offering; - includes 1,132,287 shares of common stock issuable upon the exercise of warrants to purchase common stock at an exercise price of $0.30 per share, which warrants will expire at the closing of this offering; - includes 380,725 shares of common stock issuable upon the exercise of warrants to purchase preferred stock at a weighted average exercise price of $0.97, which warrants will expire at the closing of this offering, and the subsequent conversion of the preferred stock; - excludes 280,029 shares of common stock issuable upon the exercise of warrants to purchase 280,029 shares of preferred stock which were assumed to have been converted into warrants to purchase 280,029 shares of common stock upon the closing of this offering; - excludes 1,626,221 shares of common stock issuable upon the exercise of stock options outstanding under our 1996 Stock Option Plan at a weighted average exercise price of $0.24 per share; - excludes 785,354 shares of common stock reserved for future grant under our 1996 Stock Option Plan; - excludes 2,100,000 shares of common stock reserved for future issuance under our 2000 Stock Option Plan; - excludes 600,000 shares of common stock reserved for future issuance under our 2000 Employee Stock Purchase Plan; - excludes 400,000 shares of common stock reserved for future issuance under our 2000 Directors' Stock Option Plan; - excludes 1,056,040 shares of common stock reserved for future issuance under our Milestone Pool; and - excludes 180,000 shares of common stock reserved for future issuance under our licence agreement with ARCH Development Corporation. OUR HISTORY We were incorporated in Delaware as MolecuRx, Inc. in January 1996, changed our name to CDR Therapeutics, Inc. in August 1996, and changed our name to Xcyte Therapies, Inc. in October 1997. Our principal executive offices are located at 1124 Columbia Street, Suite 130, Seattle, Washington 98104. Our telephone number at that location is (206) 262-6200. References in the prospectus to "we," "our," "us" and the "Company" refer to Xcyte Therapies. Information contained on our Web site is not part of this prospectus. 3

7 SUMMARY FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT PER SHARE DATA) The following summary historical financial data has been derived from our audited financial statements and unaudited interim financial statements and is summary financial data of our business. You should read this information together with the financial statements and the notes to those statements appearing elsewhere in this prospectus and the information under "Selected Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." See notes 1 and 10 to our financial statements for information regarding computation of net loss per share and pro forma net loss per share. NINE MONTHS PERIOD FROM ENDED INCEPTION YEARS ENDED DECEMBER 31, SEPTEMBER 30, (AUGUST 27, 1996) ------------------------------------ ----------------- THROUGH 1997 1998 1999 1999 2000 SEPTEMBER 30, 2000 ---------- ---------- ---------- ------- ------- ------------------ (UNAUDITED) (UNAUDITED) STATEMENT OF OPERATIONS DATA: Total revenue............................ $ 100 $ -- $ 16 $ -- $ 44 $ 160 Operating expenses: Research and development............... 2,397 4,311 5,413 3,573 7,176 19,625 General and administrative............. 1,148 1,427 1,619 1,158 1,061 5,569 Noncash stock and compensation expense.............................. 4 6 93 3 557 662 ------- ------- ------- ------- ------- -------- Total operating expenses................. 3,549 5,744 7,125 4,734 8,794 25,856 ------- ------- ------- ------- ------- -------- Loss from operations..................... (3,449) (5,744) (7,109) (4,734) (8,750) (25,696) Other income, net........................ 161 298 162 232 278 992 ------- ------- ------- ------- ------- -------- Net loss............................... $(3,288) $(5,446) $(6,947) $(4,502) $(8,472) $(24,704) ======= ======= ======= ======= ======= ======== Basic net loss per share................. $ (0.69) $ (0.86) $ (1.15) $ (0.74) $ (1.42) $ (4.44) ======= ======= ======= ======= ======= ======== Shares used in basic loss per share calculation............................ 4,741 6,355 6,050 6,086 5,962 5,564 ======= ======= ======= ======= ======= ======== Pro forma net loss per share............. $ (0.29) $ (0.31) $ (1.27) ======= ======= ======== Shares used in pro forma per share calculation............................ 23,999 27,159 19,514 ======= ======= ======== The following table contains a summary of our balance sheet at September 30, 2000: - on an actual basis; - on a pro forma basis to reflect the automatic conversion of all outstanding shares of preferred stock into 28,059,047 shares of common stock upon the closing of this offering, the issuance of 380,725 shares of common stock issuable upon the exercise of warrants to purchase preferred stock at a weighted average exercise price of $0.97 per share, which warrants will expire at the closing of this offering, and the subsequent conversion of the preferred stock, the issuance of 1,132,287 shares of common stock upon the exercise of warrants to purchase common stock at an exercise price of $0.30 per share, which warrants will expire at the closing of this offering and the conversion of preferred stock warrants into common stock warrants for the purchase of 280,029 shares of common stock; and - on a pro forma, as adjusted basis, to reflect the sale of shares of common stock that we are offering at an assumed initial public offering price per share of $ after deducting estimated underwriting discounts and offering expenses. SEPTEMBER 30, 2000 ------------------------------------- PRO FORMA ACTUAL PRO FORMA AS ADJUSTED -------- --------- -------------- BALANCE SHEET DATA: Cash, cash equivalents and short-term investments........... $ 27,257 $ 27,967 Working capital............................................. 26,393 27,103 Total assets................................................ 30,336 31,046 Long-term obligations....................................... 953 953 $ 953 Redeemable convertible preferred stock...................... 48,394 -- -- Redeemable convertible preferred stock warrants............. 557 -- -- Total stockholders' equity (deficit)........................ (21,228) 28,434 4

8 RISK FACTORS You should carefully consider the risks described below before making an investment decision. 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 also may become important factors that affect us. RISKS RELATED TO US AND OUR BUSINESS WE CANNOT ASSURE YOU THAT OUR XCELLERATE THERAPY WILL MEET REGULATORY REQUIREMENTS FOR SAFETY AND EFFICACY. ANY FAILURE TO MEET THESE REQUIREMENTS WOULD HARM OUR BUSINESS. Before we can commercialize any cell therapy product, we must complete clinical trials demonstrating that our Xcellerate Therapy is safe and effective. We have limited clinical data to date. Future clinical trials may show that our Xcellerate Therapy is not safe and effective. We do not have data on any possible harmful long-term effects of our Xcellerate Therapy. In June 2000, we initiated our first clinical trial of our Xcellerate Therapy in patients with metastatic kidney cancer. We will not know the results of our first Phase I clinical trial for metastatic kidney cancer until at least the third quarter of 2001. Patients in this Phase I clinical trial receive low doses of interleukin-2 with our Xcellerate Therapy. We cannot guarantee that any beneficial data from this trial will be a result of our Xcellerate Therapy and not attributable to interleukin-2. Therefore, we are unable to use the limited data to support the efficacy of our Xcellerate Therapy. Following this Phase I clinical trial, we will be required to conduct extensive additional clinical trials to determine whether the data supports approval by the United States Food and Drug Administration, or FDA, of our Xcellerate Therapy. We have not initiated the clinical development of our Xcellerate Therapy for any infectious disease, nor for any other types of cancer. Much of our data is derived from third party clinical trials, including physician-sponsored trials, performed with one of our scientific founders in which we have not participated. Clinical data collected under non-commercial or physician-sponsored investigational new drug applications, or INDs, do not fulfill the criteria necessary to be used in the support of clinical efficacy in marketing applications for commercialization by regulatory agencies. We will need to conduct extensive additional research and testing prior to initiating other clinical trials. Clinical testing is very expensive, can take many years, and the outcome is uncertain. If we fail to adequately demonstrate safety and efficacy in our clinical trials, regulatory approval would be delayed or precluded, which could harm our business. OUR BUSINESS IS DEPENDENT ON THE SUCCESSFUL COMMERCIALIZATION OF PRODUCTS BASED ON OUR XCELLERATE TECHNOLOGY. Our ability to successfully commercialize products based on our Xcellerate Technology for a particular cancer type substantially depends on our ability to activate T cells from the blood of patients with that type of cancer. In some patients, it may not be possible to grow a sufficient number of T cells to produce a therapeutic effect. Only a few cell-based immunotherapy products have been commercialized. We may experience numerous unforeseen events during the clinical development process that could delay or prevent commercialization of our products, including the following: - the results of laboratory studies may be inconclusive, or they may not be indicative of results that will be obtained in clinical trials; - after reviewing test results, we may abandon projects that we might previously have believed to be promising; - we or regulators may suspend or terminate clinical trials if the participating subjects or patients are being exposed to unacceptable health risks; and 5

9 - our potential products may not have the desired effects or may produce undesirable side effects or other characteristics that may preclude regulatory approval or limit their commercial use if approved. We do not expect to receive regulatory approval for commercial sale of our Xcellerate Therapy for several years. We cannot assure you that we will ever commercialize products based on our Xcellerate Technology. Any delays or difficulties we encounter in our clinical trials may harm our business. WE MAY TAKE LONGER TO COMPLETE OUR CLINICAL TRIALS THAN WE EXPECT, OR WE MAY NOT BE ABLE TO COMPLETE THEM AT ALL. A number of factors may cause significant delays in our clinical trials, including scheduling conflicts with participating clinicians and clinical institutions and difficulties in identifying and enrolling patients who meet eligibility criteria. As a result, we may not commence or complete clinical trials involving any of our products as expected. We rely on academic institutions or clinical research organizations to conduct, supervise or monitor some or all aspects of clinical trials involving our products. We will have less control over the timing and other aspects of these clinical trials than if we conducted them entirely on our own. If we fail to commence or complete, or experience delays in, any of our planned clinical trials, our ability to conduct our business as currently planned would be harmed. WE ARE SUBJECT TO EXTENSIVE REGULATION, WHICH CAN BE COSTLY, TIME CONSUMING AND CAN CAUSE UNANTICIPATED DELAYS. All of our potential cell therapy products, cell processing and manufacturing activities, are subject to comprehensive regulation by the FDA and by comparable authorities in other countries. The process of obtaining FDA and other required regulatory approvals, including foreign approvals, is expensive, often takes many years and can vary substantially based upon the type, complexity and novelty of the products involved. Our Xcellerate Therapy is novel, and therefore, regulatory agencies may lack experience in dealing with this type of product. This may lengthen the regulatory review process, increase our development costs and delay or prevent commercialization of our products. To date, the FDA has approved only a few cell therapy products. We have had only limited experience in filing and pursuing applications necessary to gain regulatory approvals, which may impede our ability to obtain timely FDA approvals, if at all. We will not be able to commercialize any of our potential products until we obtain FDA approval, and so any delay in obtaining, or inability to obtain, FDA approval would harm our business. If we violate regulatory requirements at any stage, whether before or after FDA approval is obtained, we may be fined, forced to remove a product from the market or experience other adverse consequences that could harm our business. Additionally, we may not be able to obtain the labeling claims necessary or desirable for the promotion of our products. We may also be required to undertake post-marketing trials. In addition, if we or others identify side effects after any of our cell therapy products are on the market, or if manufacturing problems occur, regulatory approval may be withdrawn and the FDA may require reformulation of our cell therapy products, additional clinical trials, changes in labeling or additional marketing applications. WE HAVE LIMITED MANUFACTURING EXPERIENCE AND MAY NOT BE ABLE TO MANUFACTURE OUR XCELLERATED T CELLS ON A LARGE SCALE IN A COST EFFECTIVE MANNER; UNFORESEEN CIRCUMSTANCES MAY CAUSE DELAYS OR DISRUPTIONS IN OUR MANUFACTURING PROCESS. We have not demonstrated the ability to manufacture our Xcellerated T Cells beyond quantities sufficient for research and development and limited clinical activities. We have no experience manufacturing our Xcellerated T Cells at the capacity that will be necessary to support large clinical trials or commercial sales. Because our Xcellerate Therapy is an autologous, or patient-specific, cell-based product, manufacturing of our Xcellerated T Cells is more complicated. In addition, we may not be able to 6

10 manufacture on a large-scale or cost-effectively. Our present manufacturing process may not meet our initial expectations as to reproducibility, yield, purity or other measurements of performance. We are the only manufacturer of our Xcellerated T Cells. For the next several years, we expect that we will conduct all of our manufacturing in our own facilities. If the facilities or the equipment in our facilities are significantly damaged or destroyed, we will not be able to quickly restore our manufacturing capacity. We may also fail to secure any additional facilities or hire qualified personnel that we may require to accommodate the expansion of our operations and the manufacturing of our products. WE WOULD NOT BE ABLE TO MANUFACTURE OUR PRODUCTS WITHOUT THE TECHNOLOGY WE LICENSE FROM THIRD PARTIES. Our Xcellerate Technology uses two important monoclonal antibodies, anti-CD3 and anti-CD28, which are licensed from third parties. Both antibodies are necessary components of our Xcellerate Technology. We license the anti-CD3 monoclonal antibody from the Fred Hutchinson Cancer Research Center in Seattle, Washington. We license the anti-CD28 monoclonal antibody from Diaclone S.A. in Besancon, France. The license agreement with the Fred Hutchinson Cancer Research Center is effective for 15 years following first sale of a product based on the license and may be terminated in the event of a material breach. The Diaclone agreement is effective for 15 years from the date of the first FDA approval, or its foreign equivalent, of a product based upon the license, and may be terminated in the event of a material breach. We are contractually obligated to purchase the anti-CD28 monoclonal antibody from Diaclone until we begin Phase III clinical trials. Although we believe the anti-CD3 antibody clone component is available from other sources, few alternative suppliers of the anti-CD28 antibody clone component exist. If we lose access to the anti-CD28 antibody clone or the anti-CD3 antibody clone, and if we cannot find alternatives for these antibody clones, we will be unable to continue the development of our product. We license several T cell activation patents and patent applications from Genetics Institute. Technology disclosed in several of these patent applications is necessary for the development of our Xcellerate Technology. Of these patent applications, the two that relate to the basic technology necessary for our business have been pending in the U.S. Patent and Trademark Office for over five years. We cannot predict when or if any patents will issue from these applications, however, we believe there is a reasonable basis for patentability. If these patents are not issued we may not be able to exclude our competitors from using our technology. The licenses from Genetics Institute terminate upon the expiration of the last licensed patent and may also be terminated in the event of a material breach. If patents issue covering our technology and we violate the terms of our license or otherwise lose our right to license these patents and patent applications, we would be unable to continue development of our Xcellerate Technology. WE ARE DEPENDENT ON A LIMITED NUMBER OF MANUFACTURERS AND SUPPLIERS OF SOME OF THE KEY COMPONENTS IN OUR XCELLERATE TECHNOLOGY. We currently depend on third party suppliers for key components used to manufacture Xcellerated T Cells. We depend on Lonza Biologics PLC to develop and manufacture the antibodies used in our Xcellerate Technology. There are, in general, relatively few companies with the ability to manufacture clinical and commercial grade antibodies. Our current agreement with Lonza only provides for the manufacture of these antibodies for use in clinical trials. We are currently negotiating an agreement with Lonza to manufacture the antibodies for commercial use. If we are unable to renew our current contract with Lonza or unable to procure a suitable alternative manufacturer in a timely manner or at all, we would be unable to continue developing our Xcellerate Technology. Our Xcellerate Technology also depends on the successful attachment of the antibodies to magnetic beads. We currently use magnetic beads developed and manufactured by Dynal S.A. in Oslo, Norway. Our contract with Dynal expires in August 2009, and we are contractually obligated to obtain our beads from Dynal as long as Dynal is able to fill our orders. If our contract with Dynal is terminated or if Dynal 7

11 discontinues manufacturing beads due to economic or other considerations, we may be unable to find a suitable alternative manufacturer in a timely manner or at all, which would limit our ability to develop and commercialize our product. In addition, because Lonza and Dynal are located outside the United States we are subject to foreign import laws and customs regulations, which complicates, and could delay, shipment of components and the development and production of our product. Any delay in the development or production of our product would harm our business. IF THIRD PARTIES FAIL TO PROVIDE SUFFICIENT AND TIMELY CAPACITY TO MANUFACTURE OUR BEADS AND ANTIBODIES, OR DO NOT MAINTAIN HIGH STANDARDS OF MANUFACTURE, OUR ABILITY TO DEVELOP AND COMMERCIALIZE OUR PRODUCTS COULD BE LIMITED OR DELAYED. Although our current suppliers of antibody and bead components have produced our components with acceptable quality, quantity and cost in the past, they may be unable or unwilling to meet our future demands. Establishing additional or replacement suppliers for these components would take a substantial amount of time. In addition, we may have difficulty obtaining similar FDA-approved components from other suppliers. If we have to switch to a replacement supplier, we may face additional regulatory delays and the manufacture and delivery of our product could be interrupted for an extended period. Any such delay may harm our business. We and any third party manufacturers that we may use must continually adhere to current Good Manufacturing Practice, or GMP, regulations enforced by the FDA through its facilities inspection program. If our facilities or the facilities of these manufacturers cannot pass a pre-approval plant inspection, the FDA pre-market approval of our Xcellerate Therapy will not be granted. In complying with GMP and foreign regulatory requirements, we and any of our third party manufacturers will be obligated to expend time, money and effort in production, record-keeping and quality control to assure that each component of our product meets applicable specifications and other requirements. In addition, we may not be able to compel our third party manufacturers or suppliers to comply with FDA standards and other regulatory requirements. If we or any of our third party manufacturers fail to comply with these requirements, we may be subject to regulatory action. WE ARE CURRENTLY EXPANDING OUR MANUFACTURING CAPACITY AND WE MAY ENCOUNTER DELAYS AND COST-OVERRUNS. We currently manufacture our Xcellerated T Cells in our own facility. We plan to expand our manufacturing facilities to support future research, development and commercialization activities. We have little experience in developing manufacturing facilities and may not be successful. We may encounter difficulties in designing, constructing and operating our new manufacturing facility, including: - construction delays, including obtaining necessary governmental approvals and permits; - cost overruns; - delays in design, shipment and installation of equipment for our facility; and - other unforeseeable factors inherent in the construction process. THE EX VIVO NATURE OF OUR XCELLERATE THERAPY MAY ENHANCE OUR RISK OF PRODUCT LIABILITY AND OTHER CLAIMS AGAINST US, WHICH MAY REDUCE DEMAND FOR OUR PRODUCTS OR RESULT IN SUBSTANTIAL DAMAGES. Our Xcellerate Therapy requires us to activate a patient's T cells ex vivo, or outside of the body, using blood collected from patients. Blood is collected through a process called leukapheresis, which may pose risks to the patient. If the leukapheresis product is inadequate, we may require another leukapheresis, or we may be unable to collect blood from the patient for our process. The Xcellerated T Cells are later administered back to the patient intravenously in an outpatient procedure. This procedure poses risks to the patient similar to those occurring with transfusions of other cell products such as red blood cells or white blood cells, including bleeding, blood clots, infection or mild to severe allergic reactions. 8

12 Blood collected in connection with our Xcellerate Therapy may contain infectious diseases and may infect medical personnel or others who come into contact with the blood. The ex vivo process also presents inherent risk that human error may result in our Xcellerated T Cells being delivered to the incorrect patient. Because patient samples are treated ex vivo after being collected and delivered to us and then are redelivered to the patient, it is possible that these samples could be inadvertently mixed up and delivered to the wrong patient. If the Xcellerated T Cells are administered to the wrong patient, the patient could suffer irreversible injury or death and sue us for liability which would cause our reputation to suffer or may result in losses that could be material. In addition, we store our patients' cells in freezers at our manufacturing facilities and the loss or malfunction of these freezers may destroy those cells. In such case, our patients' treatments will be delayed if we need to collect additional patient cells or we may be unable to collect more cells from our patients. We will face an even greater risk of product liability if we sell any of our therapeutic products commercially. An individual may bring a product liability claim against us if one of our cell therapy products causes, or merely appears to have caused, an injury. Regardless of merit or eventual outcome, product liability claims may result in: - decreased demand for our cell therapy products; - injury to our reputation; - withdrawal of clinical trial volunteers; - costs of related litigation; and - substantial monetary awards to plaintiffs. IF A SUFFICIENT NUMBER OF PHYSICIANS AND OTHER MEDICAL PROVIDERS DO NOT ACCEPT OUR XCELLERATE THERAPY, OUR BUSINESS WILL BE SIGNIFICANTLY HARMED. Our success will depend to a substantial extent on the willingness of physicians and other medical providers to accept our Xcellerate Therapy. For example, physicians and other medical providers will need to learn and adopt the procedures necessary to properly administer our Xcellerated T Cells to patients. In addition, we may improve our Xcellerate Therapy and the procedures necessary to administer our Xcellerated T Cells to patients and physicians and other medical providers may not agree with our changes. We cannot assure you that physicians and medical providers will cooperate with us in this effort or be willing to prescribe our Xcellerate Therapy as treatment for their patients. If our Xcellerate Therapy does not achieve a high level of acceptance by physicians and other medical providers, our business will be significantly harmed. OUR XCELLERATE THERAPY MAY CAUSE UNKNOWN LONG TERM ADVERSE EFFECTS, WHICH MAY LEAD TO PRODUCT LIABILITY CLAIMS. We have not yet completed clinical testing of our Xcellerate Therapy. It is possible that our products may cause unforeseen harmful side effects. For example, if too many T cells are activated by our Xcellerate Therapy, it is possible that a patient could have a severe allergic reaction or could develop an autoimmune condition. In the future we may consider using cells from a healthy donor. If these cells from a healthy person are given to a patient with a weakened immune system, there is a possibility that the patient may contract graft versus host disease, a disease in which the T cells attack tissue in the body. In addition, we have not conducted studies on the long term effects associated with the use of the growth media solution used in our Xcellerate Technology. Any harmful effects from our products may result in product liability claims. 9

13 WE ARE EXPOSED TO POTENTIAL PRODUCT LIABILITY CLAIMS, AND INSURANCE AGAINST THESE CLAIMS MAY NOT BE AVAILABLE TO US AT A REASONABLE RATE IN THE FUTURE. Our business exposes us to potential product liability risks, which are inherent in the testing, manufacturing, marketing and sale of pharmaceutical products. We have clinical trial insurance coverage and we intend to obtain product liability coverage in the future. However, insurance coverage may not be available to us at an acceptable cost, if at all. We may not be able to obtain insurance coverage that will be adequate to satisfy any liability that may arise. Regardless of merit or eventual outcome and whether or not we are insured, product liability claims may result in decreased demand for a product, injury to our reputation, withdrawal of clinical trial volunteers and loss of revenues. WE HAVE A HISTORY OF OPERATING LOSSES; WE EXPECT TO CONTINUE TO INCUR LOSSES AND WE MAY NEVER BE PROFITABLE. We have incurred significant operating losses since we began operation in 1996. As of September 30, 2000, we had an accumulated deficit of $24.7 million. These losses have resulted principally from costs incurred in our research and development programs and from our general and administrative costs. We have derived no revenues from product sales or royalties to date. We do not expect to have any product sales or royalty revenue for a number of years, and are not able to predict when we might do so. Our operating losses have been increasing during the past several years and will continue to increase significantly in subsequent years as we expand development and clinical trial activities. Our ability to achieve profitability is dependent upon obtaining regulatory approvals for our products and successfully commercializing our products alone or with third parties. However, our operations may not be profitable even if we are able to commercialize any of our products currently under development. WE WILL REQUIRE ADDITIONAL FUNDING, AND OUR FUTURE ACCESS TO CAPITAL IS UNCERTAIN. It is expensive to develop products and conduct clinical trials for the treatment of cancer and infectious diseases. We intend to conduct clinical research and multiple clinical trials for many different therapies for cancer and infectious diseases, which is costly. We believe that the net proceeds of this offering, together with our cash on hand, will be sufficient to meet our projected operating and capital requirements for at least the next 18 months. However, we may need additional financing within this timeframe depending on a number of factors, including: - our degree of success in commercializing cell therapy products; - the rate of progress and cost of our research and development and clinical trial activities; - the costs of preparing, filing, prosecuting, maintaining and enforcing patent claims and other intellectual property rights; - the need to access competing technologies; - changes in or terminations of our licensing arrangements; and - the cost of manufacturing scale-up. We may not be able to obtain additional financing on favorable terms or at all. If we are unable to raise additional funds when we need them, we may be required to delay, reduce or eliminate some or all of our development programs and some or all of our clinical trials. We also may be forced to license to others technologies that we would prefer to develop internally. If we raise additional funds by issuing equity securities, further dilution to stockholders may result, and new investors could have rights superior to holders of shares issued in this offering. 10

14 IF WE ARE UNABLE TO SECURE FUTURE COLLABORATORS FOR RESEARCH, DEVELOPMENT, MANUFACTURING AND MARKETING ACTIVITIES RELATING TO OUR XCELLERATE TECHNOLOGY, OUR PRODUCT DEVELOPMENT AND POTENTIAL FOR PROFITABILITY MAY SUFFER. We may need to enter into a commercial collaboration agreement for one or more of the research, development, manufacturing, marketing and other commercialization activities relating to our Xcellerate Technology in the future. However, we may not be able to successfully negotiate any collaborative arrangements. If established, these relationships may not be scientifically or commercially successful. It is possible that our potential collaborators will change their strategic focus, pursue alternative technologies or develop alternative products, either on their own or in collaboration with others, as a means for developing treatments for the diseases targeted by our collaborative programs. The effectiveness of our potential collaborators in marketing our products could also affect our potential revenues and earnings. Disputes may arise between us and our potential collaborators, as to a variety of matters, including financial or other obligations under our agreements. These disputes may be both expensive and time-consuming and may result in delays in the development and commercialization of our product. IF WE ARE UNABLE TO PROTECT OUR PROPRIETARY RIGHTS, WE MAY NOT BE ABLE TO COMPETE EFFECTIVELY. Our success is dependent in part on obtaining, maintaining and enforcing our patents and other proprietary rights and our ability to avoid infringing the proprietary rights of others. The United States Patent and Trademark Office may not issue patents from the patent applications owned by or licensed to us. Even if issued, the patents may not give us an advantage over competitors with similar technology. As of December 1, 2000, we owned or held exclusive rights to two issued patents and 21 pending U.S. patent applications in the fields of or directed to ex vivo T cell stimulation. The two issued patents relate to a method of stimulating T cells and an antibody, which we are not currently using. We cannot assure you that any patent will issue from our pending or licensed patent applications concerning the technologies we do use. The issuance of a patent is not conclusive as to its validity or enforceability. It is uncertain how much protection, if any, will be given to our patents if we attempt to enforce them or if their validity is challenged in court. A third party may challenge the validity or enforceability of a patent after its issuance by the Patent Office. It is possible that a competitor may successfully challenge our patents or that a challenge will result in limiting the coverage of our patents. If the outcome of litigation is adverse to us, third parties may be able to use our patented invention without payment to us. In addition, it is possible that competitors may infringe our patents or successfully avoid them through design innovation. The cost of litigation to uphold the validity of our patents and to prevent infringement could be substantial and the litigation may consume time and other resources. Some of our competitors may be better able to sustain the costs of complex patent litigation because they have substantially greater resources. Moreover, there is a risk that a court would decide that our patents are not valid and that we do not have the right to stop the other party from using our inventions. There is also the risk that, even if the validity of our patents were upheld, a court would refuse to stop the other party on the ground that its activities do not infringe our patents. Policing unauthorized use of our intellectual property is difficult and expensive, and we cannot assure you that we will be able to prevent misappropriation of our proprietary rights. In addition to the intellectual property rights described above, we also rely on unpatented technology, trade secrets and confidential information. Therefore, others may independently develop substantially equivalent information and techniques or otherwise gain access to or disclose our technology. We may not be able to effectively protect our rights in unpatented technology, trade secrets and confidential information. We require each of our employees, consultants and advisors to execute a confidentiality agreement at the commencement of an employment or consulting relationship with us. However, these agreements may not provide effective protection of our information or, in the event of unauthorized use or disclosure, they may not provide adequate remedies. 11

15 THE USE OF OUR TECHNOLOGIES COULD POTENTIALLY CONFLICT WITH THE RIGHTS OF OTHERS. Our competitors or others may have or acquire patent rights that they could enforce against us. If they do so, then we may be required to alter our Xcellerate Technology, pay licensing fees or cease activities. If our Xcellerate Technology conflicts with patent rights of others, third parties could bring legal action against us or our licensees, suppliers, customers or potential collaborators, claiming damages and seeking to enjoin manufacturing and marketing of the affected products. If these legal actions are successful, in addition to any potential liability for damages, we could be required to obtain a license in order to continue to manufacture or market the affected products. We may not prevail in any legal action and a required license under the patent may not be available on acceptable terms or at all. Should third parties file patent applications, or be issued patents claiming technology also claimed by us in pending applications, we may be required to participate in interference proceedings in the United States Patent and Trademark Office to determine priority of invention. We may be required to participate in interference proceedings involving our issued patents or pending applications. We may be required to cease using the technology or to license rights from prevailing third parties as a result of an unfavorable outcome in an interference proceeding. A prevailing party may not offer us a license on commercially acceptable terms. Should third parties file oppositions in foreign countries, we may also be required to participate in opposition proceedings in foreign tribunals to defend the patentability of the filed patent applications. COMPETITION IN OUR INDUSTRY IS INTENSE AND MANY OF OUR COMPETITORS HAVE SUBSTANTIALLY GREATER MANAGERIAL AND FINANCIAL RESOURCES THAN WE HAVE. If our products cannot compete effectively in the marketplace, we would fail to become profitable and our financial position would suffer. Competition in the cancer and infectious disease fields is intense. Even if our Xcellerate Therapy proves successful, we might not be able to remain competitive because of the rapid pace of technological development in the biotechnology field. Several companies market immunotherapy products. We are currently aware of a few companies in the early stages of developing ex vivo T cell activation as a method of treating cancer and infectious diseases. Many of our potential competitors have more financial and other resources, larger research and development staffs, and more experienced capabilities in researching, developing and testing products. Many of these companies also have more experience in conducting clinical trials, obtaining FDA and other regulatory approvals, and in manufacturing, marketing and distributing therapeutic products. Smaller companies may successfully compete with us by establishing collaborative relationships with larger pharmaceutical companies or academic institutions. Our competitors may succeed in developing, obtaining patent protection for, or commercializing their products more rapidly than us. A competing company developing, or acquiring rights to, a more effective therapeutic product for the same diseases targeted by us, or one that offers significantly lower costs of treatment, could render our products noncompetitive or obsolete. Our ability to commercialize our Xcellerate Therapy and compete effectively will depend, in large part, on: - our ability to advance our Xcellerate Therapy through clinical trials and to successfully manufacture our products; - the perception by physicians and other members of the health care community of the safety, efficacy and benefits of activated T cell treatments compared to those of competing products or therapies; - the willingness of physicians to adopt a new treatment; - the price of our Xcellerate Therapy relative to other products or competing treatments; - the effectiveness of our sales and marketing efforts and those of our potential marketing partners; 12

16 - our ability to protect our proprietary technology; and - the impact of potential unfavorable publicity concerning immunotherapeutic products. IF WE DO NOT EFFECTIVELY MANAGE GROWTH, OUR ABILITY TO GENERATE REVENUES COULD BE HARMED. We are rapidly adding a significant number of new personnel and expanding our capabilities, which may strain our existing managerial, operational, financial and other resources. To compete effectively and manage our growth, we must: - train, manage and motivate a growing employee base; - accurately forecast demand for our products; and - expand existing operational, financial and management information systems. If we fail to manage our growth effectively, our product development and commercialization efforts could be curtailed or delayed. WE MAY BE UNABLE TO ESTABLISH SALES AND MARKETING CAPABILITIES NECESSARY TO SUCCESSFULLY COMMERCIALIZE OUR POTENTIAL PRODUCTS. We currently have no direct sales capabilities and only limited marketing capabilities. If we decide to market our potential products through a direct sales force, we would need to either hire a sales force with expertise in pharmaceutical sales or contract with a third party to provide a sales force to meet our needs. We may be unable to establish marketing, sales and distribution capabilities necessary to commercialize and gain market acceptance for our potential products. In addition, co-promotion or other marketing arrangements with third parties to commercialize potential products could significantly limit the revenues we derive from these potential products, and these third parties may fail to commercialize our potential products successfully. IF WE LOSE KEY MANAGEMENT AND SCIENTIFIC PERSONNEL OR CANNOT RECRUIT QUALIFIED EMPLOYEES, OUR PRODUCT DEVELOPMENT PROGRAMS AND OUR RESEARCH AND DEVELOPMENT EFFORTS WILL BE HARMED. Our success depends, to a significant extent, upon the efforts and abilities of Ronald J. Berenson, M.D., our president and chief executive officer, and other members of senior management. The loss of the services of one or more of our key employees could delay our product development programs and our research and development efforts. We maintain key person life insurance on Dr. Berenson, but do not maintain key person life insurance on any of our other officers, employees or consultants. Competition for qualified employees among companies in the biotechnology and biopharmaceutical industry is intense. Our future success depends upon our ability to attract, retain and motivate highly skilled employees. In order to commercialize our products successfully, we may be required to substantially expand our workforce, particularly in the areas of manufacturing, clinical trials management, regulatory affairs, business development and sales and marketing. We may require the addition of new personnel, including management, and the development of additional expertise by existing management personnel. We may be unsuccessful in recruiting and retaining sufficient, qualified personnel. WE MAY INCUR SIGNIFICANT COSTS COMPLYING WITH ENVIRONMENTAL LAWS AND REGULATIONS. We use hazardous, infectious and radioactive materials that could be dangerous to human health, safety or the environment. We currently contract with a third party to store and dispose of these materials and various wastes resulting from their use at our facility. We are subject to a variety of federal, state and local laws and regulations governing the use, generation, manufacture, storage, handling and disposal of these materials and wastes resulting from their use. We may incur significant costs complying with both existing and future environmental laws and regulations. We are unable to predict whether our third party contractor will properly manage, store and dispose of the wastes as required by law and protect us from liability. In addition, we are subject to regulation by the Occupational Safety and Health Administration, 13

17 or OSHA, and the Environmental Protection Agency, or EPA, and to regulation under the Toxic Substances Control Act and the Resource Conservation and Recovery Act. We are unable to predict whether any agency will adopt any regulations, which could harm our business. Although we believe our safety procedures for handling and disposing of these materials comply with federal, state and local laws and regulations, we cannot entirely eliminate the risk of accidental injury or contamination from these materials or the risk that our third party contractor will not violate any applicable laws or regulations governing the waste. In the event of an accident, we could be held liable for any resulting damages, which could be substantial. IF THIRD PARTY CARRIERS FAIL TO SHIP PATIENT SAMPLES AND OUR PRODUCTS IN A CAREFUL AND TIMELY MANNER, WE MAY INCUR LIABILITY AND OUR REPUTATION WILL SUFFER. We depend on third party carriers to deliver patient-specific cells to us and Xcellerated T Cells back to the patient in a timely manner. We have not yet designed or tested a tracking system for our products once they have left our manufacturing facility. We must process the patient's blood sample within 48 hours of collection. Currently, Xcellerated T Cells must be shipped in a cold storage shipping container and the patient must receive them within 48 hours of the completion of the manufacturing process. If the carriers fail to deliver the shipment of Xcellerated T Cells in a timely manner or damage the Xcellerated T Cells during shipment because, for example, the shipping containers fail to maintain the necessary temperature of the Xcellerated T Cells, the treatment of patients could be delayed or prevented. IF WE FAIL TO OBTAIN ADEQUATE LEVELS OF REIMBURSEMENT FOR OUR CELL THERAPY PRODUCTS FROM THIRD PARTY PAYERS, THE COMMERCIAL POTENTIAL OF OUR CELL THERAPY PRODUCTS WILL BE SIGNIFICANTLY LIMITED. Our profitability will depend on the extent to which government administration authorities, private health insurance providers and other organizations provide reimbursement for the cost of our products. Many patients will not be capable of paying for our cell therapy products themselves. Large private payers, managed care organizations, group purchasing organizations and similar organizations may be unwilling to reimburse patients for newly approved health care products such as ours. Even if they are willing to reimburse patients, we must first obtain reimbursement codes for our products and communicate these codes to the health care community until they are officially published and generally available. Any delay in establishing reimbursement codes for our products could delay acceptance of our products. Any measures that adversely affect the pricing of cell therapy products and the amount of reimbursement available from governmental agencies or other third party payers could harm our business. WE ARE SUBJECT TO CURRENCY FLUCTUATIONS AND WE MAY BE ADVERSELY AFFECTED BY CHANGES IN THE VALUE OF THE BRITISH POUND RELATIVE TO THE U.S. DOLLAR. Under our agreements with Lonza we are required to make payments denominated in British pounds. As a result, we are exposed to currency exchange risks. Assuming milestones are completed as scheduled, remaining payments under the agreements will be $350,000 during the fourth quarter of the year ended December 31, 2000 and $2.7 million during the year ended December 31, 2001. We are not engaged in currency hedging and if the British pound strengthens against the U.S. dollar, our payments to Lonza will increase in U.S. dollar terms. RISKS RELATING TO THIS OFFERING MARKET VOLATILITY MAY AFFECT OUR STOCK PRICE AND THE VALUE OF YOUR INVESTMENT MAY BE SUBJECT TO SUDDEN DECREASES. There is currently no public market for our common stock and an active trading market may not develop or be sustained after this offering. The price at which our common stock trades depends upon a number of factors, including our historical and anticipated operating results and general market and economic conditions, which are beyond our control. Factors such as fluctuations in our financial and 14

18 operating results, the results of our research and clinical trials, announcements of technological innovations or new commercial products by us or our competitors, developments concerning proprietary rights and publicity regarding actual or potential performance of products under development by us or our competitors could also cause the market price of our common stock to fluctuate substantially. In addition, the stock market has from time to time experienced extreme price and volume fluctuations. These broad market fluctuations may lower the market price of our common stock. During periods of stock market price volatility, share prices of many biotechnology companies have often fluctuated in a manner not necessarily related to the companies' operating performance. Accordingly, our common stock may be subject to greater price volatility than the stock market as a whole. NEGATIVE EVALUATIONS BY RESEARCH ANALYSTS OR INVESTORS ABOUT OUR BUSINESS MAY CAUSE THE PRICE OF OUR STOCK TO DECLINE. The price of our stock may decline even if our business is doing well. If our future quarterly operating results are below the expectations of research analysts or investors, or if negative comments regarding our business and its future prospects are publicly announced by research analysts or investors, the price of our common stock would likely decline. WE MAY ALLOCATE THE NET PROCEEDS FROM THIS OFFERING IN WAYS WHICH YOU AND OTHER STOCKHOLDERS MAY NOT APPROVE. We expect to use the net proceeds from this offering primarily for clinical trials, research and development activities, increasing our manufacturing capacity and the remainder for general corporate purposes and working capital. We have significant flexibility in applying the net proceeds of this offering and could use these proceeds for purposes other than those contemplated at the time of the offering. You and other stockholders will not have the opportunity to evaluate the economic, financial or other information that we may use to determine how we use these proceeds. FUTURE SALES OF OUR COMMON STOCK MAY LOWER THE MARKET PRICE OF OUR COMMON STOCK. Sales of a substantial number of shares of our common stock in the public market following this offering or the perception that such sales could occur could cause the market price of our common stock to decline or limit our future ability to raise capital through an offering of equity securities. The number of shares of our common stock available for sale by our existing stockholders in the public market is limited by restrictions under federal securities law and under lock-up agreements that our stockholders entered into with the underwriters in connection with our initial public offering. In connection with this offering, our officers, directors and other stockholders owning substantially all of our shares have agreed to enter into lock-up agreements pursuant to which they agree not to offer or sell any shares of our common stock or securities convertible into or exchangeable or exercisable for any shares of our common stock for 180 days after the date of this prospectus without the prior written consent of SG Cowen Securities Corporation on behalf of the underwriters. In addition, stockholders who have not executed a lock-up agreement are otherwise contractually restricted from selling or offering to sell shares of our common stock for 180 days after the date of this prospectus. Shares of our common stock, other than shares sold in this offering, will become eligible for sale in the public market as follows: At the effective date....................................... 0 shares 90 days after effective date................................ 0 shares 181 days after effective date............................... 24,572,195 shares More than 181 days after effective date..................... 10,110,025 shares IF YOU PURCHASE OUR COMMON STOCK IN THIS OFFERING, YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION IN THE BOOK VALUE OF YOUR SHARES. You will experience an immediate and substantial dilution of $ per share in the pro forma net tangible book value per share of our common stock relative to the assumed public offering price of $ 15

19 per share. After giving effect to this offering, our pro forma net tangible book value as of , 2000, would have been $ per share. In addition, this dilution will be increased to the extent that holders of outstanding options and warrants to purchase our common stock at prices below our net tangible book value per share after this offering exercise those options or warrants. OUR EXECUTIVE OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS WILL CONTINUE TO HAVE SUBSTANTIAL CONTROL OVER US AFTER THE OFFERING, WHICH COULD DELAY OR PREVENT A CHANGE IN OUR CORPORATE CONTROL FAVORED BY OUR OTHER STOCKHOLDERS. Following this offering, executive officers, directors and principal stockholders will beneficially own % of our outstanding common stock, or % if the underwriters' over-allotment option is exercised in full. If our significant stockholders choose to act or vote together on other matters, they will have the power to control the approval of any other action requiring the approval of our stockholders, including any amendments to our certificate of incorporation and mergers, acquisitions or sales of all of our assets. In addition, without the consent of these stockholders, we could be prevented from entering into transactions that could be beneficial to us. Also, third parties could be discouraged from making a tender offer or bid to acquire our company at a price per share that is above the then-prevailing market price. ANTI-TAKEOVER PROVISIONS IN OUR CHARTER DOCUMENTS AND UNDER DELAWARE AND WASHINGTON LAW COULD MAKE A CHANGE IN OUR CONTROL, WHICH MAY BE BENEFICIAL TO OUR STOCKHOLDERS, MORE DIFFICULT. Provisions of our certificate of incorporation and bylaws will make it more difficult for a third party to acquire us on terms not approved by our board of directors and may have the effect of deterring hostile takeover attempts. We are also subject to provisions of Delaware and Washington law that could have the effect of delaying, deferring or preventing a change in control of our company. These and other impediments to a third party acquisition or change of control could limit the price investors are willing to pay in the future for shares of our common stock. 16

20 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS We have made statements under the captions "Prospectus Summary," "Risk Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business" and in other sections of this prospectus that are forward-looking statements. You can identify these statements by forward-looking words such as "may," "will," "expect," "intend," "anticipate," "believe," "estimate," "plan," "could," "should" and "continue" or similar words. These forward-looking statements may also use different phrases. We have based these forward-looking statements on our current expectations and projections about future events. You should also consider carefully the statements under "Risk Factors" and other sections of this prospectus, which address factors that could cause our results to differ from those set forth in the forward-looking statements. 17

21 USE OF PROCEEDS We estimate that the net proceeds from the sale of the shares of common stock offered by us at an assumed initial public offering price of $ per share will be approximately $ million after deducting the estimated underwriting discounts and estimated offering expenses payable by us. If the underwriters exercise their over-allotment option in full, we estimate that such net proceeds will be approximately $ million. We expect to use the net proceeds from this offering primarily for clinical trials, research and development activities, expansion of our manufacturing capacity and the remainder for general corporate purposes and working capital. Based upon the current status of our product development and commercialization plans, we believe that the net proceeds of this offering, together with our cash, cash equivalents and investments, will be adequate to satisfy our capital needs through at least the next 18 months. Pending use of the net proceeds of this offering, we intend to invest the net proceeds in interest bearing, investment-grade non-government and U.S. government securities. DIVIDEND POLICY We have never declared or paid any cash dividends on our capital stock. We currently intend to retain all of our future earnings, if any, to finance operations and we do not anticipate paying cash dividends in the foreseeable future. 18

22 CAPITALIZATION The following table sets forth our capitalization at September 30, 2000: - on an actual basis; - on a pro forma basis to reflect the automatic conversion of all outstanding shares of preferred stock into 28,059,047 shares of common stock upon the closing of this offering, the issuance of 380,725 shares of common stock issuable upon the exercise of warrants to purchase preferred stock at a weighted average exercise price of $0.97 per share, which warrants will expire at the closing of this offering, and the subsequent conversion of the preferred stock, the issuance of 1,132,287 shares of common stock upon the exercise of warrants to purchase common stock at an exercise price of $0.30 per share, which warrants will expire at the closing of this offering, and the conversion of preferred stock warrants into common stock warrants for the purchase of 280,029 shares of common stock; and - on a pro forma, as adjusted basis, to reflect the sale of shares of common stock that we are offering at an assumed initial public offering price per share of $ after deducting estimated underwriting discounts and offering expenses. You should read the following table in conjunction with our financial statements and related notes included in this prospectus. SEPTEMBER 30, 2000 ------------------------------------ PRO PRO FORMA ACTUAL FORMA AS ADJUSTED -------- --------- ----------- (IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA) Long-term obligations....................................... $ 953 $ 953 $ 953 Redeemable convertible preferred stock: actual -- 28,909,976 authorized shares, 28,059,047 issued and outstanding; pro forma and pro forma as adjusted -- none authorized and none outstanding.......................................... 48,394 -- -- Redeemable convertible preferred stock warrants............. 557 -- -- Stockholders' equity (deficit): Preferred stock, par value $0.001: Actual -- 28,909,976 authorized and none outstanding, all shares have been designated redeemable and convertible; pro forma -- none authorized and none outstanding; pro forma as adjusted -- 5,000,000 authorized shares, none outstanding.................... -- -- -- Common stock, par value $0.001: Actual -- 60,000,000 authorized shares, 5,965,234 issued and outstanding; pro forma -- 60,000,000 authorized shares, 35,537,293 issued and outstanding; pro forma as adjusted -- 100,000,000 authorized shares, issued and outstanding;................................ 6 36 Additional paid-in capital................................ 5,090 54,722 Deferred stock compensation............................... (1,618) (1,618) (1,618) Accumulated deficit....................................... (24,704) (24,704) (24,704) Accumulated other comprehensive loss...................... (2) (2) (2) -------- -------- -------- Total stockholders' equity (deficit)........................ (21,228) 28,434 -------- -------- -------- Total capitalization........................................ $ 28,676 $ 29,387 $ ======== ======== ======== The information in the table above does not include: - 1,626,221 shares of common stock issuable upon the exercise of stock options outstanding under our 1996 Stock Option Plan at a weighted average exercise price of $0.24 per share; - 280,029 shares of common stock issuable upon the exercise of warrants to purchase 280,029 shares of preferred stock which were assumed to have been converted into warrants to purchase 280,029 shares of common stock upon the closing of this offering; - 785,354 shares of common stock reserved for future grant under our 1996 Stock Option Plan; - 2,100,000 shares of common stock reserved for future issuance under our 2000 Stock Option Plan; - 600,000 shares of common stock reserved for future issuance under our 2000 Employee Stock Purchase Plan; - 400,000 shares of common stock reserved for future issuance under our 2000 Directors' Stock Option Plan; - 1,056,040 shares of common stock reserved for future issuance under our Milestone Pool; and - 180,000 shares of common stock reserved for future issuance under our license with ARCH Development Corporation. 19

23 DILUTION Our pro forma net tangible book value as of September 30, 2000, was $28.2 million or $0.79 per share of common stock after giving effect to the conversion of all outstanding shares of preferred stock into 28,059,047 shares of common stock in connection with this offering, issuance of 380,725 shares of common stock upon the exercise of warrants to purchase preferred stock, which warrants will expire at the closing of this offering, and the subsequent conversion of the preferred stock, issuance of 1,132,287 shares of common stock upon the exercise of warrants to purchase common stock, which warrants will expire at the closing of this offering and the conversion of preferred stock warrants into common stock warrants for the purchase of 280,029 shares of common stock. Our pro forma net tangible book value per share represents the amount of total tangible assets less total liabilities, divided by the shares of common stock outstanding as of September 30, 2000, assuming the conversion of all outstanding shares of preferred stock and the exercise and the subsequent conversion of the warrants to purchase preferred stock and the exercise of the warrants to purchase common stock. After giving effect to the sale of shares of common stock we are offering hereby at an assumed price of $ per share and after deducting estimated underwriting discounts and commissions and offering expenses, our net tangible book value as of September 30, 2000, would have been approximately $ or $ per share. This represents an immediate increase in net tangible book value of $ per share to existing stockholders and an immediate dilution of $ per share to the investors purchasing shares of common stock in this offering. The following table illustrates this per share dilution. Assumed initial public offering price per share............. $ Pro forma net tangible book value per share before the offering............................................... $0.79 Increase attributable to new investors.................... ----- Pro forma net tangible book value after the offering........ ----- Dilution per share to new investors......................... $ ===== The following table summarizes, as of September 30, 2000, on the pro forma basis described above, the number of shares of common stock purchased in this offering, the aggregate cash consideration paid and the average price per share paid by existing stockholders for common stock and by new investors purchasing shares of common stock in this offering: SHARES PURCHASED TOTAL CONSIDERATION --------------------- ----------------------- AVERAGE PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE ---------- ------- ------------ ------- ------------- Existing Stockholders........... 35,537,293 % $ 50,861,000 % $1.43 New Investors................... ---------- ----- ------------ ----- ----- Total...................... 100.0% $ 100.0% ========== ===== ============ ===== This discussion and tables above assume no exercise of options outstanding under our stock option plan. As of September 30, 2000, there were options outstanding to purchase a total of 1,626,221 shares of common stock at a weighted average exercise price of $0.24 per share and an aggregate of 3,885,354 shares available for future grant or issuance under our stock option plans or stock purchase plan. The discussion and tables above also assume no exercise of any outstanding warrants, other than those expected to be exercised due to their termination at the time of this offering. As of September 30, 2000, there were additional outstanding warrants to purchase 280,029 shares of our preferred stock at a weighted average exercise price of $1.09 per share that were not assumed to have been exercised in the discussion above. To the extent that any of these options or warrants are exercised, there will be further dilution to new investors. 20

24 SELECTED FINANCIAL DATA This section presents our historical financial data. You should read carefully the financial statements included in this prospectus, including the notes to the financial statements, and Management's Discussion and Analysis of Financial Condition and Results of Operations. The statements of operations data for the year ended December 31, 1999 and the balance sheet data as of December 31, 1999 have been derived from our financial statements that have been audited by Ernst & Young LLP, independent auditors, and are included elsewhere in this prospectus. The statement of operations data for the each of the years in the two year period ended December 31, 1998, and the balance sheet data as of December 31, 1998 have been derived from our financial statements that have been audited by PricewaterhouseCoopers LLP, independent accountants, and are included elsewhere in this prospectus. The balance sheet data as of December 31, 1997, has been derived from our audited financial statements which are not included in this prospectus. The statement of operations data for the nine months ended September 30, 1999 and 2000, the period from inception (August 27, 1996) to September 30, 2000, and the balance sheet data as of September 30, 2000 have been derived from the unaudited financial statements included elsewhere in this prospectus. The statement of operations data for the period from inception (August 27, 1996) to December 31, 1996 and the balance sheet data as of December 31, 1996 have been derived from unaudited financial statements which are not included in this prospectus. We have prepared the unaudited information on the same basis as the audited financial statements and have included all adjustments, consisting only of normal occurring adjustments that we consider necessary for a fair presentation of our financial position and operating results for these periods. Historical results are not necessarily indicative of future results. PERIOD FROM PERIOD FROM INCEPTION INCEPTION (AUGUST 27, NINE MONTHS ENDED (AUGUST 27, 1996) TO YEARS ENDED DECEMBER 31, SEPTEMBER 30, 1996) TO DECEMBER 31, ------------------------------------ --------------------- SEPTEMBER 30, 1996 1997 1998 1999 1999 2000 2000 ------------ ---------- ---------- ---------- ------- ----------- ------------- (UNAUDITED) (UNAUDITED) (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) STATEMENTS OF OPERATIONS DATA: Revenue: License fee..................... $ -- $ 100 $ -- $ -- $ -- $ -- $ 100 Grants.......................... -- -- -- 16 -- 44 60 ------- ------- ------- ------- ------- ------- -------- Total revenue................. -- 100 -- 16 -- 44 160 Operating expenses: Research and development........ 328 2,397 4,311 5,413 3,573 7,176 19,625 General and administrative...... 314 1,148 1,427 1,619 1,158 1,061 5,569 Noncash stock compensation expense....................... 2 4 6 93 3 557 662 ------- ------- ------- ------- ------- ------- -------- Total operating expenses...... 644 3,549 5,744 7,125 4,734 8,794 25,856 ------- ------- ------- ------- ------- ------- -------- Loss from operations.............. (644) (3,449) (5,744) (7,109) (4,734) (8,750) (25,696) Other income, net................. 93 161 298 162 232 278 992 ------- ------- ------- ------- ------- ------- -------- Net loss.......................... $ (551) $(3,288) $(5,446) $(6,947) $(4,502) $(8,472) $(24,704) ======= ======= ======= ======= ======= ======= ======== Basic net loss per share............ $ (0.41) $ (0.69) $ (0.86) $ (1.15) $ (0.74) $ (1.42) $ (4.44) ======= ======= ======= ======= ======= ======= ======== Shares used in basic loss per share calculation....................... 1,350 4,741 6,355 6,050 6,086 5,962 5,564 ======= ======= ======= ======= ======= ======= ======== Pro forma net loss per share........ $ (0.29) $ (0.31) $ (1.27) ======= ======= ======== Shares used in pro forma per share calculation....................... 23,999 27,159 19,514 ======= ======= ======== DECEMBER 31, -------------------------------------------------- SEPTEMBER 30, 1996 1997 1998 1999 2000 ----------- ---------- ---------- ---------- ------------- (UNAUDITED) (UNAUDITED) BALANCE SHEET DATA: Cash, cash equivalents and short-term investments........... $5,307 $ 6,514 $12,152 $ 7,363 $ 27,257 Working capital............................................. 4,966 6,102 11,589 6,100 26,393 Total assets................................................ 5,821 9,035 16,044 10,055 30,336 Long term obligations....................................... -- 937 941 854 953 Redeemable convertible preferred stock and warrants......... 6,018 11,123 23,390 23,405 48,394 Accumulated deficit......................................... (551) (3,839) (9,285) (16,232) (24,704) Total stockholders' deficit................................. (546) (3,499) (8,939) (15,804) (21,228) 21

25 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with our financial statements and related notes included in this prospectus. Please refer to "Special Note Regarding Forward-Looking Statements" and "Risk Factors." OVERVIEW We are utilizing novel technologies to develop therapeutic products that generate effective immune system responses to treat cancer and infectious diseases. We use our proprietary technology, known as Xcellerate, to activate and grow T cells. Our Xcellerate Technology rapidly and reproducibly activates a patient's own T cells outside of the body by mimicking normal events of the immune system. Our Xcellerate Technology forms the basis for our development of our Xcellerate Therapy to fight cancer and infectious diseases. Since our inception in 1996, our activities have been primarily associated with the development of novel therapeutic products that target the immune system for clinical applications in immunology, oncology, and infectious diseases. We have incurred significant losses since our inception. As of September 30, 2000, our accumulated deficit was $24.7 million. Our operating expenses consist of research and development expenses and general and administrative expenses. We have recognized revenues of approximately $160,000 since inception from sublicense fees and income from a National Institutes of Health Phase I Small Business Innovation Research grant in chronic lymphocytic leukemia. In the second quarter of 2001, we intend to apply for a National Institutes of Health Phase II Small Business Innovation Research grant in the same indication. We intend to continue to apply for other grants in the future. We currently do not market any products and will not for several years, if at all. Therefore, we do not expect to have any product sales or royalty revenue for a number of years. Our net losses are a result of research and development and general and administrative expenses incurred to support our operations. We anticipate incurring net losses over at least the next several years as we complete our clinical trials, apply for regulatory approvals, continue development of our technology and expand our operations. To date, our research and development expenses have consisted primarily of costs incurred for drug discovery and research, preclinical development, clinical trials and regulatory activities. Research and development activity-related costs include: - payroll and personnel-related expenses; - clinical trial and regulatory-related costs; - laboratory supplies; - contractual costs associated with developing our antibody and bead technology; - intellectual property related legal fees; - rent and facility expenses for our laboratory and GMP manufacturing areas; and - scientific consulting fees. General and administrative expenses are costs associated with supporting our operations including payroll and personnel-related expenses and professional fees. In addition, rent and facility expenses for our administrative office area and other general office support activities are also included in our general and administrative expenses. We have incurred operating losses since inception. Therefore, we have not paid any income taxes and no provision for income taxes has been recorded for the period from inception, beginning August 27, 1996 to September 30, 2000. 22

26 RESULTS OF OPERATIONS COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 Revenue Revenue was approximately $44,000 in the nine months ended September 30, 2000, and consisted of income from a National Institutes of Health Small Business Innovation Research grant. We expect to recognize revenue from the remainder of this grant, in the amount of $90,000, by December 31, 2000. We did not recognize any revenue in the nine months ended September 30, 1999. Operating Expenses Research and Development. Research and development expenses increased 100%, from $3.6 million in the nine months ended September 30, 1999 to $7.2 million in the nine months ended September 30, 2000. The $3.6 million increase was primarily due to contractual payments relating to developing our antibody and bead technology, laboratory supplies, rent, and salaries and payroll related expense. We anticipate that research and development expenses will continue to increase in the foreseeable future as we expand our research, development and clinical trial activities. General and Administrative. General and administrative expenses did not fluctuate significantly, from $1.2 million in the nine months ended September 30, 1999 to $1.1 million in the nine months ended September 30, 2000. We anticipate that general and administrative expenses will increase in the foreseeable future to support the general expansion of our operations. Other Income (Expense), net. Other income (expense), net increased from $232,000 in the nine months ended September 30, 1999 to $278,000 in the nine months ended September 30, 2000. Interest income increased 24%, from $375,000 in the nine months ended September 30, 1999 to $465,000 in the nine months ended September 30, 2000 due to increased interest income earned on the cash proceeds from our Series D preferred stock financing. Interest expense increased 31%, from $143,000 in the nine months ended September 30, 1999 to $187,000 in the nine months ended September 30, 2000, due to higher debt balances related to equipment financings and amortization of warrants issued in conjunction with these financings. We expect to continue to enter into equipment financing contracts to support our future clinical and commercialization activities. Noncash Stock Compensation From our inception in August 1996 through September 30, 2000, we recorded aggregate deferred stock compensation of approximately $2.3 million, of which $662,000 was expensed in the period from inception (August 27, 1996) to September 30, 2000. We recorded amortization of deferred stock-based compensation of $4,000 in the year ended December 31, 1997, $6,000 in the year ended December 31, 1998, $93,000 in the year ended December 31, 1999 and $557,000 for the nine months ended September 30, 2000. We granted stock options to certain of our officers, employees and consultants at prices subsequently deemed to be below the fair value of the underlying stock on the date of grant during the year ended December 31, 1999 and the nine months ended September 30, 2000. Additional deferred stock-based compensation of $86,000 and $526,000 were recorded in the year ended December 31, 1999 and nine months ended September 30, 2000, respectively, based on the subsequently determined fair value of common stock options granted during these periods. These expenses have no impact on our cash flows. The remaining $1.6 million will be expensed in future periods over what is generally a four-to-five year vesting period. We estimate that our deferred stock compensation expense from options granted from our inception in August 1996 through September 30, 2000 will be $293,000, $729,000, $340,000, $179,000 and $74,000 for the remainder of fiscal 2000 and for the years ending December 31, 2001, 2002, 2003 and 2004, respectively. Subsequent to September 30, 2000, we have granted options that will result in an additional $1.0 million of deferred stock compensation. We estimate that our deferred stock compensation expense from options granted subsequent to September 30, 2000 will be $161,000, $466,000, $208,000, 23

27 $113,000 and $50,000 for the years ending December 31, 2000, 2001, 2002, 2003 and 2004, respectively, assuming no cancellations or additional stock options grants below deemed fair value. COMPARISON OF YEARS ENDED DECEMBER 31, 1999 AND 1998 Revenue Revenue was approximately $16,000 in the year ended December 31, 1999 and consisted of income from a National Institutes of Health Small Business Innovation Research grant. We recognized no revenue in the year ended December 31, 1998. Operating Expenses Research and Development. Research and development expenses increased 26%, from $4.3 million in the year ended December 31, 1998 to $5.4 million in the year ended December 31, 1999. The $1.1 million increase was primarily due to increased salary and personnel related expenses, consulting fees and outsourced research and development services expenses as we expanded operations in support of our preclinical activity. This increase was offset partially by decreases in patent related expenses for a license that was terminated in 1999, sponsored research studies and laboratory supplies. General and Administrative. General and administrative expenses increased 13%, from $1.4 million in the year ended December 31, 1998 to $1.6 million in the year ended December 31, 1999. The $200,000 increase was primarily due to increased facilities-related expenses, expenses related to moving to new headquarters and salary and other personnel related expenses as we expanded our operations. This increase was offset partially by a decrease in professional fees and travel expenses. Other Income (Expense), net. Interest income was $476,000 in the year ended December 31, 1999 and $476,000 in the year ended December 31, 1998. The amounts were unchanged due to stable average yearly cash balances. Interest expense was $206,000 in the year December 31, 1999 and was $178,000 in the year ended December 31, 1998 and was relatively unchanged due to little change in debt balances. For the year ended December 31, 1999, we recognized a loss of $108,000 on the sale of property and equipment. COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND 1997 Revenue Revenue in the year ended December 31, 1997 was $100,000 consisting of a non-recurring fee generated from a sublicense agreement. We recognized no revenue in the year ended December 31, 1998. Operating Expenses Research and Development. Research and development expenses increased 80%, from $2.4 million in the year ended December 31, 1997 to $4.3 million in the year ended December 31, 1998. The $1.9 million increase was due primarily to increases in salary and other personnel related costs, patent expenses, laboratory supplies, depreciation, consulting fees and amortization of intangible assets as we expanded our business and preclinical activities. General and Administrative. General and administrative expenses increased 24% from $1.1 million in the year ended December 31, 1997 to $1.4 million in the year ended December 31, 1998. The $300,000 increase was due primarily to increases in salary and personnel related expenses, expenses related to general office facilities and fixtures, and other general office expenses in support of our business and preclinical activities. Other Income (Expense), net. Interest income increased 94%, from $245,000 in the year ended December 31, 1997 to $476,000 in the year ended December 31, 1998. This was attributable to higher average balances of cash, cash equivalents and short-term investments. Interest expense increased 112%, from $84,000 in the year ended December 31, 1997 to $178,000 in the year ended December 31, 1998. 24

28 The increase was due to a higher debt balance as we entered into equipment financing contracts to finance our expanding business and preclinical activities. INCOME TAXES We have incurred a net operating loss since inception and consequently we have not paid any federal, state or foreign income taxes. On December 31, 1999, we had net operating loss carryforwards of approximately $14.2 million and research and development tax credit carryforwards of $749,000. If not utilized, the net operating loss and tax credit carryforwards will expire at various dates beginning in 2011. If we do not achieve profitability, net operating loss carryforwards may be lost. In addition, utilization of net operating loss and tax credit carryforwards may be subject to a substantial annual limitation due to the change in the ownership provisions of the Internal Revenue Code of 1986, as amended. We are currently not subject to these limitations. However, any future annual limitations may result in the expiration of net operating loss and tax credit carryforwards before utilization. LIQUIDITY AND CAPITAL RESOURCES Cash, cash equivalents and short-term investments were $9.7 million on September 30, 1999 and $27.3 million on September 30, 2000. Cash, cash equivalents and investments were $6.8 million on December 31, 1997, $13.9 million on December 31, 1998, and $7.4 million on December 31, 1999. We have financed our operations since inception through private placements of equity securities, grant revenue, fees from a sublicense agreement, equipment financings and interest income earned on cash and cash equivalents and investments. Since January 1, 2000, we received net proceeds of $28.0 million from private financing activities. In 1999, we did not raise any funds from private financing activities. In 1998, we received net proceeds of $12.0 million from private financing activities. Since inception, a total of $50.2 million net proceeds from private financing has been received. To date, inflation has not had a material effect on our business. Since our inception, investing activities, other than purchases and maturities of investments, have consisted primarily of purchases of property and equipment. On September 30, 2000, our investment in property and equipment was $2.9 million. Net cash used in operating activities for the nine months ended September 30, 2000 was $8.1 million. During the nine months ended September 30, 1999, we used $4.1 million of net cash in our operating activities. During the years ended December 31, 1997, 1998 and 1999 cash used in operating activities were $3.2 million, $4.5 million, and $5.6 million respectively. Expenditures in these periods were generally as a result of increased research and development expenses and general and administrative expenses in support of our operations. We have entered into agreements to develop bead and antibody technology that require significant cash expenditures, including an agreement with Dynal S.A. under which we have agreed to make payments totaling $3.0 million upon the accomplishment of bead development activities. Additionally, we have two agreements with Lonza Biologics PLC under which we have agreed to make payments totaling $3.4 million to develop and produce Phase III GMP-grade antibodies. As of September 30, 2000, we have paid $2.0 million to Dynal and $161,000 to Lonza. We anticipate that the remaining payments under these agreements will be paid in full by the end of December 2002. Under our license agreements with Genetics Institute and ARCH Development Corporation, we are required to spend a total of $2.0 million on research and development activities related to product development under these agreements by June 2001. Borrowings outstanding under our equipment financing agreements totaled $1.7 million, and we had $530,000 available under our equipment financing agreement, at September 30, 2000. We anticipate that the net proceeds from this offering, along with our existing cash balances will be sufficient to enable us to meet our anticipated expenditures for at least the next 18 months. However, we may need additional financing prior to that time to support our advancement into Phase III clinical trials. Furthermore, we expect to require additional funding before we are able to generate revenue, if at all, from our potential products. Additional financing may not be available on favorable terms or at all. If we are 25

29 unable to raise additional funds when we need them, we may be required to delay, reduce or eliminate some or all of our development programs and some or all of our clinical trials. We also may be forced to license technologies to others that we would prefer to develop internally. RECENT ACCOUNTING PRONOUNCEMENTS In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," (SAB 101). SAB 101 is based upon existing accounting rules and provided specific guidance on how those accounting rules should be applied and specifically addresses revenue recognition for non-refundable technology access fees in the biotechnology industry. SAB 101 is effective for fiscal years beginning after December 15, 1999. The adoption of SAB 101 did not have an impact on our financial position or results of operations; however, as the company generates sales of products, SAB 101 may impact recognition of revenue. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which will be effective for the year ending 2001. SFAS No. 133 establishes accounting and reporting standards requiring that every derivative instrument, including derivative instruments imbedded in other contracts, be recorded in the balance sheet as either an asset or liability measured at its fair value. The statement also requires that changes in the derivative's fair value be recognized in earnings unless specific hedge accounting criteria are met. We believe the adoption of SFAS 133 will not have a material effect on our financial statements, since we currently do not hold derivative instruments or engage in hedging activities. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK As of September 30, 2000, we had short-term investments of $1.5 million. Our short-term investments will decline by an immaterial amount if market interest rates increase, and therefore, our exposure to interest rate changes has been immaterial. Declines of interest rates over time will, however, reduce our interest income from our short-term investments and cash accounts. Interest rates on capital lease obligations are fixed at the beginning of the repayment term; therefore, exposure to changes in interest rates is limited to new financings. 26

30 BUSINESS OVERVIEW We are utilizing novel technologies to develop therapeutic products that generate effective immune system responses to treat cancer and infectious diseases. We use our proprietary technology, known as our Xcellerate, to activate and grow T cells. Our Xcellerate Technology rapidly and reproducibly activates a patient's own T cells outside of the body by mimicking normal events of the immune system. Our approach, known as Xcellerate Therapy, may allow us to treat a variety of medical conditions, including: - diseases characterized by poorly functioning immune systems, such as cancer and HIV; - conditions due to medical treatments, such as chemotherapy and the administration of drugs following transplantations, that suppress the immune system and cause patients to be vulnerable to infections; and - congenital conditions and advanced age that result in weakened immune systems. In July 2000, we initiated a Phase I clinical trial of our Xcellerate Therapy in patients with metastatic kidney cancer. As of December 15, 2000, 17 patients have received a total of 32 infusions of our Xcellerated T Cells. To date, there have been no significant adverse effects related to the administration of our Xcellerated T Cells and we have observed evidence of anti-tumor activity. We expect to complete this trial in the third quarter of 2001. BACKGROUND The human immune system is responsible for recognizing and eliminating cancer and pathogens, such as viruses and bacteria, from the body. A normal immune response occurs when disease-fighting white blood cells, called T cells, are activated by two simultaneous signals. Once activated, T cells alert the body to the presence of pathogens and cancer. The human body normally contains billions of T cells that are categorized as either helper T cells or killer T cells. Helper T cells are responsible for activating other cells of the immune system. Killer T cells act directly to destroy pathogens, such as viruses, or tumor cells. Both types of cells are required for an effective immune response. Activation of T Cells T cells remain in a resting state until they become activated and generate an immune response. The immune response begins when cells of the immune system known as antigen-presenting cells capture antigens, which are structural components of microorganisms and tumor cells. Antigens are broken down into tiny fragments by antigen-presenting cells and then presented on the cell surface to T cells. Each T cell has a unique receptor on its surface that is capable of recognizing a different antigenic fragment. This diversity of T cells makes it possible for our immune system to recognize and respond to a wide variety of different pathogens and cancers. 27

31 [GRAPHIC OF ACTIVATION OF T CELLS] The diagram starts with an antigen-presenting cell labeled "Antigen-presenting Cell" and shows antigens entering the cell. The antigens are shown broken into tiny fragments and then presented on the cell surface of the antigen-presenting cell. To the right of the antigen-presenting cell is a resting T cell labeled "Resting T Cell." a receptor on the resting T cell is shown to bind with the antigen fragment presented on the surface of the antigen-presenting cell, delivering Signal 1, labeled "Signal 1." Another receptor on the surface of the antigen-presenting cell binds to a different receptor on the Resting T Cell delivering Signal 2, labeled "Signal 2." An arrow leads from the resting T cell to an activated T cell, labeled "Activated T Cell." The graphic shows that the T cell is activated. When the proper T cell receptor binds to the presented antigen, it generates a signal, known as Signal 1, which is required to activate a T cell. A second signal, known as Signal 2, occurs when an antigen-presenting cell binds to another receptor on the surface of a T cell. Signal 1 is generated from a receptor that is unique to the specific antigen. In contrast, each antigen-presenting cell contains the same receptor that binds to a receptor of each T cell to deliver Signal 2. Both Signal 1 and Signal 2 are required for T cells to produce an effective immune response. If only Signal 1 is generated, T cells are weakly activated and die quickly. If only Signal 2 is generated, no immune response occurs at all. Only the simultaneous delivery of both Signal 1 and Signal 2 generates activated T cells that can function properly in the body. Signal 1 and Signal 2 are responsible for activating both helper T cells and killer T cells. The Dangers of a Weakened Immune System When the number of T cells decreases significantly, the human immune system is less able to defend the body against infectious diseases and cancer. Additionally, when T cells are not functioning properly, they may be incapable of being activated, which also creates a greater risk of these illnesses. For example, when T cells are damaged they may contain weakened or reduced numbers of receptors that cannot generate Signal 1 or Signal 2. In most medical conditions, deficits in both T cell numbers and function occur together. A variety of illnesses as well as medical treatments for life-threatening illnesses can cause T cell deficits. These include: - diseases that attack or evade the immune system, such as HIV and cancer as well as chronic illnesses, including diabetes and kidney failure; - medical treatments that damage T cells such as chemotherapy, immunosuppressive drugs and transplantation; and - congenital immunodeficiencies and advanced age. As a result of T cell deficits, patients are at increased risk of developing serious and often life-threatening infections. Common and normally benign viruses such as herpes and chicken pox can produce serious infections. Life-threatening fungal and parasitic infections as well as some bacterial infections, such as tuberculosis, also occur in patients with T cell deficits. Patients with severe T cell deficits are also at high risk of developing some types of cancer. For example, transplant patients on immunosuppressive drugs 28

32 have a very high rate of non-Hodgkin's lymphoma, and patients with HIV can suffer from both non-Hodgkin's lymphoma and Kaposi's sarcoma. Current Approaches to Activate the Immune System and Their Limitations Researchers have focused on developing methods to strengthen and activate a patient's immune system to combat the problems associated with T cell deficits. Current approaches include delivering therapeutic agents, such as cytokines, directly into the body to stimulate T cell responses. Cytokines are chemical messengers produced by cells of the immune system, many of which activate T cells. Unfortunately, these cytokines often cause life-threatening or fatal side effects when directly administered to patients. For example, when interleukin-2, a cytokine approved by the FDA to treat some cancers, is administered at the high doses demonstrated to be effective, it causes serious and life-threatening toxicity that requires close medical supervision in a hospital intensive care unit. The number of cytokines that can be used as therapeutics is limited because only a few can be safely administered to patients. These cytokines represent a very small portion of the many cytokines that are normally produced during an immune response. To overcome the limitations of activating T cells inside of the body, researchers attempted to activate and grow patients' T cells ex vivo, or outside of the body, before administering them for therapeutic applications. Initial attempts were made to grow T cells outside of the body using interleukin-2. The discovery of T cell receptors generated interest in developing compounds to bind to these receptors to activate T cells. With the development of technology to manufacture monoclonal antibodies, it became possible to reproduce these antibodies in large amounts for clinical applications. Researchers developed monoclonal antibodies that bind to these receptors to deliver Signal 1 to T cells. These antibodies were used together with interleukin-2 to activate and grow T cells outside of the body. However, this process generated only one of the two signals required to activate T cells, which resulted in limited growth of T cells. Once administered to patients, these cells generally survive for only a few days. These ex vivo methods required more than a month to generate sufficient numbers of T cells for clinical applications. These methods also required frequent handling and monitoring procedures during the incubation period. Furthermore, these approaches generated primarily killer T cells and only small numbers of helper T cells, which limits immune response. The lengthy and laborious procedures required to generate T cells together with their minimal therapeutic activity has led to limited use of these approaches. Scientists have recently begun to explore procedures that can be used to deliver both Signal 1 and Signal 2 to improve the function, activation and length of survival of T cells. One approach is to use a type of antigen-presenting cell known as a dendritic cell. In healthy individuals, dendritic cells are a natural and potent activator of T cells because they deliver both Signal 1 and Signal 2. For most clinical applications, a patient's own dendritic cells are grown outside of the body and then administered back to the patient. Dendritic cells may prove to be effective therapeutic agents, but they also have limitations. The ability to generate dendritic cells varies from patient to patient. This variability may limit the ability of dendritic cells to activate enough T cells to generate an effective immune response. OUR SOLUTION We have developed a proprietary technology known as Xcellerate, which can reproducibly activate and grow T cells outside of the body in large numbers for therapeutic applications. Our Xcellerate Technology employs microscopic magnetic beads that mimic the natural function of antigen-presenting cells to deliver Signal 1 and Signal 2. Each microscopic bead is densely packed with two monoclonal antibodies, one for Signal 1 and one for Signal 2, to create artificial antigen-presenting cells that are able to reproducibly and consistently activate T cells. We have developed a proprietary technique that allows optimal binding of antibody-coated beads to T cells, making it possible for us to generate more potent and highly activated T cells in a shorter period of time. In addition, we use a monoclonal antibody that directly interacts with the signaling complex of the T cell receptor to bypass the specificity that is normally required to activate Signal 1. 29

33 Our Xcellerate Technology focuses on activating T cells that are universal to the disease-fighting process. We believe this universal approach will allow us to treat a variety of medical conditions. Our technology also enables us to generate sufficient numbers of activated T cells rapidly, which may allow us to apply our Xcellerate Therapy on a commercial scale. In our Phase I clinical trial for metastatic kidney cancer, we successfully generated Xcellerated T Cells from all patients to date. In this clinical trial, we produced large numbers of T cells with high purity and activity levels. To date, all infusions of Xcellerated T Cells in our first clinical trial have been delivered to patients with no significant adverse effects and we have observed evidence of anti-tumor activity. Benefits of Our Xcellerate Therapy By providing a consistent method to directly activate T cells, we believe our Xcellerate Therapy may be an effective treatment for cancer and infectious diseases. We believe the Xcellerate Therapy has the following potential benefits: - Activated Immune System. We have demonstrated in the laboratory that our Xcellerated T Cells generate an effective immune response because we deliver both Signal 1 and Signal 2 to activate both helper T cells and killer T cells. Our laboratory studies have shown that Xcellerated T Cells function properly by expressing a broad spectrum of cytokines to activate other cells of the immune system. Independent clinical trials have shown that T cells activated using our technology survive for up to one year after administration into patients. - Broad Clinical Applications. Our Xcellerate Technology targets T cells that are required for an immune response. We believe that our Xcellerate Therapy can be applied to a variety of medical conditions. We have demonstrated in the laboratory that our Xcellerate Technology can be used to activate T cells from patients with a variety of cancers. In addition, third parties have conducted several clinical trials with one of our scientific founders using our T cell activation technology to treat patients with leukemia, lymphoma and HIV. - Minimal Toxicity. Our Xcellerated T Cells are produced from T cells originating from the patient. We believe that using a patient's own cells may result in a safer product. Minimal side effects have been observed in approximately 100 patients to date in clinical trials conducted by us or third parties working with one of our scientific founders, using our T cell activation technology. - Easy Administration. Our Xcellerate Therapy can be administered in a simple outpatient procedure in less than 30 minutes. This process uses a routine intravenous procedure that is convenient for both physicians and patients. - Complementary To Other Technologies. The minimal toxicity associated with our Xcellerate Therapy suggests it may be feasible to use our product with chemotherapy drugs. We may also use Xcellerated T Cells with other agents that are being used to activate the immune system, such as cancer vaccines. Benefits of Our Xcellerate Technology We believe our proprietary Xcellerate Technology can be developed into a commercially viable process. The benefits of our Xcellerate Technology are: - Rapid and Reproducible Process. Our Xcellerate Technology can activate and grow T cells in eight days with minimal laboratory effort. We believe this length of time is sufficient to generate the number of T cells necessary for a therapeutic effect. Our process optimizes the direct interaction between T cells and our proprietary monoclonal antibody-coated beads to produce consistent and strong signals that result in more highly activated and potent T cells. - Ex Vivo Process. Our Xcellerate Technology activates T cells ex vivo. Activating and growing T cells outside of the body provides a more controlled environment away from tumor cells and infectious agents, which can otherwise inhibit the activation and growth of T cells. In addition, 30

34 therapeutic agents that are otherwise potentially toxic or fatal if administered directly to the patient can be used to improve the activity and growth of T cells. - Standard and Cost-effective Manufacturing Process. Our Xcellerate Technology incorporates primarily commercially available medical products and standard blood bank procedures, which enables us to efficiently manufacture our Xcellerated T Cells. We use the same process and components for every patient, eliminating the need for patient-specific materials that must be obtained by surgery, such as samples of the patient's tumor. We believe we will be able to manufacture our Xcellerated T Cells in facilities that can be cost-effectively constructed, equipped and easily scaled. OUR STRATEGY Our goal is to be a leader in the field of T cell therapy and to leverage our expertise in T cell activation to develop and commercialize products to treat cancer and infectious diseases, such as HIV. Key elements of our strategy include: - Commercializing Our Xcellerate Therapy. We will initially develop our Xcellerate Therapy to treat life-threatening forms of cancer, which currently have inadequate treatments. The FDA has adopted fast-track approval and priority trial procedures for such therapies. In addition, we will focus on qualifying for FDA orphan drug status for our Xcellerate Therapy by treating cancers that are prevalent in less than 200,000 patients in the United States. This status may allow us to obtain a seven year market exclusivity in similar products targeting the same patient population. We believe this strategy will facilitate rapid entry into the market for our Xcellerate Therapy. - Expanding Our Xcellerate Therapy to Treat Multiple Diseases. We believe our Xcellerate Therapy has potential applications in many medical conditions. We intend to develop our Xcellerate Therapy to treat patients with infectious diseases, chronic illnesses, HIV and other immune deficiency conditions. - Leveraging Complementary Technologies and Therapies. We believe our Xcellerate Therapy can be used effectively in combination with current treatments for cancer and infectious diseases, such as chemotherapy. We intend to explore opportunities to combine complementary technologies and therapies, such as cancer vaccines, with our Xcellerate Therapy to improve and expand clinical applications. - Retaining Key Commercialization Rights. We intend to retain marketing and commercial rights in North America for products in concentrated markets, such as cancer. We believe these markets can be addressed by a small, targeted sales force that we can build and train internally. - Evaluating Collaboration Opportunities for Our Products. We will evaluate opportunities to collaborate with large pharmaceutical and biotechnology companies to obtain development and marketing support for territories outside North America, such as Europe and Japan. In addition, we may seek development and marketing support for indications that have more diffuse patient populations in North America. - Expanding Our Intellectual Property. We will continue to improve our Xcellerate Technology, including developing process improvements and improving activity and specificity of T cells. We intend to file patents to protect these improvements. In addition, we may supplement our internal efforts by acquiring or in-licensing technologies and product candidates that complement our existing capabilities. CLINICAL APPLICATIONS CANCER The American Cancer Society estimates that in 2000, 1.2 million new cases of cancer will occur in the United States. Surgery and radiation are the primary approaches used to treat patients with localized 31

35 disease. However, many cancers spread beyond the original site of disease. In order to prevent or treat the spread of cancer, known as metastasis, many patients are treated with chemotherapy drugs. Unfortunately, chemotherapy has met with limited success in the treatment of most forms of cancer and is associated with severe and sometimes life-threatening side effects. Physicians have recently begun to recognize the important role that the immune system may play in controlling cancer. This has led to the development of a new therapeutic approach to cancer known as immunotherapy. Immunotherapy uses natural products of the immune system such as monoclonal antibodies, cytokines and even whole cells to treat cancer. This new form of therapy has been demonstrated to be effective in some forms of cancer and has been generally associated with fewer side effects than chemotherapy. Solid Tumors The American Cancer Society estimates that in 2000 in the United States, there will be approximately 1.0 million new patients with solid tumors, which are cancers that originate in organs of the body. The American Cancer Society estimates that in 2000, more than 400,000 people will die from solid tumors, such as breast, prostate, lung, liver and colon cancers. These cancers are typically treated with surgery or radiation. Chemotherapy is used with limited success in treating solid tumors such as breast cancer, but is generally ineffective in curing patients once cancer has metastasized. Kidney Cancer. The American Cancer Society estimates that in 2000, approximately 31,200 patients will be diagnosed with kidney cancer in the United States. Approximately half of the patients with kidney cancer will develop metastatic disease. Once patients develop metastatic disease, they have a very poor prognosis with an average survival of approximately one year. The five-year survival for patients with metastatic kidney cancer is less than 5% and 11,900 deaths are expected to occur in the United States in 2000. Chemotherapy has not been effective in treating kidney cancer. The only therapy that has been approved by the FDA for treating metastatic kidney cancer is a regimen of high-dose interleukin-2, a drug that activates T cells. The overall response rate to high-dose interleukin-2 is approximately 15%. However, less than 5% of patients experience complete disappearance of all detectable cancer and achieve five-year survival. High-dose interleukin-2 therapy is associated with severe and potentially life-threatening side effects that can damage kidneys, liver, lungs and brain. Due to these risks, patients receiving high-dose interleukin-2 require monitoring in hospital intensive care units for several days. Additionally, many patients do not receive interleukin-2 because the risk of side effects may outweigh its potential therapeutic benefit. Recently, attempts have been made to reduce the doses of interleukin-2 administered to patients in order to decrease the side effects. Although adverse effects appear to decrease with low-dose regimens, there are currently insufficient data to determine whether low-dose interleukin-2 will prove to be an effective treatment alternative. In July 2000, we initiated a Phase I clinical trial of our Xcellerate Therapy in patients with metastatic kidney cancer. We intend to enroll a total of 25 patients to test the safety as well as to provide preliminary data on therapeutic effects of our Xcellerate Therapy. In this clinical trial, patients are treated with two infusions of our Xcellerate Therapy approximately four weeks apart. After each infusion of our Xcellerated T Cells, patients are treated with low doses of interleukin-2 for 10 consecutive days. As of December 15, 2000, 17 patients have received a total of 32 infusions of Xcellerated T Cells. To date, there have been no significant adverse effects related to the administration of our Xcellerated T Cells and we have observed evidence of anti-tumor activity. We expect to complete this trial in the third quarter of 2001. Hematological Malignancies The American Cancer Society estimates that in 2000, there will be approximately 106,700 new cases in the United States of hematological malignancies, which are cancers of the blood or bone marrow. The American Cancer Society estimates that 60,400 people will die in 2000 from hematological malignancies in the United States. Hematological malignancies include leukemia, non-Hodgkin's lymphoma, multiple 32

36 myeloma and Hodgkin's disease. Hematological malignancies have usually spread throughout the body by the time of diagnosis and therefore, require treatment with chemotherapy drugs. Physician-sponsored clinical trials are being conducted using our T cell activation technology in patients with both non-Hodgkin's lymphoma and leukemia. A physician-sponsored clinical trial was conducted at the University of Chicago in with patients with advanced non-Hodgkin's lymphoma who were treated with high-dose chemotherapy and a bone marrow transplant. After this treatment, patients received a single infusion of T cells activated using our T cell activation technology. Clinical data available on 17 patients from this clinical trial showed that the average overall survival of patients in the study was approximately two years following the infusion. Five-year survival in similar groups of patients with advanced non-Hodgkin's lymphoma is usually less than 10%. We will continue to evaluate this data and may explore this indication in our own clinical trials. We also plan to evaluate the potential efficacy of Xcellerate Therapy in patients with chronic lymphocytic leukemia, who have T cell deficits due to treatments for their disease. We have completed a series of laboratory studies to determine if we could generate activated T cells from the blood of these patients, which contains very few T cells. Our laboratory studies demonstrate that we can generate large numbers of activated T cells and overcome some of the defects that have been documented in these patients' T cells. Based on these results, we plan to initiate a clinical trial in the second half of 2001 to test the safety and potential therapeutic activity of Xcellerate Therapy in patients with chronic lymphocytic leukemia. This clinical trial will serve as the basis for the first test of the safety and potential clinical activity of Xcellerate Therapy in patients with severe T cell deficits. INFECTIOUS DISEASES We are evaluating the use of our Xcellerate Therapy in infectious disease indications, such as HIV, chronic viral hepatitis C and tuberculosis. Infectious diseases are illnesses caused by microorganisms such as viruses, fungi and bacteria and can be controlled in most people with antibiotics or antiviral agents. However, when patients' immune systems are compromised by infections, drugs, chronic illnesses, or age, they are often unable to fight these infections. A normally harmless virus can cause life-threatening infections or virally-induced cancers in patients with weakened immune systems. We plan to evaluate the potential efficacy of Xcellerate Therapy to increase T cell levels in patients with infectious diseases. Human Immunodeficiency Virus. There are over 400,000 individuals infected with HIV in the United States. HIV patients are at high risk of infections and cancer because they have low number of T cells that do not function properly. Patients are currently treated with combinations of anti-viral drugs. Although these drug combinations have been shown to be effective in delaying viral relapse and the onset of acquired immunodeficiency syndrome, or AIDS, they do not completely eliminate the virus or cure this disease. From 10% to 50% of patients on these anti-viral drugs will relapse each year. Several third party clinical trials have been conducted with one of our scientific founders using our T cell activation technology to generate activated T cells to treat HIV-positive patients. These clinical trials demonstrated that T cells could be activated and genetically-modified and that these cells could be administered safely and are able to target sites of HIV infection. It was observed that after administration of genetically-modified T cells, there was an increase in T cell counts in these patients and decrease in HIV in sites of infection. We intend to conduct a Phase I clinical trial to assess the ability of genetically-modified Xcellerated T Cells to delay viral relapse in HIV patients. 33

37 POTENTIAL FUTURE INDICATIONS Cancer We are evaluating the use of our Xcellerate Therapy in the following cancer indications: TYPE OF CANCER INCIDENCE (NEW CASES/YEAR)(1) DEATHS/YEAR(1) -------------- ----------------------------- -------------- Liver(2)...................................... 15,000 13,000 Non-Hodgkin's Lymphoma........................ 55,000 26,000 Ovarian....................................... 23,000 14,000 Melanoma...................................... 48,000 8,000 Multiple Myeloma.............................. 14,000 11,000 Colorectal.................................... 130,000 56,000 Lung.......................................... 164,000 157,000 - ------------------------- (1) American Cancer Society estimated incidence and death rates for 2000 in the United States. (2) The worldwide incidence for liver cancer is estimated at 1,000,000 (source: DeVita, V.T., Principles and Practice of Oncology, 1997). Clinical trials conducted by third parties have demonstrated that therapeutic products that activate the immune system, including activated T cells, may be used to treat these types of cancer. For example: - 150 patients were evaluated in a randomized Phase III clinical trial conducted by the National Cancer Center of Japan that demonstrated that activated T cells can reduce the risk of tumor recurrence of patients undergoing surgical removal of cancerous tumor tissue in the liver. In this clinical trial, patients who received activated T cells had a 41% decrease in tumor recurrence and demonstrated a statistically significant improvement in tumor-free survival compared to patients who did not receive activated T cells. This trial used T cells that were activated using monoclonal antibodies that target Signal 1 alone. Xcellerated T Cells are activated using monoclonal antibodies that deliver both Signal 1 and Signal 2 and may be a more effective therapeutic alternative. - a physician-sponsored clinical trial was conducted at the University of Chicago with patients with advanced non-Hodgkin's lymphoma who were treated with high-dose chemotherapy and a bone marrow transplant. After this treatment, patients received a single infusion of T cells activated using our T cell activation technology. Clinical data available on 17 patients from this clinical trial showed that the average overall survival of patients in the study was approximately two years following the infusion. - a randomized Phase III clinical trial was conducted in 148 patients with ovarian cancer by several academic centers in Europe. These patients received a cytokine, known as interferon-gamma, which improved tumor-free survival from 17 months to 48 months in patients who were treated with standard chemotherapy. We have shown in the laboratory that our Xcellerated T Cells produce large amounts of interferon-gamma. - interleukin-2, a drug that activates T cells, is approved by the FDA to treat metastatic melanoma. - we have successfully completed laboratory studies using our Xcellerate Technology to activate and grow T cells from patients with melanoma and multiple myeloma. We plan to further evaluate the use of our Xcellerate Technology to activate T cells in patients with many of these cancers. Based on these preclinical studies, in addition to ongoing clinical trials being conducted by our scientific founders and their collaborators, we plan to initiate a clinical trial in one or more of these types of cancer. OUR XCELLERATE TECHNOLOGY Our Xcellerate Technology uses our novel proprietary process to activate and grow both helper T cells and killer T cells by delivering both Signal 1 and Signal 2. In our process, T cells are stimulated, and 34

38 increase in number outside of the body, using microscopic magnetic beads densely coated with two monoclonal antibodies that deliver Signal 1 and Signal 2. Signal 1 is delivered by a monoclonal antibody that binds to and activates the CD3 complex, which is part of the T cell receptor complex, and is expressed on every T cell. Signal 2 is delivered by another monoclonal antibody, which binds to the CD28 receptor on T cells. Both of these antibodies are attached to the surface of the magnetic beads. When T cells bind to the monoclonal antibodies on these magnetic beads, they become activated and increase in number. Our Xcellerate Technology requires that a patient's white blood cells be collected in an outpatient clinical setting using a standard procedure called leukapheresis. These cells are then sent to our manufacturing facility, where trained specialists process the patient's blood in a closed system without exposing the cells to the outside environment, which reduces the risk of microbial contamination during the process. In this process, the patient's white blood cells are placed in sterile, disposable plastic bags containing a solution of nutrients and a low level of interleukin-2 that sustains the growth of the T cells. We then add our proprietary microscopic magnetic beads coated with anti-CD3 and anti-CD28 monoclonal antibodies to activate T cells. The beads bind to the T cells in the bag and mimic the normal process of T cell activation that takes place inside the human body. The activated T cells in the bag are maintained at the same temperature as the human body for approximately eight days. During this eight day period, we monitor the T cells to ensure consistent and adequate levels of their growth and activity. At the end of our process, the antibody-coated magnetic beads are removed from the activated T cells using a commercially available magnetic device. The activated T cells are then formulated in a standard clinical infusion solution for administration to the patient. [GRAPHIC OF XCELLERATE TECHNOLOGY] The circle diagram is set up as a circle of five graphics. Beginning at the top, the first graphic shows a female figure as the patient. From the patient, there is an arrow to the left leading to the second graphic of a sterile bag containing blood cells collected from the patient. A tube connects the female patient to the sterile bag. The text above the sterile bag states "Collect Blood." From the second graphic, a downward arrow leads to the third graphic of a sterile bag containing a mixture of the patient's blood cells and a vial of our antibody-coated beads. This graphic also contains another arrow from the vial to the bag indicating that the vial of antibody-coating beads is being added to the sterile bag with the patient's blood cells. In this sterile bag, beads are shown binding to a T cell, causing activation of the T cell. To the right of the vial of antibody-coated beads, the text states "Add Antibody-coated Beads." From the third graphic is an arrow to the right leading to the fourth graphic. Below the arrow, the text states "Activate and Expand T Cells." The fourth graphic is a sterile bag filled with an increased number of successfully activated T cells, our Xcellerated T Cells. In addition, the graphic shows the beads being removed and collected to the right of the sterile bag. Above the fourth graphic is text stating "Remove Beads." Next, an upward arrow leads from the fourth graphic to the fifth graphic, which is a sterile bag filled with Xcellerated T Cells. Text above this fifth graphic states "Infuse Xcellerated T Cells." An arrow from this fifth graphic leads back to the first graphic of the female figure, which shows the tube from the sterile bag to the female patient, illustrating the infusion of the activated T cells into the female patient. We have established procedures to track patients' cells during the manufacture and shipment of Xcellerated T Cells. Each patient receives a unique identifying number that also contains a code for the site at which they are being treated. This unique identifying number is used to track, monitor and record all documentation, labels and materials relating to the production of our Xcellerated T Cells from blood collection through to re-infusion of the final product. Before we release the shipment to the clinical site, we conduct quality control procedures in our laboratory to assure that our Xcellerated T Cells meet strict acceptance criteria. These quality control tests include: - Purity -- substantially free of other cell types; - Identity -- a T cell product as determined by characteristics unique to T cells; 35

39 - Dose -- a defined number of viable T cells; - Potency -- T cells that have biological function relevant to proposed therapeutic effect; and - Safety and Sterility -- free from microorganisms and residual components. RESEARCH AND DEVELOPMENT Our current Xcellerate Technology is based on a prototype version developed by two of our scientific founders, Drs. Carl June and Craig Thompson, who are leaders in the field of immunology. We have made several improvements to this technology. We use monoclonal antibodies that are more reproducible and thus are easier to manufacture. In addition, we manufacture large batches of sterile antibody-coated magnetic beads and have reduced the overall process time from an average of 14 days to an average of 8 days. We use a closed system in a sterile environment, which reduces the chances of contamination by microorganisms. We believe these modifications are essential to developing a product that can be commercialized. We intend to continuously evaluate and improve our technology and will file patents on our advancements. For example, we have recently filed a patent application to cover a novel method that both further simplifies our Xcellerate Technology and also generates T cells with greater activity. The simplification of our process reduces labor and materials and lowers the costs associated with the production of Xcellerated T Cells. We are completing development of our improved Xcellerate Technology and plan to introduce it into clinical trials in the first half of 2001. Our scientific founders continue to conduct physician-sponsored clinical trials using our T cell activation technology. These studies are conducted independently with our scientific founders' own procedures using our T cell activation technology. We will continue to assess these data together with our own laboratory and clinical results to determine the best clinical opportunities for Xcellerate Therapy. We are focusing our research and development efforts on increasing the activity of T cells in our Xcellerate Therapy. We are currently evaluating whether other molecules of the immune system or genes could be used to improve the therapeutic activity of the activated T cells. We are also considering the therapeutic potential of using our Xcellerate Therapy in cancer patients to improve the effectiveness of cancer vaccines. We are working with several groups to evaluate the use of recently discovered antigens with our Xcellerate Technology to activate and expand T cells with specificity toward cancer and infectious disease targets. Previous approaches to activate and grow antigen-specific T cells have involved complicated and laborious procedures, which have had limited commercial feasibility. We have conducted laboratory studies demonstrating that we can use our Xcellerate Technology to generate large numbers of antigen-specific T cells with anti-tumor activity in several forms of cancer including melanoma and lung cancer. MANUFACTURING We have designed, built, and are operating a modern GMP pilot plant facility in Seattle, Washington to manufacture our Xcellerated T Cells for initial clinical trials. We have also recently leased an additional 40,500 square foot facility that we intend to develop to manufacture our Xcellerated T Cells for our future large-scale clinical trials and initial commercialization. We expect to complete initial modifications and begin manufacturing our Xcellerated T Cells at this facility by the second half of 2001. We are currently improving the process by which we manufacture our Xcellerated T Cells. For example, we plan to develop more streamlined processing procedures that reduce labor and provide more uniform activation and process efficiency. Except for our proprietary anti-CD3 and anti-CD28 antibody-coated beads, all of the components including tissue culture media, nutrients, disposable bags, tubing sets and processing equipment that are required for our Xcellerate Technology are standard laboratory or clinical supplies that are readily available from commercial vendors. In June 2000, we entered into two service agreements with Lonza Biologics PLC, for the GMP manufacture of anti-CD3 and anti-CD28 monoclonal antibodies for uses in clinical trials. We retain all 36

40 proprietary rights to our intellectual property that is used by Lonza under these agreements. These agreements may be terminated at will by either party for a material breach. In August 1999, we entered into a contract with Dynal S.A., for the GMP manufacture of our proprietary antibody-coated magnetic beads for clinical and commercial uses. We retain all proprietary rights to our intellectual property that is used by Dynal under this agreement. The agreement will terminate in August 2009 or earlier upon breach by either party. The term may be extended for an additional five year term by either party. COMPETITION The biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. Many entities, including pharmaceutical and biotechnology companies, academic institutions and other research organizations are actively engaged in the discovery, research and development of products that could compete with our products under development. They may also compete with us in recruiting and retaining skilled scientific talent. Several companies market immunotherapy products. We are currently aware of a few companies in the early stages of developing ex vivo T cell activation products as a method of treating cancer and infectious diseases. However, even if our Xcellerate Technology proves successful, we might not be able to remain competitive in this rapidly advancing area of technology. Many of our potential competitors have more financial and other resources, larger research and development staffs, and more experienced capabilities in researching, developing and testing products. Many of these companies also have more experience in conducting clinical trials, obtaining FDA and other regulatory approvals, and in manufacturing, marketing and distributing of medical products. Smaller companies may successfully compete with us by establishing collaborative relationships with larger pharmaceutical companies or academic institutions. Our competitors may succeed in developing, obtaining patent protection for, or commercializing their products more rapidly than us. A competing company developing, or acquiring rights to, a more effective therapeutic product for the same diseases targeted by us, or one that offers significantly lower costs of treatment, could render our products noncompetitive or obsolete. Our ability to commercialize our Xcellerate Therapy and compete effectively will depend, in large part, on: - our ability to advance our Xcellerate Therapy through clinical trials and to successfully manufacture our products; - the perception by physicians and other members of the health care community of the safety, efficacy and benefits of activated T cell treatments compared to those of competing products or therapies; - the willingness of physicians to adopt a new treatment; - the price of our Xcellerate Therapy relative to other products or competing treatments; - the effectiveness of our sales and marketing efforts and those of our potential marketing partners; and - our ability to protect our proprietary technology. INTELLECTUAL PROPERTY We rely on a combination of patent, trademark, copyright and trade secret laws to protect our proprietary technologies and products. We aggressively seek U.S. and international patent protection to further our business strategy and for major components of our Xcellerate Technology, including important antibody clone components and methods of T cell activation. We also rely upon trade secret protection for our confidential and proprietary information, and we enter into licenses to technologies we view as necessary to pursue our corporate goals. 37

41 As of December 1, 2000, we owned or held exclusive rights to two issued patents and 21 pending U.S. patent applications in the fields of or directed to ex vivo T cell stimulation. The two issued patents relate to a method of stimulating T cells and an antibody, which we are not currently using. We also have 34 currently pending foreign patent applications corresponding to T cell stimulation technology. In general, we apply for patent protection of methods and products relating to immunotherapy for treatment of cancer and infectious diseases. With respect to proprietary know-how that is not patentable, we have chosen to rely on trade secret protection and confidentiality agreements to protect our interests. We have taken security measures to protect our proprietary know-how, technologies and confidential data and continue to explore further methods of protection. We require all employees, consultants and collaborators to enter into confidentiality agreements, and all employees and most consultants enter into invention assignment agreements with us. The confidentiality agreements generally provide that all confidential information developed or made known to the individual during the course of such relationship will be kept confidential and not disclosed to third parties, except in specified circumstances. These invention agreements generally provide that all inventions conceived by the individual in the course of rendering services to us shall be our exclusive property. There can be no assurance, however, that these agreements will provide meaningful protection or adequate remedies for any breach, or that our trade secrets will not otherwise become known or be independently discovered by our competitors. Any of these events could adversely affect our competitive position in the marketplace. In the case of a strategic partnership or other collaborative arrangement which requires the sharing of data, our policy is to disclose to our partner only such data as are relevant to the partnership or arrangement, under controlled circumstances and only during the contractual term of the strategic partnership or collaborative arrangement, subject to a duty of confidentiality on the part of our partner or collaborator. Disputes may arise as to the inventorship and corresponding rights in know-how and inventions resulting from research by us and our future corporate partners, licensors, scientific collaborators and consultants. There can be no assurance that we will be able to maintain our proprietary position, or that third parties will not circumvent any proprietary protection we have. Our failure to maintain exclusive or other rights to such technologies could harm our competitive position. To continue developing and commercializing our current and future products, we may license intellectual property from commercial or academic entities to obtain the rights to technology that is required for our discovery, research, development and commercialization activities. In anticipation of the commercial distribution of our products and services, we have filed a number of trademark applications. TECHNOLOGY LICENSES Where consistent with our strategy, we seek to obtain technologies that complement and expand our existing technology base. We have licensed and will continue to license technology from selected research and academic institutions, as well as other organizations. Under these license agreements, we generally seek to obtain unrestricted sublicense rights. We are generally obligated under these agreements to pursue product development, make development milestone payments and pay royalties on any product sales. In addition to license agreements, we seek relationships with other entities that may benefit us and support our business goals. ARCH Development Corporation In June 1999, we entered into an exclusive license agreement with ARCH Development Corporation, an Illinois not-for-profit corporation, for rights to a pending patent application that lists Dr. Carl June, one of our scientific founders, as an inventor. This agreement assisted in consolidating our patent protection in the field of therapies based on ex vivo activation of T cells. Under the license agreement, ARCH granted us an exclusive, worldwide license to make, sell, use and import products until expiration of any patents that might be issued from our licensed patent 38

42 applications. In consideration for the license, we issued shares of our common stock to ARCH and agreed to pay an annual usage royalty upon commercialization of a product for the remainder of the license term. Diaclone S.A. In October 1999, we entered into a license agreement with Diaclone S.A., a French corporation. Under the agreement, Diaclone granted us an exclusive, worldwide license to the anti-CD28 antibody and the cell line which produces the antibody, for the development and commercialization of the anti-CD28 antibody for all ex vivo uses. We are currently obligated to purchase all our anti-CD28 antibody requirements from Diaclone until we enter into Phase III clinical trials. This agreement has a term of 15 years from the date of first approval by FDA or its foreign equivalent, of a product based upon the licensed patent. We currently do not have FDA approval of any products based upon the licensed patent. At the end of the term, we will have a perpetual, irrevocable, royalty-free exclusive license. We paid an initial license fee to Diaclone and are required to pay royalties if our product is approved and commercialized. Fred Hutchinson Cancer Research Center In October 1999, we entered into a license agreement with the Fred Hutchinson Cancer Research Center. Under the agreement, the Fred Hutchinson Cancer Research Center granted us a non-exclusive, worldwide license to make, use and sell the anti-CD3 antibody for any ex vivo use involving therapeutic and research applications. We paid upfront licensing fees to the Fred Hutchinson Cancer Research Center and we are obligated to pay the Fred Hutchinson Cancer Research Center an annual royalty fee when our product is commercialized. On December 1, 2000, we amended this license agreement to broaden the field of use in exchange for an additional upfront fee and issuance of additional shares of our common stock to the Fred Hutchinson Cancer Research Center. Based on this license, this agreement will remain in effect for 15 years following commercialization of our product based on this agreement. Genetics Institute, Inc. In July 1998, we entered into a license agreement with Genetics Institute, Inc. Under the agreement, Genetics Institute granted us an exclusive license for methods of ex vivo activation or expansion of human T cells for treatment and prevention of infectious diseases, cancer and immunodeficiency. The term of the Genetics Institute license runs until the end of the enforceable term of any patents issued for the methods licensed. To date, one patent, whose term expires in 2016, has been issued for the methods licensed. In consideration of the license, we paid Genetics Institute an upfront license fee, issued shares of our preferred stock to Genetics Institute, and issued a warrant under which, if one of three milestones is reached, Genetics Institute will have the right to purchase additional shares of our preferred stock. We are also obligated to pay royalties to Genetics Institute on sales of products covered by the patents licensed to us under the agreement. GOVERNMENTAL REGULATION Governmental authorities in the United States and other countries extensively regulate the preclinical and clinical testing, manufacturing, labeling, storage, record-keeping, advertising, promotion, export, marketing and distribution, among other things, of immunotherapeutics. In the United States, the FDA under the Federal Food, Drug, and Cosmetic Act, the Public Health Service Act and other federal statutes and regulations subjects pharmaceutical products to rigorous review. If we do not comply with applicable requirements, we may be fined, our products may be recalled or seized, our production may be totally or partially suspended, the government may refuse to approve our marketing applications or allow us to distribute our products, and we may be criminally prosecuted. The FDA also has the authority to revoke previously granted marketing authorizations. 39

43 In order to obtain approval of a new product from the FDA, we must, among other requirements, submit proof of safety and efficacy as well as detailed information on the manufacture and composition of the product, also know as an investigational new drug applications. In most cases, this proof entails extensive laboratory tests, and preclinical and clinical trials. This testing, the preparation of necessary applications, the processing of those applications by the FDA and review of the application by an advisory panel of outside experts are expensive and typically take several years to complete. The FDA may not act quickly or favorably in reviewing these applications, and we may encounter significant difficulties or costs in our efforts to obtain FDA approvals that could delay or preclude us from marketing any products we may develop. The FDA may also require post-marketing testing and surveillance to monitor the effects of approved products or place conditions on any approvals that could restrict the commercial applications of these products. Regulatory authorities may withdraw product approvals if we fail to comply with regulatory standards or if we encounter problems following initial marketing. With respect to patented products or technologies, delays imposed by the governmental approval process may materially reduce the period during which we will have the exclusive right to exploit the products or technologies. There are two types of investigational new drug applications. The first is a commercial investigational new drug application intended to collect data on the safety and efficacy of a new drug prior to submitting an application for marketing approval. The second type of investigational new drug application is the non-commercial or physician-sponsored investigational new drug application which allows physicians to gain an initial understanding of the compound without going through the rigors of an investigational new drug application development program in support of commercial approval. Data from physician-sponsored trials can be used to support the safety but not the efficacy of a product. After an investigational new drug application becomes effective, a sponsor may commence human clinical trials. The sponsor typically conducts human clinical trials in three sequential phases, but the phases may overlap. In Phase I clinical trials, the product is tested in a small number of patients or healthy volunteers, primarily for safety at one or more doses. In Phase II, in addition to safety, the sponsor evaluates the efficacy of the product in a patient population somewhat larger than Phase I clinical trials. Phase III clinical trials typically involve additional testing for safety and clinical efficacy in an expanded population at geographically dispersed test sites. The sponsor must submit to the FDA a clinical plan, or "protocol," accompanied by the approval of the institution participating in the trials, prior to commencement of each clinical trial. The FDA may order the temporary or permanent discontinuation of a clinical trial at any time. The sponsor must submit to the FDA the results of the preclinical and clinical trials, together with, among other things, detailed information on the manufacture and composition of the product, in the form of a new drug application or, in the case of a biologic, a biologics license application. The FDA is regulating our therapeutic immunotherapy products as biologics and, therefore, we will be submitting biologics license applications to the FDA to obtain approval of our products. A biologics license application requires data showing the safety, purity and potency of the product. In a process which generally takes several years, the FDA reviews this application and, when and if it decides that adequate data is available to show that the new compound is both safe and effective and that other applicable requirements have been met, approves the drug or biologic for marketing. The amount of time taken for this approval process is a function of a number of variables, including the quality of the submission and studies presented, the potential contribution that the compound will make in improving the treatment of the disease in question, and the workload at the FDA. It is possible that our Xcellerate Therapy will not successfully proceed through this approval process or that the FDA will not approve them in any specific period of time, or at all. Congress enacted the Food and Drug Administration Modernization Act of 1997, in part, to ensure the availability of safe and effective drugs, biologics and medical devices by expediting the FDA review process for new products. The Modernization Act establishes a statutory program for the approval of fast track products, including biologics. A fast track product is defined as a new drug or biologic intended for the treatment of a serious or life-threatening condition that demonstrates the potential to address unmet medical needs for this condition. Under the fast track program, the sponsor of a new drug or biologic may 40

44 request the FDA to designate the drug or biologic as a fast track product at any time during the clinical development of the product. The Modernization Act specifies that the FDA must determine if the product qualifies for fast track designation within 60 days of receipt of the sponsor's request. The FDA can base approval of a marketing application for a fast track product on an effect on a clinical endpoint or on another endpoint that is reasonably likely to predict clinical benefit. The FDA may subject approval of an application for a fast track product to post-approval studies to validate the surrogate endpoint or confirm the effect on the clinical endpoint and prior review of all promotional materials. In addition, the FDA may withdraw its approval of a fast track product on an expedited basis on a number of grounds, including the sponsor's failure to conduct any required post-approval study with due diligence. If the FDA's preliminary review of clinical data suggests that a fast track product may be effective, the agency may initiate review of sections of a marketing application for a fast track product before the sponsor completes the application. This rolling review is available if the applicant provides a schedule for submission of remaining information and pays applicable user fees. However, the time periods specified under the Prescription Drug User Fee Act concerning timing goals to which the FDA has committed in reviewing an application, do not begin until the sponsor submits the entire application. We may request fast track designation and orphan drug status for our Xcellerate Therapy. Orphan drug designation may be granted to those products developed to treat diseases or conditions that affect fewer than 200,000 persons in the United States. We believe that some of our target cancer patient populations meet these criteria. Under the law, the developer of an orphan drug may be entitled to seven years of market exclusivity following the approval of the product by the FDA, exemption from user fee payments to the FDA, and a 50% tax credit for the amount of money spent on human clinical trials. We cannot predict whether the FDA will grant these designations, or whether our products will ultimately receive approval or orphan drug exclusivity nor can we predict the ultimate impact, if any, of the fast track process on the timing or likelihood of FDA approval of our immunotherapeutics. The FDA may, during its review of a new drug application or biologics license application, ask for additional test data. If the FDA does ultimately approve the product, it may require post-marketing testing, including potentially expensive Phase IV studies, and surveillance to monitor the safety and effectiveness of the drug. In addition, the FDA may in some circumstances impose restrictions on the use of the drug, which may be difficult and expensive to administer, and may require prior approval of promotional materials. Before approving a new drug application or biologics license application, the FDA will also inspect the facilities at which the product is manufactured and will not approve the product unless the manufacturing facilities are in compliance with current Good Manufacturing Practices. In addition, the manufacture, holding, and distribution of a product must be in compliance with current Good Manufacturing Practices. Manufacturers must continue to expend time, money and effort in the area of production and quality control and record keeping and reporting to ensure full compliance with those requirements. The labeling, advertising, promotion, marketing and distribution of a drug or biologic product must be in compliance with FDA regulatory requirements. In addition, manufacturers are required to report adverse events, and errors and accidents in the manufacturing process. Changes to an approved product, or changes to the manufacturing process, may require the filing of a supplemental application for FDA review and approval. Failure to comply with applicable requirements can lead to the FDA demanding that production and shipment cease, and, in some cases, that the manufacturer recall products, or to FDA enforcement actions that can include seizures, injunctions and criminal prosecution. These failures can also lead to FDA withdrawal of approval to market the product. We are also subject to regulation by the Occupational Safety and Health Administration and the Environmental Protection Agency and to regulation under the Toxic Substances Control Act, the Resource Conservation and Recovery Act and other regulatory statutes, and may in the future be subject to other federal, state or local regulations. Either or both of OSHA or the EPA may promulgate regulations that 41

45 may affect our research and development programs. We are unable to predict whether any agency will adopt any regulation which could limit or impede on our operations. Sales of pharmaceutical products outside the United States are subject to foreign regulatory requirements that vary widely from country to country. Whether or not we have obtained FDA approval, we must obtain approval of a product by comparable regulatory authorities of foreign countries prior to the commencement of marketing the product in those countries. The time required to obtain this approval may be longer or shorter than that required for FDA approval. The foreign regulatory approval process includes all the risks associated with FDA regulation set forth above, as well as country-specific regulations. LEGAL PROCEEDINGS We are not party to any material legal proceedings. EMPLOYEES As of November 30, 2000, we had 64 employees, 27 of these employees are directly involved in research and development, and 15 employees are involved in manufacturing operations. We consider our relations with our employees to be good. FACILITIES We currently occupy a total of 61,069 square feet of space at two facilities, one in Seattle, Washington and one in Bothell, Washington. We have a total of 20,659 square feet of office, laboratory space and a pilot cell manufacturing facility in Seattle. This pilot plant facility is compliant with FDA guidelines and proposals for the GMP manufacture of cell-based therapeutic products for initial clinical trials. The lease on this space expires in October 1, 2006, and we have options to renew for two additional five-year terms. We have also leased 40,500 square feet of space in Bothell and we intend to initially renovate approximately 15,000 square feet of space for manufacturing to support large-scale clinical trials and initial commercialization of any approved products. The initial lease term on this space expires on December 1, 2010 and we have options to renew until December 1, 2020. Under the terms of the lease, we also have rights to negotiate for further expansion space in the building. 42

46 MANAGEMENT EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS The following table sets forth certain information regarding our executive officers, key employees and directors as of November 30, 2000: NAME(1) AGE POSITION ------- --- -------- Ronald J. Berenson, M.D.(4)............... 48 Chief Executive Officer, President and Director Stewart Craig, Ph.D....................... 39 Chief Operating Officer and Vice President Kathi L. Cordova.......................... 40 Vice President, Finance Dawn M. McCracken......................... 33 Vice President, Regulatory and Clinical Affairs Mark L. Bonyhadi, Ph.D.................... 46 Director of Biological Research Robert E. Curry, Ph.D.(2)(3)(4)........... 54 Director Jean Deleage, Ph.D.(2).................... 60 Director Peter Langecker, M.D., Ph.D............... 49 Director Robert T. Nelsen(2)(3)(4)................. 37 Director Michael Steinmetz, Ph.D.(2)............... 53 Director Robert M. Williams, Ph.D.................. 47 Director - ------------------------- (1) David J. Maki resigned from our board of directors, effective December 19, 2000. (2) Member of Audit Committee (3) Member of Compensation Committee (4) Member of Milestone Committee RONALD J. BERENSON, M.D., our founder, has served as President and Chief Executive Officer and a director since our inception. From April 1989 until February 1995, Dr. Berenson held several positions at CellPro, Inc., a stem cell therapy company that he founded, with his last positions being as Executive Vice President and Chief Medical and Scientific Officer as well as serving on the Board of Directors. From July 1984 to March 1989, Dr. Berenson was a faculty member at the Fred Hutchinson Cancer Research Center, where he last held the position of Assistant Member. He is a board-certified internist and medical oncologist, who completed his medical oncology fellowship training at Stanford Medical Center. Dr. Berenson received a B.S. in biology from Stanford University and an M.D. from Yale Medical School. STEWART CRAIG, PH.D., our Chief Operating Officer and Vice President, joined us in October 1999. Prior to joining us, he served as Vice President of Development and Operations at Osiris Therapeutics, Inc., a stem cell therapy company, from July 1996 to September 1999. From January 1994 to June 1996, Dr. Craig served as Vice President of Product and Process Development at SyStemix Inc., a stem cell and gene therapy company. From June 1987 to December 1993, Dr. Craig held the positions of Group Leader and Senior Scientist at British Biotech, a cancer treatment development company. Dr. Stewart received a B.Sc. in biochemistry and a Ph.D. in physical biochemistry from the University of Newcastle upon Tyne, U.K. KATHI L. CORDOVA, C.P.A., Vice President of Finance, joined us in March 1997. Prior to joining us, Ms. Cordova held the positions of Assistant Controller and Controller in a joint venture between American Life Insurance Company, an insurance company, and Italy's Confederazione Italiana Sindicati dei Lavoratori, an insurance company, from February 1994 to February 1997. From August 1991 to January 1994, Ms. Cordova served as Management Associate with the Life Division of American International Group. Ms. Cordova received a B.A. in international relations from Stanford University and an M.A. in international relations from The Johns Hopkins University. DAWN M. MCCRACKEN, Vice President of Regulatory and Clinical Affairs, joined us in November 1998. Prior to joining us, Ms. McCracken held the position of Senior Manager of Regulatory and Clinical Affairs at Neopath, Inc. a medical device company, from November 1996 to October 1998. From April 1996 to November 1996, Ms. McCracken served as Contract Consultant of Regulatory and Clinical Affairs 43

47 with Bartels, Inc., an immunotherapy development company, and Sonus Pharmaceuticals, Inc., a drug delivery product company. From January 1995 to March 1996, Ms. McCracken served as Manager of the West Coast Region for Novum, Inc., a contract consulting company. Ms. McCracken received a B.S. in zoology from the University of Washington. MARK L. BONYHADI, PH.D., our Director of Biological Research, joined us in October 1997. Prior to joining us, Dr. Bonyhadi served as Senior Scientist with SyStemix, Inc., a stem cell and gene therapy company, from 1990 to 1997. Dr. Bonyhadi received a B.A. in biology from Reed College and a Ph.D. in immunology from the University of California at Berkeley. ROBERT E. CURRY, PH.D. has served as one of our directors since May 2000. Dr. Curry has been a general partner of Sprout Group, a venture capital firm, since May 1991 and currently serves as Vice President. He is a director of Allos Therapeutics, Inc., a cancer therapy company and Tripath Imaging, Inc., a cancer therapy company. Dr. Curry received a B.S. in physics from the University of Illinois and an M.S. and Ph.D. in chemistry from Purdue University. JEAN DELEAGE, PH.D. has served as one of our directors since August 1996. Dr. Deleage is a founder and managing director of Alta Partners, a venture capital firm. Dr. Deleage serves as a director of ACLARA BioSciences, Inc., a genomics company, BioMedicines, Inc., a pharmaceutical company, Neurogenetics, Inc., a biopharmaceutical company, and Rigel Pharmaceuticals, Inc., a pharmaceutical company, as well as several private company boards. Dr. Deleage received an M.S. in electrical engineering from the Ecole Superieure d'Electricite and a Ph.D. in economics from the Sorbonne. PETER LANGECKER, M.D., PH.D. has served as one of our directors since January 2000. Dr. Langecker has served as Chief Medical Officer and Vice President of Clinical Affairs of BioMedicines, Inc., a pharmaceutical company since October 1999. From July 1997 to September 1999, Dr. Langecker served as Vice President of Clinical Affairs of Sugen, Inc., a biotechnology company. From July 1995 to July 1997, Dr. Langecker served as Vice President of Clinical Research of Coulter Pharmaceutical, Inc., a biotechnology company. Dr. Langecker received an M.D. and a Ph.D. in medical sciences from Ludwig Maximilians University in Munich. ROBERT T. NELSEN has served as one of our directors since August 1996. Since 1992, Mr. Nelsen has served as director of ARCH Venture Corporation, a venture capital firm. Mr. Nelsen serves as a director of Adolor Corporation, an analgesics development company, Caliper Technologies Corporation, a biochip company, Genomica Corporation, a pharmacogenomics software company, and Illumina Corporation, a biotechnology company. Mr. Nelsen received a B.S. in biology and economics from the University of Puget Sound and an M.B.A. from the University of Chicago. MICHAEL STEINMETZ, PH.D. has served as one of our directors since August 2000. Since 1997, Dr. Steinmetz has been a general partner of MPM Asset Management LLC, a venture capital firm. From 1986 to 1997, Dr. Steinmetz headed the Biology Department in Basel, Switzerland as well as the Biotechnology Department and the Preclinical Research and Development Department in Nutley, New Jersey at Hoffmann-La Roche Inc., a developer of diagnostic systems. Dr. Steinmetz serves as a director of Caliper Technologies, a lab processing company, Arena Pharmaceuticals, a biopharmaceutical company, and GPC Biotech, a pharmaceutical company, as well as several private company boards. Dr. Steinmetz received a Diploma in chemistry from the University of Hamburg and a Ph.D. in biochemistry and molecular biology from the University of Munich. ROBERT M. WILLIAMS, PH.D. has served as one of our directors since November 1996. Since September 1980, Dr. Williams has served as a Professor of Chemistry at Colorado State University. From 1988 to present, Dr. Williams has also provided consulting services to several biotechnology and pharmaceutical companies, including Cubist Pharmaceutical Company, Microcide Pharmaceuticals, Hoffman-La Roche, G.D. Searle and EPIX Medical, Inc. Dr. Williams received a B.A. in chemistry from Syracuse University and a Ph.D. in organic chemistry from the Massachusetts Institute of Technology. Following graduate school, Dr. Williams served as a postdoctoral fellow at Harvard University. 44

48 SCIENTIFIC ADVISORY BOARD The Scientific Advisory Board is our network of medical, scientific and clinical advisors and collaborators who consult with our scientists. In addition, our Scientific Advisory Board members advise us regarding our research and development programs, the design of our clinical trials as well as other medical and scientific matters relating to our business. One of our Scientific Advisory Board members, E. Donnall Thomas, was awarded the 1990 Nobel Prize in Medicine. Our Scientific Advisory Board members are: NAME POSITION AFFILIATION ---- -------- ----------- Joseph Bertino, M.D. .............. Chairman of Molecular Memorial Sloan-Kettering Pharmacology and Therapeutics Cancer Center Program Jeffrey Bluestone, Ph.D., Professor and Director of the University of California, San Founder.......................... UCSF Diabetes Center Francisco Edward Clark, Ph.D. ............... Professor and Program Department of Microbiology, Director University of Washington John Hansen, M.D. ................. Member and former Director of Fred Hutchinson Cancer Clinical Research Research Center Carl June, M.D., Founder........... Vice Chairman of the University of Pennsylvania Department of Molecular and Cellular Engineering Ronald Levy, M.D. ................. Chairman of the Division of Stanford Medical Center Medical Oncology Gerald Nepom, M.D., Ph.D. ......... Director Virginia Mason Research Center E. Donnall Thomas, M.D. ........... Member and former Director of Fred Hutchinson Cancer Clinical Research Research Center Craig Thompson, M.D., Founder...... Scientific Director, Abramson University of Pennsylvania Cancer Research Institute Robert Williams, Ph.D. ............ Professor of Chemistry Colorado State University BOARD COMPOSITION Our board is currently comprised of seven directors and one vacancy. Our board of directors is divided into three classes, with each director serving a three-year term and one class being elected at each year's annual meeting of stockholders. Director Robert Williams will be in the class of directors whose initial term expires at the 2001 annual meeting of stockholders. Directors Jean Deleage, Peter Langecker and Michael Steinmetz will be in the class of directors whose initial term expires at the 2002 annual meeting of the stockholders. Directors Ronald J. Berenson, Robert E. Curry and Robert T. Nelsen will be in the class of directors whose initial term expires at the 2003 annual meeting of stockholders. BOARD COMMITTEES Our board of directors has established an audit committee, a compensation committee and a milestone committee. Audit Committee The audit committee is composed of Robert Curry, Robert Nelsen and Michael Steinmetz. It is responsible for assuring the integrity of our financial control, audit and reporting functions. It reviews with our management and our independent auditors the effectiveness of our financial controls, accounting and reporting practices and procedures. In addition, the audit committee reviews the qualifications of our independent auditors, makes recommendations to the board of directors regarding the selection of our 45

49 auditors, reviews the scope, fees and results of activities related to audit and non-audit services. Prior to December 2000, the audit committee responsibilities were conducted by the full board of directors, which met annually with representatives of our independent auditors, including executive sessions from which members of management were excused. Compensation Committee The compensation committee is composed of Robert E. Curry, Jean Deleage, and Robert T. Nelsen. Its principal responsibility is to administer our stock plans and to set the salary and incentive compensation, including stock option grants, for the Chief Executive Officer and senior staff members. Milestone Committee The milestone committee is composed of Ronald J. Berenson, Robert E. Curry and Robert T. Nelsen. In connection with our acquisition of CellGenEx, Inc., we initially reserved an aggregate of 1,582,340 shares of our common stock in a Milestone Pool, for issuance to our scientific founders upon the achievement of specific milestones determined by the milestone committee. Several of these milestones have expired and to date, 1,056,040 shares remain available for issuance. DIRECTOR COMPENSATION Our six outside directors serve without cash compensation. In November 1996, Jean Deleage and Robert Williams were each awarded non-statutory options for 30,000 shares of our common stock. In November 1999, Peter Langecker was awarded a non-statutory option for 30,000 shares of our common stock. These shares vest over a four-year period at a rate of 25% of the total number of shares subject to the option one year after the date of grant and 1/48th of the total number of shares subject to the option vesting each month thereafter. Directors who are our employees are eligible to participate in our 1996 stock option plan and, beginning in 2000, they will also be eligible to participate in our 2000 stock option plan and 2000 employee stock purchase plan. Beginning in 2001, directors who are not our employees will be eligible to participate in our 2000 directors' stock option plan as well as our 2000 stock option plan. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION None of our executive officers serves as a member of the board of directors or compensation committee of any entity that has one or more of its executive officers serving as a member of our board of directors or compensation committee. LIMITATION OF LIABILITY AND INDEMNIFICATION Our Amended and Restated Certificate of Incorporation limits the liability of directors to the maximum extent permitted by Delaware law. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for breach of their fiduciary duties as directors, except liability for: - breach of their duty of loyalty to the corporation or its stockholders; - acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; - unlawful payments of dividends or unlawful stock repurchases or redemptions; and - any transaction from which the director derived an improper personal benefit. This limitation of liability does not apply to liabilities arising under the federal or state securities laws and does not affect the availability of equitable remedies such as injunctive relief or rescission. Our bylaws provide that we will indemnify our directors, officers, employees and other agents to the fullest extent permitted by the Delaware General Corporation Law. We believe that indemnification under our bylaws covers at least negligence and gross negligence on the part of indemnified parties. Our bylaws also permit 46

50 us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in such capacity, regardless of whether the bylaws would permit such indemnification. We have obtained directors and officers' insurance providing indemnification for all of our directors, officers and employees for certain liabilities. Prior to the closing of this offering we will enter into agreements to indemnify our directors and executive officers in addition to the indemnification provided for in our bylaws. These agreements, among other things, will indemnify our directors and executive officers for expenses, including attorneys' fees, judgments, fines and settlement amounts incurred by any such person in any action or proceeding, out of such person's services as a director, officer, employee, agent or fiduciary of ours, any subsidiary of ours or any other company or enterprise to which the person provides services at our request. We believe that these provisions and agreements are necessary to attract and retain qualified persons as directors and executive officers. At present, there is no litigation or proceeding involving any of our directors or officers in which indemnification is required or permitted, and we are not aware of any threatened litigation or proceeding that may result in a claim for indemnification. EXECUTIVE COMPENSATION The following table summarizes the compensation paid to or earned during the year ended December 31, 1999, by our Chief Executive Officer and our other most highly compensated executive officers whose total salary and bonus exceeded $100,000 for services rendered to us in all capacities during 1999. The executive officers listed in the table below are referred to as named executive officers. SUMMARY COMPENSATION TABLE LONG-TERM COMPENSATION AWARDS ------------ ANNUAL COMPENSATION SECURITIES -------------------- UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS(#) COMPENSATION --------------------------- --------- -------- ------------ ------------ Ronald J. Berenson, M.D........................ $196,352 $15,000 150,000 -- President and Chief Executive Officer Jeffrey Ledbetter, Ph.D.(1).................... 44,978 -- -- $121,265(2) Former Chief Scientific Officer Mark Murray, Ph.D.(3).......................... 157,940 -- -- -- Former Vice President, Business Development Dawn M. McCracken.............................. 98,028 10,000 40,000 -- Vice President, Regulatory and Clinical Affairs Alan R. Hardwick, Ph.D.(4)..................... 102,000 -- -- -- Former Director, Cell Processing Systems - ------------------------- (1) Dr. Ledbetter resigned in March 1999. (2) Constitutes severance payment. (3) Dr. Murray resigned in December 1999. (4) Dr. Hardwick resigned in December 2000. 47

51 OPTION GRANTS IN YEAR ENDED DECEMBER 31, 1999 The following table sets forth information concerning the individual grants of stock options to each of the named executive officers during the fiscal year ended December 31, 1999. The exercise price per share was valued by our board of directors on the date of grant and were issued at estimated fair market value on the date of grant based upon the assumed offering price and the purchase price paid by investors for shares of our preferred stock, taking into account the liquidation preferences and other rights, privileges and preferences associated with such preferred stock. INDIVIDUAL GRANTS POTENTIAL REALIZABLE ---------------------------------------------------- VALUE AT ASSUMED NUMBER OF PERCENT OF ANNUAL RATES OF STOCK SECURITIES TOTAL OPTIONS PRICE APPRECIATION FOR UNDERLYING GRANTED TO EXERCISE OPTION TERM(2) OPTIONS EMPLOYEES IN PRICE EXPIRATION ----------------------- NAME GRANTED(#) FISCAL YEAR(1) PER SHARE DATE 5% 10% ---- ---------- -------------- --------- ---------- ---------- ---------- Ronald J. Berenson, M.D...... 150,000(3) 24.1% $0.167 11/16/09 $15,754 $39,923 Jeffrey Ledbetter, Ph.D...... -- -- -- -- -- -- Mark Murray, Ph.D............ -- -- -- -- -- -- Dawn M. McCracken............ 40,000(4) 6.4% 0.167 10/18/09 4,201 10,646 Alan R. Hardwick, Ph.D....... -- -- -- -- -- -- - ------------------------- (1) In the last fiscal year, we granted options to employees to purchase an aggregate of 639,748 shares. (2) Amounts represent hypothetical gains that could be achieved for the respective options if exercised at the end of the option term based on the ten-year term of the option at the time of grant. These gains are based on assumed rates of stock price appreciation of 5% and 10% compounded annually from the date the respective options were granted to their expiration date. These assumptions are not intended to forecast future appreciation of our stock price. The potential realizable value computation does not take into account federal or state income tax consequences of option exercises or sales of appreciated stock. The price to the public in this offering is higher than the estimated fair market value on the date of grant. Therefore, the potential realizable value of the option grants would be significantly higher than the calculations shown above. (3) This option was granted under our 1996 Stock Option Plan and vests over a five-year period at a rate of 20% of the total number of shares subject to the option one year after the date of grant and 1/60th of the total number of shares subject to the option vesting each month thereafter. (4) This option was granted under our 1996 Stock Option Plan and vests over a four-year period at a rate of 25% of the total number of shares subject to the option one year after the date of grant and 1/48th of the total number of shares subject to the option vesting each month thereafter. 48

52 AGGREGATE OPTION EXERCISES IN 1999 AND 1999 YEAR-END OPTION VALUES The following table provides summary information concerning stock options granted under our 1996 Stock Option Plan during the year ended December 31, 1999, and exercised options subject to repurchase held as of December 31, 1999, by each of the named executive officers. The exercise price for the options granted in 1999 is $0.167 per share. Generally, these stock options are immediately exercisable. We have the right to repurchase all unvested shares at the original exercise price within three months of the date on which the optionee's service terminates. Each of the options has a ten-year term, subject to earlier termination if the optionee's service terminates. Our named executive officers did not exercise any options during the fiscal year ended December 31, 1999. SHARES NUMBER OF SECURITIES VALUE OF SHARES ACQUIRED ON VALUE SUBJECT TO REPURCHASE SUBJECT TO REPURCHASE NAME EXERCISE REALIZED DECEMBER 31, 1999(#) DECEMBER 31, 1999($)(1) ---- ----------- -------- --------------------- ----------------------- Ronald J. Berenson, M.D............. -- -- -- -- Jeffrey Ledbetter, Ph.D............. -- -- -- -- Mark Murray, Ph.D................... -- -- -- -- Dawn M. McCracken................... -- -- -- -- Alan R. Hardwick, Ph.D.............. -- -- -- -- - ------------------------- (1) There was no public trading market for our common stock as of December 31, 1999. Accordingly, the value of unexercised in-the-money options as of that date was calculated on the basis of an assumed initial public offering price of $ per share, less the aggregate exercise price of the options. The securities subject to repurchase are all unvested options purchased under early exercise stock purchase agreements. EMPLOYEE BENEFIT PLANS 2000 Stock Option Plan Our 2000 stock option plan provides for the grant of incentive stock options to employees (including employee directors) and nonstatutory stock options to employees, directors and consultants. The purposes of the 2000 plan are to attract and retain the best available personnel, to provide additional incentives to our employees and consultants and to promote the success of our business. The 2000 plan was adopted by our board of directors in December 2000 and will be submitted for approval by our stockholders prior to the completion of this offering. A total of 2,100,000 shares of common stock has been reserved for issuance under the 2000 plan. The number of shares reserved for issuance under the 2000 plan will be subject to an automatic annual increase on the first day of each of our fiscal years beginning in 2002 and ending in 2008 equal to the lesser of 500,000 shares, 3% of our outstanding common stock on the last day of the immediately preceding fiscal year, or such lesser number of shares as the board of directors determines. The 2000 plan may be administered by the board of directors or a committee of the board, each known as the administrator. The administrator determines the terms of options and stock purchase rights granted under the 2000 plan, including the number of shares subject to the award, the exercise or purchase price, and the vesting and/or exercisability of the award and any other conditions to which the award is subject. In no event, however, may an employee receive awards for more than 1,000,000 shares under the 2000 plan in any fiscal year. Incentive stock options granted under the 2000 plan must have an exercise price of at least 100% of the fair market value of the common stock on the date of grant, and not less than 110% of the fair market value in the case of incentive stock options granted to an employee who holds more than 10% of the total voting power of all classes of our stock or any parent or subsidiary's stock. After the date of this offering, the exercise price of nonstatutory stock options and the purchase price of stock purchase rights will be the price determined by the administrator, although nonstatutory stock options and stock purchase rights granted to our chief executive officer and our four other most highly compensated officers will generally equal at least 10% of the grant date fair market value if we intend that 49

53 the awards to those individuals will qualify as performance-based compensation under applicable tax law. Payment of the exercise or purchase price may be made in cash or such other consideration determined by the administrator. With respect to options granted under the 2000 plan, the administrator determines the term of options, which may not exceed 10 years, or 5 years in the case of an incentive stock option granted to a holder of more than 10% of the total voting power of all classes of our stock or a parent or subsidiary's stock. Generally, an option granted under the 2000 plan is nontransferable other than by will or the laws of descent or distribution and may be exercised during the lifetime of the optionee only by such optionee. However, the administrator may, in its discretion, provide for the limited transferability of nonstatutory stock options granted under the 2000 plan. Stock issued pursuant to stock purchase rights granted under the 2000 plan is generally subject to a repurchase right at the purchaser's original purchase price exercisable by us upon the termination of the holder's employment or consulting relationship with us for any reason, including death or disability. This repurchase right will lapse at such rate as the administrator may determine. If we sell all or substantially all of our assets or if we are acquired by another corporation each outstanding option and stock purchase right may be assumed or an equivalent award substituted by the successor corporation, with appropriate adjustments made to both the price and number of shares subject to the option or purchase right. If the successor does assume outstanding options and purchase rights, 25% of the shares subject to an option or initially subject to repurchase will vest on the closing of the transaction, and if the holder is involuntarily terminated within one year after the closing another 25% of the shares subject to such option or initially subject to repurchase will vest on termination. If the successor corporation does not assume options and purchase rights or substitute equivalent options or purchase rights, then vesting of all shares subject to options will accelerate fully and all repurchase rights will lapse immediately prior to the closing of the transaction, and options and purchase rights will terminate as of the closing of the transaction. The administrator has authority to amend or terminate the 2000 plan, but no action may be taken that impairs the rights of any holder of an outstanding option or stock purchase right without the holder's consent. In addition, we must obtain stockholder approval of amendments to the plan as required by applicable law. Unless terminated earlier by the board of directors, the 2000 plan will terminate in 2010. 1996 Stock Option Plan Our 1996 stock option plan was originally adopted by our board of directors in September 1996 and approved by our stockholders in August 1997. As of November 30, 2000, an aggregate of 2,500,000 shares was reserved for issuance under the 1996 stock option plan, 1,218,686 were issuable upon exercise of outstanding options granted under the 1996 stock option plan at a weighted average exercise price of $0.22, 743,335 shares of common stock have been issued upon exercise of options at purchase prices ranging between $0.10 and $0.40, and 537,979 shares of common stock remain available for future grants under the 1996 stock option plan. The terms of the options under the 1996 stock option plan are generally the same as those that may be issued under the 2000 stock plan, except for the following features. Only options could be granted under the 1996 stock option plan and nonstatutory stock options granted under the 1996 stock option plan are nontransferable in all cases. The 1996 stock option plan does not impose a limitation on the number of shares subject to options that may be issued to any individual employee. If we sell all or substantially all of our assets or if we are acquired by another corporation, each outstanding option may be assumed or an equivalent award substituted by the successor corporation, with appropriate adjustments made to both the price and number of shares subject to the option. If the successor does assume outstanding options, 25% of the shares subject to an option that are unvested immediately prior to the consummation of the transaction will vest on the closing of the transaction. If the successor corporation does not assume options or substitute equivalent options, then vesting of all shares 50

54 subject to options will accelerate fully immediately prior to the closing of the transaction, and options will terminate as of the closing of the transaction. 2000 Employee Stock Purchase Plan Our 2000 employee stock purchase plan was adopted by the board of directors in December 2000 and will be submitted for approval by our stockholders prior to completion of this offering. A total of 600,000 shares of common stock has been reserved for issuance under the 2000 purchase plan, none of which have been issued as of the date of this offering. The number of shares reserved for issuance under the 2000 purchase plan will be subject to an automatic annual increase on the first day of each of our fiscal years beginning in 2002 and ending in 2008 and equal to the lesser of: - 300,000 shares; - 1% of our outstanding common stock on the last day of the immediately preceding fiscal year; - or such lesser number of shares as the board of directors determines. The 2000 purchase plan becomes effective upon the date of this offering. Unless terminated earlier by the board of directors, the 2000 purchase plan shall terminate in 2010. The 2000 purchase plan, which is intended to qualify under Section 423 of the Internal Revenue Code, will be implemented by a series of offering periods of approximately 6 months duration, with new offering periods, other than the first offering period, commencing generally on February 1 and August 1 of each year. Each offering period will consist of a single purchase period of approximately six months duration. At the end of each purchase period an automatic purchase will be made for participants. The initial offering period and purchase period is expected to commence on the date of this offering and end on July 31, 2001. Each eligible employee will be granted an option on the effective date of this offering to purchase shares in the initial offering period in an amount equal to the maximum number of shares that an individual can purchase under the terms of the 2000 purchase plan. The 2000 purchase plan will be administered by the board of directors or by a committee appointed by the board. Our employees, including officers and employee directors, or employees of any majority-owned subsidiary designated by the board, are eligible to participate in the 2000 purchase plan if they are employed by us or any such subsidiary for at least 20 hours per week and more than five months per year. The 2000 purchase plan permits eligible employees to purchase common stock through payroll deductions, which in any event may not exceed 15% of an employee's eligible cash compensation. The purchase price is equal to the lower of 85% of the fair market value of the common stock at the beginning of each offering period or at the end of each purchase period. Employees may end their participation in the 2000 purchase plan at any time during an offering period, and participation ends automatically on termination of employment. An employee cannot be granted an option under the 2000 purchase plan if immediately after the grant such employee would own stock and/or hold outstanding options to purchase stock equaling 5% or more of the total voting power or value of all classes of our stock or stock of our subsidiaries, or if such option would permit an employee's rights to purchase stock under the 2000 purchase plan at a rate that exceeds $25,000 of fair market value of such stock for each calendar year in which the option is outstanding. In addition, no employee may purchase more than 2,500 shares of common stock under the 2000 purchase plan in any one purchase period. If we merge or consolidate with or into another corporation or sell all or substantially all of our assets, each right to purchase stock under the 2000 purchase plan may be assumed or an equivalent right substituted by the successor corporation. However, in the event that the successor corporation refuses to assume each purchase right or to substitute an equivalent right, the board of directors will shorten any ongoing offering period so that employees' rights to purchase stock under the 2000 purchase plan are exercised prior to the transaction. Outstanding options will be adjusted if we effect a stock split, stock dividend or similar change in our capital structure. The board of directors may extend future offering 51

55 periods to up to 27 months duration, consisting of consecutive purchase periods of approximately six months duration, and may increase the maximum contribution rate up to 20% of an employee's eligible cash compensation. The board of directors has the power to amend or terminate the 2000 purchase plan as long as the action does not adversely affect any outstanding rights to purchase stock under the plan. However, the board of directors may amend or terminate the 2000 purchase plan or an offering period even if it would adversely affect outstanding options in order to avoid our incurring adverse accounting charges or if the board of directors determines that termination of the plan or offering period is in our best interests and the best interests of our stockholders. We must obtain stockholder approval for any amendment to the purchase plan to the extent required by law. 2000 Directors' Stock Option Plan The 2000 directors' stock option plan was adopted by the board of directors in December 2000 and will be submitted for approval by our stockholders prior to completion of this offering. It will become effective upon the date of this offering. A total of 400,000 shares of common stock have been reserved for issuance under the 2000 directors' plan, all of which remain available for future grants. The directors' plan is designed to work automatically without administration; however, to the extent administration is necessary, it will be performed by the board of directors. To the extend they arise, it is expected that conflicts of interest will be addressed by abstention of any interested director from both deliberations and voting regarding matters in which such director has a personal interest. Unless terminated earlier by the board of directors, the directors' plan will terminate in 2010. The directors' plan provides that each person who becomes a non-employee director after the completion of this offering will be granted a nonstatutory stock option to purchase 25,000 shares of common stock on the date on which such individual first becomes a member of our board of directors. On first day of each fiscal year, each of our nonemployee directors will be granted an option to purchase 5,000 shares of common stock if, on such date, the director has served on our board of directors for at least 6 months. The directors' plan provides that each option granted to a new director shall vest at the rate of 1/3rd of the total number of shares subject to such option twelve months after the date of grant with the remaining shares vesting thereafter in equal monthly installments over the next 2 years so that the option will be fully vested after 3 years, and each annual option granted to a director shall vest in full at the end of one year. All options granted under the directors' plan will have a term of 10 years and an exercise price equal to the fair market value on the date of grant. If a non-employee director ceases to serve as a director for any reason other than death or disability, he or she may, but only within 90 days after the date he or she ceases to be a director, exercise options granted under the directors' plan. If he or she does not exercise the option within such 90-day period, the option shall terminate. If a directors' service terminates as a result of his or her disability or death, or if a director dies within 3 months following termination, the director or his or her estate will have twelve months after the date of termination or death, as applicable, to exercise options that were vested as of the date of termination. Options granted under the directors' plan are generally non-transferable by the option holder other than by will or the laws of descent or distribution, pursuant to a qualified domestic relations order or to family members or family trusts or foundations, and each option is exercisable, during the lifetime of the option holder, only by that option holder or a permitted transferee. If we are acquired by another corporation, each option outstanding under the directors' plan will be assumed or equivalent options substituted by our acquirer, unless our acquirer does not agree to such assumption or substitution, in which case the options will terminate upon consummation of the transaction to the extent not previously exercised. In connection with an acquisition, each director holding options under the directors' plan will have the right to exercise his or her options immediately before the consummation of the merger as to all shares underlying the options. Outstanding options will be adjusted if we effect a stock split, stock dividend, or other similar change in our capital structure. Our board of directors may amend or terminate the directors' plan as long as such action does not adversely affect any 52

56 outstanding option and we obtain stockholder approval for any amendment to the extend required by applicable law. 401(k)Plan We have established a tax-qualified employee savings and retirement plan, or 401(k) plan, which covers all of our employees. Under the 401(k) plan, eligible employees may defer up to 15% of their pre-tax earnings, subject to the Internal Revenue Service's annual contribution limits, which deferral contributions are fully vested at all times. The 401(k) plan permits discretionary matching contributions by such percentage amount as may be determined annually by the board of directors, and additional discretionary contributions by us on behalf of all participants in the 401(k) plan, which additional company contributions vest 25% per year of service with full vesting after 4 years of service. The 401(k) plan is intended to qualify under Section 401 of the Internal Revenue Code so that contributions by us to the 401(k) plan, if any, will be deductible by us when made. The trustee under the 401(k) plan invests an employee's account balance under the plan in accordance with an employee's written direction. To the extent an employee directs the investment of his or her account balance under the plan, ERISA relieves the trustee from liability for any loss resulting from employee direction of the investment. 53

57 CERTAIN TRANSACTIONS We have issued since our inception through November 30, 2000, in private placement transactions shares of common and preferred stock as follows: an aggregate of 6,334,212 shares of Series A preferred stock at $0.95 per share in January and August 1996, an aggregate of 3,757,205 shares of Series B preferred stock at $1.10 per share in August 1997, an aggregate of 7,185,630 shares of Series C preferred stock at $1.67 per share in July 1998, an aggregate of 10,109,825 shares of Series D preferred stock at $2.78 per share in May and August 2000. In addition, an aggregate of 2,999,910 shares of common stock and 526,300 shares of Series A preferred stock were issued in August 1997 in exchange for all of the outstanding capital stock of CellGenEx, Inc. Also, 145,875 shares of Series B preferred stock and 20,000 shares of common stock were issued in July 1998 and June 1999, respectively, in connection with license agreements. In addition, as of November 30, 2000, an aggregate of 660,754 warrants to purchase shares of preferred stock issued between 1996 and 2000 remained outstanding and an aggregate of 1,132,287 warrants to purchase shares of common stock issued in August 2000 remained outstanding. Each share of preferred stock is convertible, without payment of additional consideration, into one share of common stock. All of the currently outstanding shares of preferred stock will be converted into 28,059,047 shares of common stock upon closing of this offering. The following table summarizes the shares of preferred stock purchased by our greater than 5% stockholders, our directors and our executive officers in private placement transactions: SERIES A SERIES B SERIES C SERIES D COMMON PREFERRED PREFERRED PREFERRED PREFERRED INVESTOR(1) STOCK STOCK STOCK STOCK STOCK ----------- --------- --------- --------- --------- --------- Directors and Executive Officers Ronald J. Berenson, M.D.(2)......... 2,373,256 57,895 -- -- -- Robert M. Williams, Ph.D. .......... 200,000 -- -- -- -- Entities Affiliated with Directors Alta Partners(3).................... -- 1,894,737 805,281 971,331 584,547 ARCH Venture Corporation(4)......... -- 789,469 2,045,454 1,119,265 1,321,942 Sprout Group(5)..................... -- 2,631,579 545,454 1,142,937 323,741 MPM Asset Management LLC(6)......... -- -- -- -- 4,316,547 5% Stockholders Ronald J. Berenson, M.D.(2)......... 2,373,256 57,895 -- -- -- Alta Partners(3).................... -- 1,894,737 805,281 971,331 584,547 ARCH Venture Corporation(4)......... -- 789,469 2,045,454 1,119,265 1,321,942 Sprout Group(5)..................... -- 2,631,579 545,454 1,142,937 323,741 MPM Asset Management LLC(6)......... -- -- -- -- 4,316,547 Tredegar Investments................ -- -- -- 1,976,051 286,022 - ------------------------- (1) See "Principal Stockholders" for more detail on shares held by these purchasers. (2) Includes shares held in trust. (3) Jean Deleage, Ph.D., a director, is managing director of Alta Partners. (4) Robert T. Nelsen, a director, is director of ARCH Venture Corporation. Excludes shares held by ARCH Development Corporation, which was previously affiliated with ARCH Venture Corporation. (5) Robert E. Curry, Ph.D., a director, is vice president of Sprout Group. (6) Michael Steinmetz, Ph.D., a director, is a general partner of MPM Asset Management LLC. In connection with our acquisition of all the outstanding capital stock of CellGenEx, we issued warrants to purchase 368,410 shares of Series A preferred stock at $0.95 per share in August 1997. In addition, in connection with our Series D preferred stock private placement, we issued warrants to purchase 1,132,287 shares of common stock at $0.30 per share in August 2000. The following table 54

58 summarizes the number of shares of common stock and preferred stock issuable pursuant to warrants granted to greater than 5% stockholders, directors, executive officers and entities affiliated with our executive officers and directors in private placement transactions: COMMON SERIES A WARRANT WARRANT INVESTOR(1) SHARES SHARES ----------- ------- -------- Alta Partners............................................ 65,468 -- ARCH Venture Corporation................................. 148,056 276,307 Sprout Group............................................. 36,257 -- MPM Asset Management LLC................................. 483,453 -- Tredegar Investments..................................... 32,034 -- - ------------------------- (1) See "Principal Stockholders" for more detail on shares held by these purchasers. In connection with the resignation in March 1999 of Dr. Jeffrey Ledbetter, our former Chief Scientific Officer, we entered into an agreement with Dr. Ledbetter providing for a severance payment of $121,265. See "Management -- Executive Compensation." In July 1999, we entered into a License Agreement with Genecraft LLC of which Dr. Ledbetter is a principal founder. Under this agreement, we granted an exclusive sublicense to Genecraft for the rights to several pending patent applications in the field of in vivo activation of T cells. We have entered into a consulting agreement with Dr. James Berenson who is the brother of Dr. Ronald J. Berenson, our President and Chief Executive Officer. In connection with this consulting agreement, Dr. James Berenson will serve as a consultant, will be available for consultation up to five days per year and will be paid up to a maximum of $7,500 per year. We have entered into indemnification agreements with our officers and directors containing provisions which may require us, among other things, to indemnify our officers and directors against liabilities that may arise by reason of their status or service as officers or directors (other than liabilities arising from willful misconduct of a culpable nature) and to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified. See "Management -- Limitation of Liability and Indemnification Matters." We maintain key man life insurance, under which we are the beneficiary, on Dr. Ronald J. Berenson, our President and Chief Executive Officer, in the amount of $2,000,000 of which we are the beneficiary. In June 1999, we entered into an exclusive license agreement with ARCH Development Corporation to obtain rights to a pending patent application in the field of therapies based on ex vivo activation of T cells. In consideration for the license, we issued shares of our common stock to ARCH Development Corporation. Dr. Carl June, one of our founders, was previously affiliated with ARCH Development Corporation and is listed as an inventor on the patent application licensed from ARCH Development Corporation. ARCH Development Corporation was previously affiliated with ARCH Venture Corporation, one of our principal stockholders. In connection with our acquisition of all of the outstanding capital stock of CellGenEx, Inc., we reserved an aggregate of 1,582,340 shares of our common stock in a Milestone Pool, for issuance to our scientific founders, Drs. Jeffrey Bluestone, Carl June, Jeffrey Ledbetter and Craig Thompson, upon the achievement of scientific milestones determined by the Milestone Committee. Several of these milestones have expired and to date, 1,056,040 shares remain available for issuance. 55

59 PRINCIPAL STOCKHOLDERS The following table sets forth information regarding the beneficial ownership of our common stock as of November 30, 2000, and as adjusted to reflect the sale of common stock offered hereby for: - each person known by us to own beneficially more than 5% of our common stock; - each of our directors; - our chief executive officer and our other most highly compensated executive officer; and - our executive officers and directors as a group. Except as otherwise noted, the address of each person listed in the table is c/o Xcyte Therapies, Inc., 1124 Columbia Street, Suite 130, Seattle, WA 98104. The table includes all shares of common stock issuable within 60 days of November 30, 2000, upon the exercise of options and warrants beneficially owned by the indicated stockholders on that date based on options and warrants outstanding as of November 30, 2000. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and includes voting and investment power with respect to shares. To our knowledge, except under applicable community property laws or as otherwise indicated, the persons named in the table have sole voting and sole investment control with respect to all shares beneficially owned. The applicable percentage of ownership for each stockholder is based on 34,682,220 shares of common stock outstanding as of November 30, 2000, in each case together with applicable options and warrants for that stockholder. Shares of common stock issuable upon exercise of options and warrants beneficially owned are deemed outstanding for the purpose of computing the percentage of ownership of the person holding those options and warrants, but are not deemed outstanding for computing the percentage ownership of any other person. PERCENT BENEFICIALLY OWNED(1) SHARES -------------------- BENEFICIALLY BEFORE AFTER BENEFICIAL OWNER OWNED OFFERING OFFERING ---------------- ------------ -------- -------- Robert T. Nelsen(2)......................................... 5,700,493 16.2% ARCH Venture Corporation 1000 Second Avenue, Suite 3710 Seattle, WA 98104-1053 Michael Steinmetz(3)........................................ 4,800,000 13.7% MPM Asset Management LLC One Cambridge Center Cambridge, MA 02142 Robert E. Curry(4).......................................... 4,679,968 13.5% Sprout Group 3000 Sand Hill Road Building 1, Suite 170 Menlo Park, CA 94025 Jean Deleage(5)............................................. 4,346,676 12.4% Alta Partners One Embarcadero Center, Suite 4050 San Francisco, CA 94111 Ronald J. Berenson(6)....................................... 2,581,151 7.4% Tredegar Investments(7)..................................... 2,294,107 6.6% 6501 Columbia Center 701 Fifth Avenue Seattle, WA 98104 Jeffrey A. Ledbetter(8)..................................... 631,560 1.8% Robert M. Williams(9)....................................... 225,312 * Dawn M. McCracken(10)....................................... 80,000 * Alan R. Hardwick(11)........................................ 30,000 * Peter Langecker(12)......................................... 7,000 * Mark Murray................................................. -- * All directors and officers as a group (14 persons)(13)...... 25,737,933 70.8% - ------------------------- * less than one percent of outstanding shares 56

60 (1) Assumes total conversion of preferred stock into common stock and includes all shares of common stock issuable (within 60 days of September 30, 2000) upon the exercise of outstanding options (including unvested options) held by the above listed stockholders and upon the exercise of outstanding warrants held by the above listed stockholders. Except as otherwise noted, the persons named in the table have sole voting and investment power with respect to all shares of common stock owned by them, subject to community property laws where applicable. (2) Includes 631,579 shares of Series A preferred stock and 363,636 shares of Series B preferred stock held by ARCH Venture Fund II, L.P. Includes 157,890 shares of Series A preferred stock, 1,681,818 shares of Series B preferred stock, 1,119,265 shares of Series C preferred stock, 1,321,942 shares of Series D preferred stock held by ARCH Venture Fund III, L.P. and includes 276,307 shares of Series A preferred stock and 148,056 shares of common stock issuable upon the exercise of immediately exercisable warrants held by ARCH Venture Fund III, L.P. Excludes shares held by ARCH Development Corporation, which was previously affiliated with ARCH Venture Corporation. Robert T. Nelsen, one of our directors, is a general partner of both of these partnerships, shares voting and dispositive power with respect to the shares held by each such entity and disclaims beneficial ownership of such shares in which he has no pecuniary interest. (3) Includes 66,906 shares of Series D preferred stock held by MPM Asset Management Investors and 7,494 shares of common stock issuable upon the exercise of immediately exercisable warrants held by MPM Asset Management Investors. Includes 1,023,022 shares of Series D preferred stock held by MPM Bioventures GMBH & Co. Parallel-Beteiligungs KG and 114,578 shares of common stock issuable upon the exercise of immediately exercisable warrants held by MPM Bioventures GMBH & Co. Parallel-Beteiligungs KG. Includes 320,719 shares of Series D preferred stock held by MPM Bioventures II, L.P. and 35,921 shares of common stock issuable upon the exercise of immediately exercisable warrants held by MPM Bioventures II, L.P. Includes 2,905,900 shares of Series D preferred stock held by MPM Bioventures II-Q, L.P. and 325,460 shares of common stock issuable upon the exercise of immediately exercisable warrants held by MPM Bioventures II-Q, L.P. Michael Steinmetz, Ph.D., one of our directors, is a general partner of each of these partnerships, shares voting and dispositive power with respect to the shares held by each such entity and disclaims beneficial ownership of such shares in which he has no pecuniary interest. (4) Includes 52,632 shares of Series A preferred stock, 10,909 shares of Series B preferred stock, 22,859 shares of Series C preferred stock, 6,475 shares of shares of Series D preferred stock held by DLJ Capital Corporation and includes 725 shares of common stock issuable upon the exercise of immediately exercisable warrants held by DLJ Capital Corporation. Includes 263,158 shares of Series A preferred stock, 54,545 shares of Series B preferred stock, 114,294 shares of Series C preferred stock, 32,374 shares of shares of Series D preferred stock held by DLJ First ESC, L.P. and includes 3,625 shares of common stock issuable upon the exercise of immediately exercisable warrants held by DLJ First ESC, L.P. Includes 2,289,197 shares of Series A preferred stock, 474,488 shares of Series B preferred stock, 994,235 shares of Series C preferred stock, 281,622 shares of shares of Series D preferred stock held by Sprout Capital VII, L.P. and includes 31,541 shares of common stock issuable upon the exercise of immediately exercisable warrants held by Sprout Capital VII, L.P. Includes 26,592 shares of Series A preferred stock, 5,512 shares of Series B preferred stock, 11,549 shares of Series C preferred stock, 3,270 shares of shares of Series D preferred stock held by the Sprout CEO Fund, L.P. and includes 366 shares of common stock issuable upon the exercise of immediately exercisable warrants held by the Sprout CEO Fund, L.P. Robert E. Curry, Ph.D., one of our directors, is a general partner of each of these partnerships, shares voting and dispositive power with respect to the shares held by each such entity and disclaims beneficial ownership of such shares in which he has no pecuniary interest. (5) Includes 1,840,086 shares of Series A preferred stock, 787,294 shares of Series B preferred stock, 949,635 shares of Series C preferred stock, 571,491 shares of shares of Series D preferred stock held by Alta California Partners, L.P. and includes 64,006 shares of common stock issuable upon the exercise of immediately exercisable warrants held by Alta California Partners, L.P. Includes 54,651 57

61 shares of Series A preferred stock, 17,987 shares of Series B preferred stock, 21,696 shares of Series C preferred stock, 13,056 shares of shares of Series D preferred stock held by Alta Embarcadero Partners, L.L.C. and includes 1,462 shares of common stock issuable upon the exercise of immediately exercisable warrants held by Alta Embarcadero Partners, L.L.C. Includes 24,375 shares issuable upon the exercise of immediately exercisable options held by Dr. Deleage within 60 days of November 30, 2000, none of which are subject to a repurchase right. Jean Deleage, Ph.D., one of our directors, is a general partner of each of these partnerships, shares voting and dispositive power with respect to the shares held by each such entity and disclaims beneficial ownership of such shares in which he has no pecuniary interest. (6) Includes 2,162,282 shares of common stock and 57,895 shares of Series A preferred stock held by Dr. Berenson. Includes 150,000 shares issuable upon the exercise of immediately exercisable options held by Dr. Berenson within 60 days of November 30, 2000, 580,941 of which are subject to a repurchase right that lapses over the vesting of Dr. Berenson's option. Includes 210,974 shares of common stock held by the "Irrevocable Intervivos Trust Agreement of Ronald J. Berenson and Cheryl L. Berenson." (7) Includes 1,796,410 shares of Series C preferred stock and 286,022 shares of Series D preferred stock held by TGI Fund II, L.C., 32,034 shares of common stock issuable upon the exercise of immediately exercisable warrants held by TGI Fund II, L.C. and 179,641 shares of Series C preferred stock held by Vengott L.C. (8) Includes 473,670 shares of common stock and 157,890 shares of Series A preferred stock held by Dr. Ledbetter. (9) Includes 200,000 shares of common stock held by Dr. Williams and 24,375 shares issuable upon the exercise of immediately exercisable options held by Dr. Williams within 60 days of November 30, 2000, none of which are subject to a repurchase right. (10) Includes 51,667 shares of common stock and 28,333 shares issuable upon the exercise of immediately exercisable options held by Ms. McCracken within 60 days of November 30, 2000, 47,917 of which are subject to a repurchase right that lapses over the vesting of Ms. McCracken's option. (11) Includes 30,000 shares issuable upon the exercise of immediately exercisable options held by Dr. Hardwick within 60 days of November 30, 2000, 19,688 of which are subject to a repurchase right that lapses over the vesting of Dr. Hardwick's option. (12) Includes 7,000 shares issuable upon the exercise of immediately exercisable options held by Dr. Langecker within 60 days of November 30, 2000, none of which are subject to a repurchase right. (13) Includes shares referred to in footnotes (1) - (12), 75,000 shares of common stock and 305,000 shares issuable upon exercise of immediately exercisable options held by other officers within 60 days of November 30, 2000, 243,088 of which are subject to a repurchase right that lapses over time. 58

62 DESCRIPTION OF CAPITAL STOCK GENERAL Our Amended and Restated Certificate of Incorporation, which will become effective upon the closing of this offering, authorizes the issuance of up to 100,000,000 shares of common stock, par value $0.001 per share, and 5,000,000 shares of preferred stock, par value $0.001 per share, the rights and preferences of which may be established from time to time by our board of directors. As of November 30, 2000, 6,623,173 shares of common stock were issued and outstanding and 28,059,047 shares of preferred stock convertible into 28,059,047 shares of common stock upon the completion of this offering were issued and outstanding. As of November 30, 2000, we had 50 common stockholders of record and 80 preferred stockholders of record. Immediately after the closing of this offering, we will have shares of common stock outstanding, assuming no exercise of options to acquire 1,218,686 additional shares of common stock or warrants to purchase 280,029 shares of preferred stock convertible into 280,029 shares of common stock that are outstanding as of the date of this prospectus. The description below gives effect to the filing of the certificate of incorporation and the adoption of the amended and restated bylaws. The following summary is qualified in its entirety by reference to our certificate and amended and restated bylaws, copies of which are filed as exhibits to the registration statement of which this prospectus is a part. COMMON STOCK Each holder of common stock is entitled to one vote for each share on all matters to be voted upon by the stockholders and there are no cumulative voting rights. Subject to preferences to which holders of preferred stock issued after the sale of the common stock offered hereby may be entitled, holders of common stock are entitled to receive ratably such dividends, if any, as may be declared from time to time by the board of directors out of funds legally available therefor. In the event of a liquidation, dissolution or winding up of us, holders of common stock would be entitled to share in our assets remaining after the payment of liabilities and the satisfaction of any liquidation preference granted the holders of any outstanding shares of preferred stock. Holders of common stock have no preemptive or conversion rights or other subscription rights and there are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of common stock are, and the shares of common stock offered by us in this offering, when issued and paid for will be, fully paid and nonassessable. The rights, preferences and privileges of the holders of common stock are subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock which we may designate in the future. PREFERRED STOCK Upon the closing of this offering, our board of directors will be authorized, subject to any limitations prescribed by law, without stockholder approval, to issue from time to time up to an aggregate of 5,000,000 shares of preferred stock, in one or more series, each of such series to have such rights and preferences, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences as shall be determined by the board of directors. The rights for the holders of common stock will be subject to, and may be adversely affected by, the rights of holders of any preferred stock that may be issued in the future. Issuance of preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, a majority of our outstanding voting stock. We have no present plans to issue any shares of preferred stock. WARRANTS As of November 30, 2000, we have issued and outstanding warrants to purchase an aggregate of 280,029 shares of our preferred stock convertible into 280,029 shares of common stock upon the closing of 59

63 this offering that expire between March 2003 and January 2007, warrants to purchase an aggregate of 380,725 shares of our preferred stock that will expire upon the closing of this offering and warrants to purchase an aggregate of 1,132,287 shares of our common stock that will expire upon the closing of this offering. REGISTRATION RIGHTS The holders of preferred stock, certain holders of warrants to purchase preferred stock and certain holders of our common stock are parties with us to an investor rights agreement, dated May 25, 2000, as amended August 8, 2000 and October 18, 2000, pursuant to which those holders have customary demand and piggyback registration rights with respect to the shares of common stock held or to be issued upon conversion or exercise of their preferred stock and warrants, respectively. In addition, the holders of Preferred Stock are entitled to receive quarterly and annual financial statements, subject to certain conditions and limitations. Demand Registration According to the terms of the investor rights agreement, beginning six months after the closing of this offering, the holders of 28,059,047 shares of common stock shall have the right to require us to register their shares with the Securities and Exchange Commission so that those shares may be resold to the public. To demand such a registration, holders who hold together an aggregate of at least 50% of the shares having registration rights must request that the registration statement register shares for an aggregate offering price of at least $10,000,000, net of underwriting discounts and commissions. We are not required to effect more than two demand registrations. We may defer the filing of a demand registration for a period of up to 90 days once in any 12-month period. Piggyback Registration If we register in a public offering any of our securities, other than a registration relating solely to employee benefit plans or a registration relating solely to a Rule 145 transaction, the holders of demand registration rights will have the right to include their shares in the registration statement. Form S-3 Registration At any time after we become eligible to file a registration statement on Form S-3, holders of shares of common stock having demand and piggyback registration rights may require us to file a Form S-3 registration. We are obligated to file only one Form S-3 registration statement in any 12-month period. We are also not obligated to file a Form S-3 within 180 days after any registered offering by us, except for a registration relating solely to employee benefit plans or a registration relating solely to a Rule 145 transaction. Further, the aggregate offering proceeds of the requested Form S-3 registration, before deduction of underwriting discounts and expenses, must be at least $500,000. We may defer one registration request in any 12-month period for 120 days. The registration rights are subject to certain conditions and limitations, including the right of the underwriters of an offering to limit the number of shares of common stock to be included in the registration. We are generally required to bear the expenses of all registrations, except underwriting discounts and commissions. However, we will not pay for any expenses of any demand registration if the request is subsequently withdrawn by the holders requesting the demand registration. The investors rights agreement also contains our commitment to indemnify the holders of registration rights for losses attributable to statements or omissions by us incurred with registrations under the agreement. The registration rights terminate five years from the closing of this offering. DELAWARE AND WASHINGTON ANTI-TAKEOVER LAW AND CHARTER AND BYLAW PROVISIONS Provisions of our amended and restated certificate of incorporation and bylaws, which will become effective upon the closing of this offering, may have the effect of making it more difficult for a third party 60

64 to acquire, or of discouraging a third party from attempting to acquire, control of us. Such provisions could limit the price that investors might be willing to pay in the future for shares of our common stock. Our Bylaws eliminate the right of stockholders to call special meetings of stockholders or to act by written consent without a meeting and require advance notice for stockholder proposals and director nominations, which may preclude stockholders from bringing matters before an annual meeting of stockholders or from making nominations for directors at an annual meeting of stockholders. The authorization of undesignated preferred stock makes it possible for the board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of us. These and other provisions may have the effect of deferring hostile takeovers or delaying changes in control or management of us. In addition, we are subject to Section 203 of the Delaware General Corporation which, subject to certain exceptions, prohibits a Delaware corporation from engaging in any business combination with any interested stockholder, unless: - prior to such date, our board of directors approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; - upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of our voting stock outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding (a) shares owned by persons who are directors and also officers, and (b) shares owned by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or - on or subsequent to such date, the business combination is approved by our board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder. The laws of the State of Washington, where our principal executive offices are located, impose restrictions on certain transactions between certain foreign corporations and significant stockholders. Chapter 23B.19 of the Washington Business Corporation Act, or the WBCA, prohibits a target corporation, with certain exceptions, from engaging in certain significant business transactions with a person or group of persons who beneficially own 10% or more of the voting securities of the target corporation, an acquiring person, for a period of five years after such acquisition, unless the transaction or acquisition of such shares is approved by a majority of the members of the target corporation's board of directors prior to the time of acquisition. Such prohibited transactions include, among other things, a merger or consolidation with, disposition of assets to, or issuance or redemption of stock to or from, the acquiring person, termination of 5% or more of the employees of the target corporation as a result of the acquiring person's acquisition of 10% or more of the shares or allowing the acquiring person to receive disproportionate benefit as a stockholder. After the five-year period, a significant business transaction may take place as long as it complies with certain fair price provisions of the statute. A target corporation includes a foreign corporation if: - the corporation has a class of voting stock registered pursuant to Section 12 or 15 of the Exchange Act, - the corporation's principal executive office is located in Washington, and - any of (a) more than 10% of the corporation's stockholders of record are Washington residents, (b) more than 10% of its shares are owned of record by Washington residents, (c) 1,000 or more of its stockholders of record are Washington residents, (d) a majority of the corporation's employees are Washington residents or more than 1,000 Washington residents are employees of the corporation, or (e) a majority of the corporation's tangible assets are located in Washington or the corporation has more than $50.0 million of tangible assets located in Washington. 61

65 A corporation may not opt out of this statute and, therefore, we anticipate this statute will apply to us. Depending upon whether we meet the definition of a target corporation, Chapter 23B.19 of the WBCA may have the effect of delaying, deferring or preventing a change in control of us. TRANSFER AGENT AND REGISTRAR The Transfer Agent and Registrar for our common stock is Computershare Investor Services, 515 S. Figueroa Street, Suite 1020, Los Angeles, CA 90071, (213) 362-4910. 62

66 SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there has been no market for our common stock, and we cannot assure you that a significant public market for the common stock will develop or be sustained after this offering. Future sales of substantial amounts of common stock, including shares issued upon exercise of outstanding options and warrants, in the public market following this offering could adversely affect market prices prevailing from time to time and could impair our ability to raise capital through the sale of our equity securities. As described below, no shares currently outstanding will be available for sale immediately after this offering. SALES OF RESTRICTED SECURITIES Upon completion of the offering, we will have outstanding an aggregate of shares of common stock, assuming no exercise of the underwriters' over-allotment option and no exercise of outstanding options or outstanding warrants after November 30, 2000. Of these outstanding shares, the shares sold in the offering will be freely tradable without restriction or further registration under the Securities Act of 1933, unless purchased by our affiliates as that term is defined in Rule 144 under the Securities Act of 1933. The remaining 34,682,220 shares of common stock outstanding upon completion of the offering and held by existing stockholders will be restricted securities as that term is defined in Rule 144 under the Securities Act of 1933. Restricted shares may be sold in the public market only if registered or if they qualify for an exemption from registration under Rules 144, 144(k) or 701 promulgated under the Securities Act of 1933, which rules are summarized below, or another exemption. Sales of the restricted shares in the public market, or the availability of such shares for sale, could adversely affect the market price of the common stock. All officers, directors and certain other holders of common stock have entered into contractual lock-up agreements providing that they will not offer, sell, contract to sell or grant any option to purchase or otherwise dispose of shares of common stock owned by them or that could be purchased by them through the exercise of options or warrants for a period of 180 days after the date of this prospectus without the prior written consent of SG Cowen Securities Corporation. As a result of these contractual restrictions, notwithstanding possible earlier eligibility for sale under the provisions of Rules 144, 144(k) and 701, additional shares will be eligible for sale beginning 181 days after the effective date of the offering, subject in some cases to volume limitations. ELIGIBILITY OF RESTRICTED SHARES FOR SALE IN THE PUBLIC MARKET At the effective date....................................... 0 shares 90 days after effective date................................ 0 shares 181 days after effective date............................... 24,572,195 shares More than 181 days after effective date..................... 10,110,025 shares Rule 144 In general, under Rule 144 as currently in effect, beginning 91 days after the date of this prospectus, a person, or persons whose shares are aggregated, who has beneficially owned restricted shares for at least one year, including persons who may be deemed to be our affiliates, would be entitled to sell within any three-month period a number of shares that does not exceed the greater of: - 1% of the number of shares of common stock then outstanding, which will equal approximately shares immediately after the offering; or - the average weekly trading volume of the common stock as reported through the Nasdaq National Market during the four calendar weeks preceding the filing of a Form 144 with respect to such sale. Sales under Rule 144 are also subject to manner of sale provisions and notice requirements and to the availability of current public information about us. Under Rule 144(k), a person who is not deemed to have been our affiliate at any time during the 90 days preceding a sale, and who has beneficially owned for at least two years the restricted shares proposed to be sold, including the holding period of any prior owner 63

67 except an affiliate, is entitled to sell such shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Rule 701 Subject to limitations on the aggregate offering price of a transaction and other conditions, Rule 701 permits resales of shares issued prior to the date the issuer becomes subject to the reporting requirements of the Securities Exchange Act of 1934, pursuant to certain compensatory benefit plans and contracts commencing 90 days after the issuer becomes subject to the reporting requirements of the Securities and Exchange Act of 1933, in reliance upon Rule 144 but without compliance with certain restrictions, including the holding period requirements. In addition, the Securities and Exchange Commission has indicated that Rule 701 will apply to typical stock options granted by an issuer before it becomes subject to the reporting requirements of the Securities Exchange Act of 1934, along with the shares acquired upon exercise of such options, including exercises after the date the issuer becomes so subject. Securities issued in reliance on Rule 701 are restricted securities and, subject to the contractual restrictions described above, beginning 91 days after the date of this prospectus, may be sold by persons other than affiliates subject only to the manner of sale provisions of Rule 144 and by affiliates under Rule 144 without compliance with its one-year minimum holding period requirements. LOCK-UP AGREEMENTS The directors and executive officers, and substantially all of our other stockholders, have entered into lock-up agreements under which they have agreed not to sell or otherwise dispose of any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock, or enter into any swap or similar agreement that transfers, in whole or in part, the economic risk of ownership of the common stock, for a period of 180 days after the date of this prospectus. SG Cowen may, in its sole discretion, at any time without notice, release all or any portion of the shares subject to the lock-up agreements, which would result in more shares being available for sale in the public market at an earlier date. We intend to file a registration statement under the Securities Act of 1933 covering the shares of common stock subject to outstanding options or reserved for issuance under the 1996 stock option plan, the 2000 stock option plan, the 2000 directors stock option plan and the 2000 employee stock purchase plan. We expect to file this registration statement within 90 days of effectiveness of the registration statement covering the shares of common stock in this offering and it will automatically become effective upon filing. Accordingly, shares registered under such registration statement will, subject to Rule 144 volume limitations applicable to affiliates and the expiration of a 180-day lock-up period, be available for sale in the open market, except to the extent that such shares are subject to our vesting restrictions or the contractual restrictions described above. 64

68 UNDERWRITING Pursuant to the terms of an underwriting agreement dated , 2001, which is filed as an exhibit to the registration statement relating to this prospectus, the underwriters of the offering named below, for whom SG Cowen Securities Corporation, U. S. Bancorp Piper Jaffray Inc., Dain Rauscher Incorporated and First Security Van Kasper, Inc. are acting as representatives, have severally agreed to purchase from us the respective number of shares of common stock set forth opposite its name below: UNDERWRITERS NUMBER OF SHARES ------------ ---------------- SG Cowen Securities Corporation............................. U.S. Bancorp Piper Jaffray Inc. ............................ Dain Rauscher Incorporated.................................. First Security Van Kasper, Inc. ............................ -------- Total..................................................... ======== The underwriting agreement provides that the underwriters' obligations to purchase shares of common stock depend on the satisfaction of the conditions contained in the underwriting agreement, and that if any of the shares of common stock are purchased by the underwriters under the underwriting agreement, then all of the shares of common stock which the underwriters have agreed to purchase under the underwriting agreement must be purchased. The conditions contained in the underwriting agreement include the requirement that the representations and warranties made by us to the underwriters are true, that there is no material change in the financial markets and that we deliver to the underwriters customary closing documents. We have granted to the underwriters an option to purchase up to an aggregate of additional shares of common stock, exercisable solely to cover over-allotments, if any, at the public offering price less the underwriting discounts and commissions shown on the cover page of this prospectus. The underwriters may exercise this option at any time until 30 days after the date of the underwriting agreement. If this option is exercised, each underwriter will be committed, so long as the conditions of the underwriting agreement are satisfied, to purchase a number of additional shares of common stock proportionate to the underwriter's initial commitment as indicated in the preceding table and we will be obligated, under the over-allotment option, to sell the shares of common stock to the underwriters. The underwriters propose to offer the common stock directly to the public at the public offering price set forth on the cover page of this prospectus. The underwriters may offer the common stock to securities dealers at that price less a concession not in excess of $ per share. Securities dealers may reallow a concession not in excess of $ per share to other dealers. After the shares of common stock are released for sale to the public, the underwriters may vary the offering price and other selling terms from time to time. The following table shows the per share and total underwriting discounts and commissions to be paid to the underwriters by us. These amounts are shown assuming both no exercise and full exercise of the underwriters' option to purchase additional shares described below. WITHOUT PER SHARE OPTION WITH OPTION --------- -------- ----------- Public offering price................................. Underwriting discount................................. Proceeds, before expenses, to Xcyte................... We estimate that the total expenses of the offering, excluding underwriting discounts and commissions, will be approximately $1.3 million. We have agreed to indemnify the underwriters against liabilities, including liabilities under the Securities Act of 1933 and liabilities arising from breaches of the representations and warranties contained 65

69 in the underwriting agreement, and to contribute to payments that the underwriters may be required to make for these liabilities. We, our executive officers and directors and substantially all of our other stockholders, have agreed not to directly or indirectly do any of the following, whether any transaction described in clause (1) or (2) below is to be settled by delivery of common stock or other securities, in cash or otherwise, in each case without the prior written consent of SG Cowen Securities Corporation on behalf of the underwriters, for a period of 180 days after the date of this prospectus: (1) offer, sell or otherwise dispose of, or enter into any transaction or arrangement which is designed or could be expected to, result in the disposition or purchase by any person at any time in the future of, any shares of common stock or securities convertible into or exchangeable for common stock or substantially similar securities, other than any of the following: - the common stock sold under this prospectus - shares of common stock we issue under employee benefit plans, qualified stock option plans or other employee compensation plans existing on the date of this prospectus or under currently outstanding options, warrants or rights (2) sell or grant options, rights or warrants with respect to any shares of our common stock or securities convertible into or exchangeable for our common stock or substantially similar securities, other than the grant of options under option plans existing on the date hereof. The underwriters have informed us that they do not intend to confirm sales to discretionary accounts that exceed five percent of the total number of shares of common stock offered by them. We have applied for inclusion of our common stock on the Nasdaq National Market under the symbol XCYT, subject to official notice of issuance. Prior to the offering, there has been no public market for the shares of our common stock. The initial public offering price will be negotiated between the representatives and us. In determining the initial public offering price of the common stock, the representatives will consider, among other things and in addition to prevailing market conditions, our historical performance and capital structure, estimates of our business potential and earnings prospects, an overall assessment of our management and the consideration of the above factors in relation to market valuation of companies in related businesses. Until the distribution of the common stock is completed, rules of the Securities and Exchange Commission may limit the ability of the underwriters and selling group members to bid for and purchase shares of common stock. As an exception to these rules, the representatives are permitted to engage in transactions that stabilize the price of the common stock. These transactions may consist of bids or purchases for the purpose of pegging, fixing or maintaining the price of common stock. The representatives may engage in over-allotment, open market purchases, stabilizing transactions and penalty bids in accordance with Regulation M under the Securities Exchange Act of 1934. In connection with this offering, the underwriters may make short sales by selling more shares than they are obligated to purchase under the underwriting agreement. Covered short sales are sales made in an amount not greater than the number of shares available for purchase by the underwriters under the over-allotment option. The underwriters may close out a covered short sale by exercising their over-allotment option or purchasing shares in the open market. In determining the source of shares to close out a covered short sale, the underwriters will consider, among other things, the price of shares in the open market compared to the price at which they may purchase shares under the over-allotment option. Naked short sales are sales made in an amount in excess of the number of shares available under the over-allotment option. The underwriters must close out any naked short sale by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors who purchase in this offering. Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. Penalty bids permit the 66

70 representatives to reclaim a selling concession from a syndicate member when the common stock originally sold by such syndicate member is purchased in a syndicate covering transaction to cover syndicate short positions. Any of these activities may cause the price of the common stock to be higher than it would otherwise be in the absence of these transactions. These transactions may be effected on the Nasdaq National Market or otherwise and, if commenced, may be discontinued at any time. At our request, the underwriters have reserved up to % shares of the common stock offered by this prospectus for sale to our directors and to our business associates at the initial public offering price set forth on the cover page of this prospectus. These persons must commit to purchase no later than the close of business on the day following the date of this prospectus. The number of shares available for sale to the general public will be reduced to the extent these persons purchase the reserved shares. LEGAL MATTERS The validity of the common stock offered hereby will be passed upon for us by Venture Law Group, A Professional Corporation, Kirkland, Washington. Certain legal matters in connection with this offering will be passed upon for the underwriters by Shearman & Sterling, Menlo Park, California. Investment partnerships associated with Venture Law Group and individual attorneys of Venture Law Group beneficially own an aggregate of 16,188 shares of our Series D Preferred Stock and warrants to purchase 1,812 shares of our common stock. EXPERTS Ernst & Young LLP, independent auditors, have audited our financial statements at December 31, 1999, and for the year then ended and for the period from inception (August 27, 1996) to December 31, 1999, as set forth in their report, which as to the period from inception (August 27, 1996) to December 31, 1998 is based on the report of PricewaterhouseCoopers LLP, independent accountants. We have included these financial statements in the prospectus and elsewhere in the registration statement in reliance upon such reports, given on the authority of these firms as experts in accounting and auditing. The financial statements as of December 31, 1998 and for the years ended December 31, 1997 and 1998 included in this prospectus have been so included in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. CHANGE IN INDEPENDENT PUBLIC ACCOUNTANTS Effective January 12, 2000, Ernst & Young LLP was engaged as our independent auditors and replaced other auditors who were dismissed as our independent accountants on the same date. The decision to change auditors was approved by our board of directors. Prior to January 12, 2000, our former auditors issued reports on our financial statements for the period from inception to December 31, 1998 and for each of the two years in the period ended December 31, 1998. These reports of our former auditors did not contain any adverse opinion or disclaimer of opinion nor were such reports qualified or modified as to audit scope or accounting principle. In connection with the audits for the periods from inception to December 31, 1998, there were no disagreements with our former auditors on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements if not resolved to the satisfaction of our former auditors, would have caused them to make reference thereto in their reports. Prior to January 12, 2000, we had not consulted with Ernst & Young LLP on items that involved our accounting principles or the form of audit opinion to be issued on our financial statements. We have requested that our former auditors furnish us with a letter addressed to the SEC stating whether or not they agree with the above statements. A copy of this letter is filed as an exhibit to the registration statement of which this prospectus forms a part. 67

71 WHERE YOU CAN FIND ADDITIONAL INFORMATION We have filed with the SEC a registration statement on Form S-1 under the Securities Act, and the rules and regulations promulgated thereunder, with respect to the shares of common stock offered by this prospectus. This prospectus, which constitutes part of the registration statement, does not contain all of the information set forth in the registration statement and the exhibits thereto. Statements contained in this prospectus as to the contents of any contract or other document that is filed as an exhibit to the registration statement are not necessarily complete and each such statement is qualified in all respects by reference to the full text of such contract or document. You may read and copy all or any portion of the registration statement and the exhibits at the SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the SEC located at Seven World Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You can request copies of these documents, upon payment of a duplication fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the SEC's public reference rooms. Also, the SEC maintains a World Wide Web site on the Internet at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. As a result of this offering, we will become subject to the information and periodic reporting requirements of the Securities Exchange Act of 1934 and, in accordance therewith, will file periodic reports, proxy and information statements and other information with the SEC. These periodic reports, proxy and information statements and other information will be available for inspection and copying at the public reference facilities, regional offices and SEC's Web site referred to above. 68

72 XCYTE THERAPIES, INC. INDEX TO FINANCIAL STATEMENTS PAGE ---- Report of Ernst & Young LLP, Independent Auditors........... F-2 Report of PricewaterhouseCoopers LLP, Independent Accountants............................................... F-3 Balance Sheets.............................................. F-4 Statements of Operations.................................... F-5 Statements of Changes in Stockholders' Deficit.............. F-6 Statements of Cash Flows.................................... F-7 Notes to Financial Statements............................... F-8 F-1

73 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors Xcyte Therapies, Inc. We have audited the accompanying balance sheet of Xcyte Therapies, Inc. (a development stage enterprise) (the Company) as of December 31, 1999, and the related statements of operations, stockholders' deficit, and cash flows for the year then ended and for the period from inception (August 27, 1996) to December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of the Company for each of the years in the two year period ended December 31, 1998 and for the period from inception (August 27, 1996) to December 31, 1998 were audited by other auditors whose report, dated September 1, 1999, expressed an unqualified opinion on those financial statements. The financial statements for the period from inception (August 27, 1996) to December 31, 1998 include total revenues and net loss of $100,000 and $9,285,000, respectively. Our opinion on the statements of operations, stockholders' deficit, and cash flows for the period from inception (August 27, 1996) to December 31, 1999, insofar as it relates to amounts for prior periods through December 31, 1998, is based solely on the report of other auditors whose report indicates that the financial statements for each of the years in the two year period ended December 31, 1998 and for the period from inception (August 27, 1996) to December 31, 1998 have been restated. We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the report of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audit and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Xcyte Therapies, Inc. (a development stage enterprise) at December 31, 1999, and the results of its operations and its cash flows for the year then ended, and for the period from inception (August 27, 1996) to December 31, 1999, in conformity with accounting principles generally accepted in the United States. As described in Note 1, the financial statements referred to in the above paragraph have been restated. Ernst & Young LLP /s/ Ernst & Young LLP Seattle, Washington June 25, 2000, except for paragraph 2 of Note 5, as to which the date is August 14, 2000, paragraph 1 of Note 12, as to which the date is November 7, 2000 and the last paragraph of Note 1, as to which the date is December 20, 2000. F-2

74 REPORT OF INDEPENDENT ACCOUNTANTS The Board of Directors and Stockholders of Xcyte Therapies, Inc. In our opinion, the accompanying December 31, 1998 balance sheet and the related statements of operations, of changes in stockholders' deficit and of cash flows present fairly, in all material respects, the financial position of Xcyte Therapies, Inc. (the Company) at December 31, 1998, and the results of its operations and its cash flows for the years ended December 31, 1997 and 1998 and for the period from inception (August 27, 1996) to December 31, 1998 (not presented herein), in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. As described in Note 1, the financial statements referred to in the above paragraph have been restated. PricewaterhouseCoopers LLP /s/ PricewaterhouseCoopers LLP September 1, 1999, except as to the last paragraph of Note 1, which is as of December 20, 2000 Portland, Oregon F-3

75 XCYTE THERAPIES, INC. (A DEVELOPMENT STAGE ENTERPRISE) BALANCE SHEETS (IN THOUSANDS) PRO FORMA STOCKHOLDERS' DECEMBER 31, EQUITY AT ------------------------ SEPTEMBER 30, SEPTEMBER 30, 1998 1999 2000 2000 ---------- ---------- ------------- ------------- (UNAUDITED) (UNAUDITED) ASSETS Current assets: Cash and cash equivalents................................. $ 1,265 $ 124 $ 25,761 Receivable from lessor.................................... -- 232 -- Employee receivables...................................... -- 5 5 Short-term investments.................................... 10,887 7,239 1,496 Prepaid research and development expenses................. -- -- 527 Prepaid expenses and other current assets................. 89 100 264 ------- -------- -------- Total current assets.................................... 12,241 7,700 28,053 Property and equipment, net................................. 1,506 1,824 1,931 Long-term investments....................................... 1,701 -- -- Intangible assets, net...................................... 534 334 184 Deposits and other assets................................... 62 197 168 ------- -------- -------- Total assets............................................ $16,044 $ 10,055 $ 30,336 ======= ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable.......................................... $ 233 $ 1,005 $ 691 Accrued vacation.......................................... 57 94 117 Other accrued liabilities................................. 13 13 41 Current portion of equipment financings................... 349 488 811 ------- -------- -------- Total current liabilities............................... 652 1,600 1,660 Equipment financings, less current portion.................. 941 839 896 Other liabilities........................................... -- 15 57 Commitments (Notes 8, 11, and 12) Redeemable convertible preferred stock: Issued and outstanding shares -- 17,949,222 at December 31, 1998 and 1999 and 28,059,047 at September 30, 2000 (aggregate preference of $22,810 and $50,915 at September 30, 2000 and December 31, 1999, respectively) (none pro forma)........................................ 22,866 22,866 48,394 Redeemable convertible preferred stock warrants (none pro forma).................................................... 524 539 557 Stockholders' equity (deficit): Preferred stock, par value $.001: Authorized and designated as redeemable and convertible shares -- 19,383,209 at December 31, 1998 and 1999 and 28,909,976 at September 30, 2000 (no shares outstanding pro forma)................................ -- -- -- $ -- Common stock, par value $.001: Authorized shares -- 40,000,000 at December 1998 and 1999 and 60,000,000 at September 30, 2000; issued and outstanding shares -- 6,269,809 and 5,943,579 at December 31, 1998 and 1999, respectively, and 5,965,234 at September 30, 2000 (34,024,281 shares outstanding pro forma)................................ 6 6 6 34 Additional paid-in capital................................ 352 1,079 5,090 54,013 Deferred stock compensation............................... (12) (639) (1,618) (1,618) Accumulated deficit....................................... (9,285) (16,232) (24,704) (24,704) Accumulated other comprehensive loss...................... -- (18) (2) (2) ------- -------- -------- ------- Total stockholders' equity (deficit)............... (8,939) (15,804) (21,228) $27,723 ------- -------- -------- ======= Total liabilities and stockholders' equity (deficit)........................................ $16,044 $ 10,055 $ 30,336 ======= ======== ======== The accompanying notes are an integral part of these financial statements. F-4

76 XCYTE THERAPIES, INC. (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) PERIOD FROM PERIOD FROM INCEPTION INCEPTION (AUGUST 27, NINE MONTHS ENDED (AUGUST 27, YEARS ENDED DECEMBER 31, 1996) TO SEPTEMBER 30, 1996) TO ------------------------------------ DECEMBER 31, ----------------------- SEPTEMBER 30, 1997 1998 1999 1999 1999 2000 2000 ---------- ---------- ---------- ------------ ---------- ---------- ------------- (UNAUDITED) (UNAUDITED) Revenue: License fee............ $ 100 $ -- $ -- $ 100 $ -- $ -- $ 100 Government grant....... -- -- 16 16 -- 44 60 ---------- ---------- ---------- ------ ---------- ---------- ------ Total revenue....... 100 -- 16 116 -- 44 160 Operating expense: Research and development......... 2,397 4,311 5,413 12,449 3,573 7,176 19,625 General and administrative...... 1,148 1,427 1,619 4,508 1,158 1,061 5,569 Noncash stock compensation expense............. 4 6 93 105 3 557 662 ---------- ---------- ---------- ------ ---------- ---------- ------ Total operating expense................ 3,549 5,744 7,125 17,062 4,734 8,794 25,856 ---------- ---------- ---------- ------ ---------- ---------- ------ Loss from operations..... (3,449) (5,744) (7,109) (16,946) (4,734) (8,750) (25,696) Other income (expense): Loss on sale of property and equipment........... -- -- (108) (108) -- -- (108) Interest income........ 245 476 476 1,290 375 465 1,755 Interest expense....... (84) (178) (206) (468) (143) (187) (655) ---------- ---------- ---------- ------ ---------- ---------- ------ Other income, net... 161 298 162 714 232 278 992 ---------- ---------- ---------- ------ ---------- ---------- ------ Net loss................. $ (3,288) $ (5,446) $ (6,947) ($16,232) $ (4,502) $ (8,472) ($24,704) ========== ========== ========== ====== ========== ========== ====== Basic and diluted net loss per share......... $ (0.69) $ (0.86) $ (1.15) $ (0.74) $ (1.42) ========== ========== ========== ========== ========== Shares used in computation of basic and diluted net loss per share.............. 4,740,629 6,355,442 6,050,042 6,085,919 5,961,946 ========== ========== ========== ========== ========== The accompanying notes are an integral part of these financial statements. F-5

77 XCYTE THERAPIES, INC. (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT (IN THOUSANDS, EXCEPT SHARE DATA) ACCUMULATED COMMON STOCK ADDITIONAL DEFERRED OTHER ------------------ PAID-IN STOCK ACCUMULATED COMPREHENSIVE SHARES AMOUNT CAPITAL COMPENSATION DEFICIT LOSS TOTAL --------- ------ ---------- ------------ ----------- ------------- -------- Common stock issued upon incorporation....................... 3,374,634 $ 3 $ -- $ -- $ -- $ -- $ 3 Deferred stock-based compensation..... -- 7 (7) -- -- -- Amortization of deferred compensation........................ -- -- 2 -- -- 2 Common stock issued for technology license............................. 198,609 -- -- -- -- -- -- Net loss.............................. -- -- -- (551) -- (551) --------- --- ------ ------- -------- ---- -------- Balance at December 31, 1996............ 3,573,243 3 7 (5) (551) -- (546) Common stock repurchased.............. (635,000) (1) -- -- -- -- (1) Common stock issued in acquisition.... 2,999,910 3 327 -- -- -- 330 Deferred stock-based compensation..... -- -- 9 (9) -- -- -- Amortization of deferred compensation........................ -- -- -- 4 -- -- 4 Common stock issued for technology license............................. 407,198 1 -- -- -- -- 1 Stock options exercised............... 12,750 -- 1 -- -- -- 1 Net loss.............................. -- -- -- -- (3,288) -- (3,288) --------- --- ------ ------- -------- ---- -------- Balance at December 31, 1997............ 6,358,101 6 344 (10) (3,839) -- (3,499) Repurchase of founder's stock......... (88,542) -- -- -- -- -- -- Stock options exercised............... 250 -- -- -- -- -- -- Deferred stock-based compensation..... -- -- 8 (8) -- -- -- Amortization of deferred compensation........................ -- -- -- 6 -- -- 6 Net loss.............................. -- -- -- -- (5,446) -- (5,446) --------- --- ------ ------- -------- ---- -------- Balance at December 31, 1998............ 6,269,809 6 352 (12) (9,285) -- (8,939) Common stock returned for technology license termination................. (400,000) -- -- -- -- -- -- Common stock issued for technology license............................. 20,000 -- 2 -- -- -- 2 Deferred stock-based compensation..... -- -- 720 (720) -- -- -- Amortization of deferred compensation........................ -- -- -- 93 -- -- 93 Stock options exercised............... 53,770 -- 5 -- -- -- 5 Change in unrealized loss on investments......................... -- -- -- -- -- (18) (18) Net loss.............................. -- -- -- -- (6,947) -- (6,947) -------- Comprehensive loss.................... (6,965) --------- --- ------ ------- -------- ---- -------- Balance at December 31, 1999............ 5,943,579 6 1,079 (639) (16,232) (18) (15,804) Issuance of common stock warrants (unaudited)......................... -- -- 2,717 -- -- -- 2,717 Deferred stock-based compensation (unaudited)......................... -- -- 1,536 (1,536) -- -- -- Amortization of deferred compensation (unaudited)......................... -- -- -- 557 -- -- 557 Stock options exercised (unaudited)... 21,655 3 -- -- -- 3 Accretion of redeemable convertible preferred stock (unaudited)......... -- -- (245) -- -- -- (245) Change in unrealized loss on investments (unaudited)............. -- -- -- -- -- 16 16 Net loss (unaudited).................. -- -- -- -- (8,472) -- (8,472) -------- Comprehensive loss (unaudited)........ (8,456) --------- --- ------ ------- -------- ---- -------- Balance at September 30, 2000 (unaudited)........................... 5,965,234 $ 6 $5,090 $(1,618) $(24,704) $ (2) $(21,228) ========= === ====== ======= ======== ==== ======== The accompanying notes are an integral part of these financial statements. F-6

78 XCYTE THERAPIES, INC. (A DEVELOPMENT STAGE ENTERPRISE) STATEMENTS OF CASH FLOWS (IN THOUSANDS) PERIOD FROM PERIOD FROM INCEPTION NINE MONTHS INCEPTION (AUGUST 27, ENDED (AUGUST 27, YEARS ENDED DECEMBER 31, 1996) TO SEPTEMBER 30, 1996) TO ------------------------------------ DECEMBER 31, ----------------- SEPTEMBER 30, 1997 1998 1999 1999 1999 2000 2000 ---------- ---------- ---------- ------------ ------- ------- ------------- (UNAUDITED) (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss................................ $(3,288) $(5,446) $(6,947) $(16,232) $(4,502) $(8,472) $(24,704) Adjustments to reconcile net loss to net cash used in operating activities: Non-cash research and development expense............................. -- 291 2 293 -- -- 293 Non-cash stock based compensation expense............................. 4 6 93 105 3 557 662 Non-cash interest expense............. 12 16 18 18 14 18 36 Depreciation and amortization......... 268 609 717 1,592 538 492 2,084 Loss on sale of property and equipment........................... -- -- 108 108 -- -- 108 Changes in assets and liabilities: (Increase) decrease in receivable from lessor....................... -- -- (232) (232) -- 232 -- Increase in employee receivables.... -- -- (5) (5) -- -- (5) Prepaid expenses and other current assets............................ -- (27) (11) (38) -- (691) (729) (Increase) decrease in deposits and other assets...................... (53) (5) (135) (269) (157) 29 (240) Increase (decrease) in accounts payable........................... (234) 170 771 1,005 (27) (314) 691 Increase (decrease) in accrued liabilities....................... 110 (92) 52 122 39 93 215 ------- ------- ------- -------- ------- ------- -------- Net cash used in operating activities... (3,181) (4,478) (5,569) (13,533) (4,092) (8,056) (21,589) ------- ------- ------- -------- ------- ------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment...... (1,100) (566) (976) (3,091) (150) (449) (3,540) Proceeds from sale of property and equipment............................. -- -- 33 33 -- -- 33 Net cash acquired in acquisition........ 437 -- -- 437 -- -- 437 Purchases of investments available-for-sale.................... -- -- (5,816) (5,816) -- -- (5,816) Purchases of investments held-to-maturity...................... (1,794) (15,939) -- (17,732) -- -- (17,732) Proceeds from sales and maturities of investments available-for-sale........ -- -- 11,147 11,147 6,929 5,760 16,907 Proceeds from sales and maturities of investments held-to-maturity.......... -- 5,145 -- 5,145 -- -- 5,145 ------- ------- ------- -------- ------- ------- -------- Net cash provided by (used in) investing activities............................ (2,457) (11,360) 4,388 (9,877) 6,779 5,311 (4,566) ------- ------- ------- -------- ------- ------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of preferred and common stock.......................... 4,134 11,975 6 22,148 5 28,003 50,151 Common stock repurchased................ (1) -- -- (1) -- -- (1) Proceeds from equipment financings...... 1,237 362 451 2,151 421 865 3,016 Principal payments on equipment financings............................ -- (273) (417) (764) (304) (486) (1,250) ------- ------- ------- -------- ------- ------- -------- Net cash provided by financing activities............................ 5,370 12,064 40 23,534 122 28,382 51,916 ------- ------- ------- -------- ------- ------- -------- Net increase (decrease) in cash......... (268) (3,774) (1,141) 124 2,809 25,637 25,761 Cash at beginning of period............. 5,307 5,039 1,265 -- 1,265 124 -- ------- ------- ------- -------- ------- ------- -------- Cash at end of period................... $ 5,039 $ 1,265 $ 124 $ 124 $ 4,074 $25,761 $ 25,761 ======= ======= ======= ======== ======= ======= ======== SUPPLEMENTAL CASH FLOW AND NONCASH ACTIVITY INFORMATION: Interest paid....................... $ 72 $ 193 $ 207 $ 472 $ 143 $ 189 $ 661 Issuance of common stock warrants... -- -- -- -- -- 2,717 2,717 The accompanying notes are an integral part of these financial statements. F-7

79 XCYTE THERAPIES, INC. (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS (INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED) 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Xcyte Therapies, Inc., a development stage enterprise, was incorporated on January 5, 1996 as MolecuRx, Inc. under the laws of the state of Delaware, changed its name to CDR Therapeutics, Inc. upon commencement of operations on August 27, 1996, and changed its name to Xcyte Therapies, Inc. (the Company) in October 1997. The Company operates in one business segment developing products based on T cell activation to treat cancer and infectious disease. As a development stage company, substantially all efforts of the Company have been devoted to conducting research and experimentation, developing and acquiring intellectual properties, raising capital, and recruiting and training personnel. The Company has incurred operating losses and negative operating cash flows since inception. Management expects to incur operating losses for the foreseeable future as the Company executes its business plans. In August 2000, the Company completed a $28.0 million private placement of preferred stock, net of offering costs (see Note 5). Management believes that the additional cash from the private placement, combined with existing cash, provides the Company with the financing necessary for it to execute its business plans and to continue operations through at least the year ended December 31, 2001. UNAUDITED INTERIM FINANCIAL INFORMATION The financial information as of September 30, 2000 and for the nine months ended September 30, 1999 and 2000, and the period from inception (August 27, 1996) to September 30, 2000 is unaudited. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2000 are not necessarily indicative of results that may be expected for the entire year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). CASH, CASH EQUIVALENTS, AND INVESTMENTS Cash equivalents include highly liquid investments with an original maturity of three months or less. The Company's cash equivalents consist of money market securities. Held-to-maturity securities are stated at amortized cost, adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in investment income. Interest on securities classified as held-to-maturity is included in interest income. Securities not classified as held-to-maturity are classified as available-for-sale. Available-for-sale securities are carried at fair value, with the unrealized gains and losses reported in a separate component of stockholders' equity. Amortization, accretion, interest and dividends, realized gains and losses, and declines in value judged to be other-than-temporary on available-for-sale securities are included in interest income. The cost of securities sold is based on the specific identification method. Investments in securities with maturities of less than one year or whose management's intent is to use the investments to fund current operations are classified as short-term investments. F-8

80 XCYTE THERAPIES, INC. (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED) PROPERTY AND EQUIPMENT Property and equipment is stated at cost and is depreciated using the straight-line method over the assets' useful lives, which range from three to six years. Leasehold improvements are amortized over the lesser of their estimated useful lives or the term of the lease. INTANGIBLE ASSETS Intangible assets represent the excess of the purchase price of acquiring CellGenEx, Inc. (see Note 11) over identifiable net assets acquired. Intangible assets are being amortized using the straight-line method over four years. Accumulated amortization at December 31, 1998, 1999 and September 30, 2000 totaled $268,000, $468,000, and $618,000, respectively. IMPAIRMENT OF LONG-LIVED ASSETS The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the discounted future cash flows expected to be generated by such assets. REVENUE RECOGNITION To date, the Company has generated no revenues from sales of products. Revenues relate to fees received for licensed technology and a Small Business Innovation Research grant awarded to the Company by the National Institutes of Health. Revenue from license fee income is recognized when the Company no longer has any obligation to provide significant services to the licensee. Revenue from government grants is recognized once the conditions of a grant have been satisfied. OTHER COMPREHENSIVE INCOME Other comprehensive income (loss) includes certain changes in equity that are excluded from net income (loss). The Company's only component of other comprehensive income (loss) is unrealized loss on investments. There were no components of other comprehensive income (loss) prior to 1999. RESEARCH AND DEVELOPMENT COSTS Research and development costs are charged to expense as incurred. The Company records up-front payments related to the funding milestone payments under development agreements as prepaid research and development expenses and amortizes the amount into expense over the period that the development work is performed. The Company's policy is to expense the payments for beads used in research in the period the beads are delivered by the suppliers. SEGMENTS The Company has adopted Statement of Financial Accounting Standards No. 131, "Disclosure about Segments of an Enterprise and Related Information" (SFAS 131) and related disclosures about its products, services, geographic areas and major customers. The Company has determined that it operates in F-9

81 XCYTE THERAPIES, INC. (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED) only one segment. Accordingly, the adoption of SFAS 131 had no impact on the Company's financial statements. STOCK-BASED COMPENSATION The Company has adopted the disclosure-only provisions of Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), and applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25), and related interpretations in accounting for stock options. Stock options granted to nonemployees are recorded using the fair value approach in accordance with SFAS 123 and Emerging Issues Task Force Consensus (EITF) Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services" (EITF 96-18). The options to nonemployees are subject to periodic revaluation over their vesting terms. Deferred stock-based compensation includes amounts recorded when the exercise price of an option is lower than the deemed fair value of the underlying common stock on the date of grant. Deferred stock-based compensation is amortized over the vesting period of the underlying option using the graded vesting method. NET LOSS PER SHARE Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding for the period. Diluted net loss per share reflects the dilutive effect of common stock equivalents, if any. Other common stock equivalents, including redeemable convertible preferred stock, stock options and warrants, are excluded from the computation as their effect is anti-dilutive. For the periods presented, there is no difference between the basic and diluted net loss per share. FINANCIAL INSTRUMENTS Financial instruments, including cash and cash equivalents and payables, are recorded at cost which approximates fair values based on the short-term maturities of these instruments. The fair value of investments is determined based on quoted market prices. Refer to Note 2 for further information on the fair value of investments. The carrying value of equipment financing arrangements approximates fair value because the underlying interest rates approximate market rates at the balance sheet dates. CONCENTRATIONS OF CREDIT Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, investments, and receivables. The Company generally invests its excess cash in money market funds, and obligations issued by or fully collateralized by the U.S. government or federal agencies. While cash and cash equivalents held by financial institutions at times exceed federally insured limits, management believes that no credit or market risk exposure exists due to the high quality of the institutions. The Company places its investments with high-credit quality counterparties. The Company does not require collateral or other security related to receivables. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivatives and Hedging Activities" (SFAS 133), which establishes accounting and reporting standards F-10

82 XCYTE THERAPIES, INC. (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED) for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as "derivatives") and for hedging activities. SFAS 133 (as deferred by SFAS 137) is effective for fiscal years beginning after June 15, 2000, and will be adopted by the Company during the year beginning January 1, 2001. As the Company does not currently hold derivatives or engage in hedging transactions, the Company anticipates that there will be no impact on the Company's results of operations, financial position, or cash flows upon the adoption of SFAS 133. In December 1999 the SEC issued Staff Accounting Bulletin No. 101, "Revenue Recognition" (SAB 101), which provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. SAB 101 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosures related to revenue recognition policies. The Company has recognized revenue and made disclosures in accordance with SAB 101. The adoption of SAB 101 did not have any impact on the Company's financial position or results of operations. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. RECLASSIFICATIONS Certain prior year balances have been reclassified to conform to the current year presentation. RESTATEMENT In December 2000, the Company determined that it was necessary to revise its 1997 and 1998 financial statements. The restatement was required because of incorrect purchase accounting applied to the Company's 1997 merger with CellGenEx, Inc. (see Note 11). The Company's initial purchase accounting included a write-off in 1997 of all of the intangible assets acquired in the merger amounting to $802,000. The 1997 and 1998 financial statements have been restated to reverse the effect of the write-off of the intangible assets and to record amortization expense relative to the intangible assets acquired over a four year period. The Company also determined that it was necessary to revise its 1999 financial statements for the purchase accounting issue mentioned above, as well as to record additional stock compensation in the amount of $86,000 related to common stock options issued during the year ended December 31, 1999 which had been subsequently determined to have been issued at less than fair value (see Note 6). The following table sets forth the effect of the restatement on the Company's financial statements (in thousands except per share data): PERIOD FROM INCEPTION YEARS ENDED DECEMBER 31, (AUGUST 27, 1996) --------------------------- TO 1997 1998 1999 DECEMBER 31, 1999 ------- ------- ------- ----------------- Net loss As restated...................................... $(3,288) $(5,446) $(6,947) $(16,232) As previously reported........................... (4,023) (5,245) (6,661) (16,481) Basic and diluted net loss per share As restated...................................... $ (0.69) $ (0.86) $ (1.15) $(2.96) As previously reported........................... (0.85) (0.83) (1.10) (3.01) F-11

83 XCYTE THERAPIES, INC. (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED) 2. INVESTMENTS A summary of investments follows (in thousands): GROSS GROSS AMORTIZED UNREALIZED UNREALIZED ESTIMATED COST GAINS LOSSES FAIR VALUE --------- ---------- ---------- ---------- December 31, 1998 U.S. treasury securities...................... $ 9,513 $-- $(14) $ 9,499 Federal agency obligations.................... 3,075 -- (7) 3,068 ------- --- ---- ------- $12,588 $-- $(21) $12,567 ======= === ==== ======= December 31, 1999 U.S. treasury securities...................... $ 6,174 $-- $(18) $ 6,156 Federal agency obligations.................... 1,083 -- -- 1,083 ------- --- ---- ------- $ 7,257 $-- $(18) $ 7,239 ======= === ==== ======= September 30, 2000 U.S. treasury securities...................... $ 1,498 $-- $ (2) $ 1,496 ======= === ==== ======= The Company uses the services of a third party investment broker to manage its investment portfolio. Management intends to purchase securities whose maturities correspond to the Company's budgeted cash flow needs. Accordingly, management classified investments as held-to-maturity since the Company's inception. During the year ended December 31, 1998, the Company's investment broker did not comply with management's instructions and as a result, the Company was forced to sell a portion of its investment portfolio before maturity. Securities with an amortized cost of $2.6 million were sold, prior to maturity, for a net realized gain of $59,000. All remaining investment securities held at December 31, 1998 were held through their maturity date. At December 31, 1999 and September 30, 2000, management has classified all investments as available-for-sale. There were no gross realized gains or losses on sales of available-for-sale securities in the year ended December 31, 1999. Gross realized gains and losses on sales of available-for-sale securities during the nine months ended September 30, 2000 were $0 and $3,000, respectively. F-12

84 XCYTE THERAPIES, INC. (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED) The available-for-sale securities as of December 31, 1999 and September 31, 2000 have contractual maturities of one year or less. Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to repay obligations without prepayment penalties. 3. PROPERTY AND EQUIPMENT Property and equipment consists of the following (in thousands): DECEMBER 31, ---------------- SEPTEMBER 30, 1998 1999 2000 ------ ------ ------------- Equipment............................................ $1,100 $1,495 $1,829 Furniture and fixtures............................... 131 133 161 Leasehold improvements............................... 620 507 530 Computer equipment................................... 264 292 356 ------ ------ ------ 2,115 2,427 2,876 Less accumulated amortization and depreciation....... (609) (603) (945) ------ ------ ------ $1,506 $1,824 $1,931 ====== ====== ====== Depreciation expense totaled $201,000, $408,000, and $517,000 during the years ended December 31, 1997, 1998 and 1999, respectively, and $342,000 during the nine months ended September 30, 2000. 4. SIGNIFICANT AGREEMENTS TECHNOLOGY LICENSES At inception, the Company entered into a license agreement with the Trustees of the University of Pennsylvania whereby the Company was granted use of certain intellectual property. In exchange, the Company granted 605,807 shares of common stock at par value during the period from inception to December 31, 1997. In May 1999, the Company terminated the agreement. The terms of the cancellation included the retirement of 400,000 shares of common stock at par value. In July 1998, the Company entered into a license agreement with Genetics Institute, Inc., under which the Company was granted the use of several patents for intellectual property in exchange for the payment of a nonrefundable fee of $53,000, 145,875 shares of Series B preferred stock, and warrants to purchase 194,500 shares of Series B preferred stock at $1.10 per share (see Note 5). The nonrefundable fee was expensed when paid. The Company, or sublicensee, is required to spend no less than $500,000 annually on research and development activities related to product development until the first commercial sale of the product. In June 1999, the Company entered into a license agreement with ARCH Development Corporation in exchange for 200,000 shares of common stock. 20,000 of those shares were issued upon execution of the agreement and valued based on the estimated fair market value of the common stock of $2,000. The remaining shares are issuable upon the completion of various terms and conditions as stated in the stock purchase agreement. The Company, or its affiliate or sublicensee, is required to expend at least $2.0 million on the development of licensed products during the first 24 months of the agreement. In October 1999, the Company entered into a license and supply agreement with Diaclone S.A. In consideration for the license, the Company paid and expensed a $75,000 nonrefundable fee. The Company also entered into a license agreement with the Fred Hutchinson Cancer Research Center. In consideration F-13

85 XCYTE THERAPIES, INC. (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED) for the license, the Company paid and expensed a $25,000 nonrefundable fee. In December 2000, the Company amended the agreement (see Note 12). All license agreements require the payment of royalties by the Company based on sales and services. No royalty payments have been required or paid through September 30, 2000. MANUFACTURING AND SUPPLY CONTRACTS In August 1999, the Company entered into a development and supply agreement with Dynal S.A. The Company has agreed to make payments upon the accomplishment of certain development activities by Dynal S.A. totaling $3.0 million. During the year ended December 31, 1999 and the nine months ended September 30, 2000, the Company made payments totaling $100,000 and $1.9 million, respectively, under the agreement. In accordance with the Company's accounting policy, the $100,000 payment in the year ended December 31, 1999 was expensed when paid and $1.4 million of the payments made during the nine months ended September 30, 2000 were expensed with the remaining amounts recorded as prepaid research and development expenses. The Company's remaining payments of $1.0 million are estimated to be payable during the year ended December 31, 2002 based on development work plans. Remaining payments are subject to the completion of the milestone activities and regulatory approvals as specified in the agreement. Under the terms of the supply agreement, the Company is required to buy a minimum $250,000 of beads in the first 12 months after the development phase ends and $500,000 of beads annually thereafter over the remaining term of the agreement. In June 2000, the Company entered into agreements with Lonza Biologics PLC. Under the terms of the agreements, the Company is obligated to pay milestone payments. Milestone payments are settled in the functional currency of Lonza Biologics PLC (pounds) under the agreement. Exchange rate gains and losses have been insignificant to date. The Company paid $161,000 as required under the agreements during the nine months ended September 30, 2000. In accordance with the Company's accounting policy, $134,000 of the payment made during the nine months ended September 30, 2000 was expensed with the remaining amount recorded as prepaid research and development expenses. Remaining payments under the agreement, assuming milestones are completed as scheduled, will be $350,000 during the year ending December 31, 2000 and $2.7 million during the year ending December 31, 2001. 5. REDEEMABLE CONVERTIBLE PREFERRED STOCK AND WARRANTS PREFERRED STOCK A summary of redeemable convertible preferred stock follows (dollars in thousands): DECEMBER 31, 1998 AND 1999 SEPTEMBER 30, 2000 ---------------------------------------- ---------------------------------------- AGGREGATE AGGREGATE SHARES REDEMPTION SHARES REDEMPTION AUTHORIZED ISSUED AND AND AUTHORIZED ISSUED AND AND AND OUTSTANDING LIQUIDATION AND OUTSTANDING LIQUIDATION DESIGNATED SHARES PREFERENCE DESIGNATED SHARES PREFERENCE ---------- ----------- ----------- ---------- ----------- ----------- Series A............. 8,000,000 6,860,512 $ 6,517 7,300,080 6,860,512 $ 6,517 Series B............. 4,097,580 3,903,080 4,293 4,097,580 3,903,080 4,293 Series C............. 7,285,629 7,185,630 12,000 7,212,316 7,185,630 12,000 Series D............. -- -- -- 10,300,000 10,109,825 28,105 ---------- ---------- ------- ---------- ---------- ------- 19,383,209 17,949,222 $22,810 28,909,976 28,059,047 $50,915 ========== ========== ======= ========== ========== ======= F-14

86 XCYTE THERAPIES, INC. (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED) The Company issued 6,334,212 shares of Series A preferred stock at $0.95 per share during the year ended December 31, 1996 for proceeds of $6.0 million, 3,757,205 shares of Series B preferred stock at $1.10 per share during the year ended December 31, 1997 for proceeds of $4.1 million, and 7,185,630 shares of Series C preferred stock at $1.67 per share during the year ended December 31, 1998 for proceeds of $12.0 million. There were no significant costs associated with the Series A, B and C offerings. During 1997 the Company issued an additional 526,300 shares of Series A preferred stock in conjunction with the merger with CellGenEx, Inc. (see note 11). The value of the Series A preferred stock of $579,000 was included in the determination of the purchase price of CellGenEx, Inc. During 1998, the Company also issued 145,875 shares of Series B preferred stock to acquire technology licenses (see note 4). These shares were valued at $1.10 per share for an aggregate amount of $160,000. In May 2000, the Company amended and restated its Certificate of Incorporation to change the number of designated Series A and C preferred shares and to designate Series D preferred shares. In August 2000, Company completed a private placement of 10,109,825 shares at $2.78 per share of Series D redeemable preferred stock for $28.0 million, net of offering costs of $105,000. In connection with the offering, holders of the Series D preferred stock received 1,132,287 warrants to purchase shares of common stock at an exercise price of $0.30 per share. The warrants were valued at $2.7 million using the Black-Scholes method. The warrants expire in August 2005 or upon the completion of an initial public offering (IPO). Of the total net proceeds of $28.0 million, $2.7 million has been recorded as paid in capital and $25.3 million had been recorded as redeemable convertible preferred stock. The Series D preferred stock includes redemption rights commencing on June 30, 2002 at $2.78 per share or $28.1 million. The difference between the recorded value of the Series D preferred stock and the redemption value is being accreted ratably through June 30, 2002. For the nine months ended September 30, 2000, the Company recorded accretion of the preferred stock redemption value of $245,000 through a charge to additional paid in capital and a credit to preferred stock. Holders of Series A, B, C, and D preferred stock have preferential rights to noncumulative dividends at a rate of $0.076, $0.088, $0.1336, and $.2224 per share, respectively, when and if declared by the Board of Directors. The holders are entitled to the number of votes equal to the number of shares of common stock into which the preferred stock could be converted. In the event of liquidation, the holders of Series A, B, C, and D have preferential right to liquidation payments of $0.95, $1.10, $1.67, and $2.78 per share, respectively, plus any accrued but unpaid dividends. The preferred stock can be converted, at the option of the holder, one-for-one into common stock subject to adjustment for antidilutive events. The conversion price for Series A, B, C, and D preferred stock is $0.95, $1.10, $1.67, and $2.78, respectively. Each share of the preferred stock shall automatically be converted into shares of common stock upon the closing of a firmly underwritten IPO, provided that the price per share is not less than $4.00 and the aggregate gross proceeds to the Company are not less than $20.0 million. In addition, the Company has granted registration rights and preemptive rights to Series A, B, C, and D holders. The preferred stock is redeemable at the option of the holder of a majority of the outstanding shares of preferred stock at any time after June 30, 2002. The Series A, B, C, and D redemption price is $0.95, $1.10, $1.67, and $2.78 per share, respectively. Since the redemption price is equal to the price originally paid for the shares, no accretion has been recorded on Series A, B, and C preferred stock. In addition, the Company has granted registration rights and rights of first offer to the Series A, B, C, and D holders, and is precluded from carrying out certain actions without the approval of the majority of the Series A, B, C, and D holders voting as a group. F-15

87 XCYTE THERAPIES, INC. (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED) WARRANTS Warrants to purchase 368,410 shares of Series A preferred stock were issued in connection with the CellGenEx, Inc. business acquisition (see Note 11) at an exercise price of $0.95 per share during the year ended December 31, 1997. The value of the warrants of $330,000 was included in the determination of the purchase price of CellGenEx, Inc. In addition, warrants to purchase 71,158 shares of Series A preferred stock at $0.95 per share were issued in connection with equipment financing for the year ended December 31, 1997. The estimated fair value of the warrants issued of $64,000 was recorded as an additional financing cost and is being amortized over the term of the loan as interest expense. During the year ended December 31, 1998, the Company issued warrants to purchase 194,500 shares of Series B preferred stock as partial consideration for the Genetics Institute, Inc. license (see Note 4). The warrants were issued at an exercise price of $1.10 per share. The estimated fair value of the warrants of $131,000 was charged to research and development expense in 1998. During the year ended December 31, 1999, the Company issued warrants to purchase 12,315 shares of Series C preferred stock at an exercise price of $1.67 per share in connection with equipment financing. The estimated fair value of the warrants issued of $15,000 was recorded as additional financing cost and is being amortized over the term of the loan as interest expense. In January 2000, the Company issued a warrant to purchase 14,371 shares of Series C preferred stock at an exercise price of $1.67 per share in connection with equipment financing. The estimated fair value of the warrants issued of $18,000 was recorded as additional financing cost and is being amortized over the term of the loan as interest expense. In December 2000, the Company issued an additional Series D preferred stock warrant for 80,000 shares of Series D preferred stock, in connection with a lease for a manufacturing facility (see Note 12). Warrants expire at various dates from March 2003 to January 2007, including 380,725 warrants outstanding at September 30, 2000 which would expire earlier upon the completion of an IPO. All remaining preferred stock warrants which do not expire upon the completion of an IPO, upon consent from the warrant holders, will convert to common stock warrants upon the consummation of an IPO. The Company has valued the warrants issued during the years ended December 31, 1997, 1998, and 1999 and the nine months ended September 30, 2000 using the Black-Scholes method with the following assumptions: no dividend yields, expected life of 5 years to 10 years, risk-free interest rates of 5.42% to 6.90% and volatility of 68% to 75%. 6. STOCKHOLDERS' DEFICIT 1996 STOCK OPTION PLAN Under the Company's 1996 Stock Option Plan (1996 Plan), 2.5 million shares of common stock have been reserved for grants to employees, directors, and consultants, as of December 31, 1999. The term of the 1996 Plan is ten years unless terminated earlier by the Board of Directors. Options granted under the 1996 Plan may be designated as incentive or nonqualified at the discretion of the plan administrator. The vesting period, exercise price, and expiration period of options are also established at the discretion of the plan administrator. Vesting periods are typically four or five years, and incentive stock options are exercisable at no less than the fair market value at the date of grant, and nonqualified stock options are F-16

88 XCYTE THERAPIES, INC. (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED) exercisable at prices determined by the 1996 Plan administrator. In no event shall the term of any incentive stock option exceed ten years. In August 2000, the Board of Directors amended the 1996 Plan to allow options granted to certain executives to become exercisable immediately. Shares issued upon exercise of options that are unvested are restricted and subject to repurchase by the Company upon termination of employment and such restrictions lapse over the original vesting schedule. At September 30, 2000, there were no shares of restricted common stock issued and subject to repurchase. A summary of stock option activity and related information follows: YEARS ENDED DECEMBER 31, NINE MONTHS ENDED ------------------------------------------------------------------ SEPTEMBER 30, 1997 1998 1999 2000 -------------------- ------------------- --------------------- --------------------- WEIGHTED WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE EXERCISE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE -------- --------- ------- --------- --------- --------- --------- --------- Outstanding at beginning of period..................... 278,000 $0.10 720,116 $0.10 955,553 $0.12 1,222,125 $0.14 Granted at fair value.... 554,866 0.10 261,500 0.16 -- -- -- -- Granted at less than fair value.................. -- -- -- -- 639,748 0.17 715,844 0.37 Canceled................. (100,000) 0.11 (25,813) 0.10 (319,406) 0.13 (290,093) 0.14 Exercised................ (12,750) 0.10 (250) 0.10 (53,770) 0.10 (21,655) 0.13 -------- ------- --------- --------- Outstanding at end of period..................... 720,116 $0.10 955,553 $0.12 1,222,125 $0.14 1,626,221 $0.24 ======== ======= ========= ========= The following summarizes information about stock options outstanding and exercisable at September 30, 2000: OUTSTANDING ------------------------------------ EXERCISABLE WEIGHTED ---------------------- AVERAGE WEIGHTED WEIGHTED RANGE OF REMAINING AVERAGE AVERAGE EXERCISE NUMBER OF CONTRACTUAL EXERCISE NUMBER EXERCISE PRICE OPTIONS LIFE (YEARS) PRICE OF OPTIONS PRICE - ------------ --------- ------------ --------- ---------- --------- $0.10 - 0.17 997,717 8.20 $0.15 594,992 $0.14 0.30 - 0.40 628,504 9.87 0.39 505,233 0.40 --------- --------- 1,626,221 8.85 0.24 1,100,225 0.24 ========= ========= The number of options exercisable at December 31, 1997, 1998 and 1999 and September 30, 2000 was 45,428, 252,485, 458,688, and 1,100,225, respectively. The weighted-average exercise price of options vested and exercisable at December 31, 1997, 1998 and 1999 and September 30, 2000 was $0.10, $0.10, $0.12, and $0.24, respectively. The weighted-average fair value of options granted during the years ended December 31, 1997, 1998 and 1999 and the nine months ended September 30, 2000 was $0.03, $0.06, $1.29, and $2.33, respectively. The weighted-average remaining contractual life of outstanding options at December 31, 1999 was 8.78 years. Pro forma information regarding net loss required by SFAS 123 has been determined as if the Company had accounted for its employee stock options under the fair value method of SFAS 123. The F-17

89 XCYTE THERAPIES, INC. (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED) fair value for these options was estimated at the date of grant under the Black-Scholes method for the years ended 1997 and 1998 and the minimum value method for the year ended December 31, 1999 and the nine months ended September 30, 2000. The following weighted-average assumptions for the years ended December 31, 1997, 1998, and 1999 and the nine months ended September 30, 2000: option life of 5 years, 5 years, 3.4 years, and 3.7 years, respectively; risk-free interest rate of 5.98%, 4.89%, 6.11%, and 5.80%, respectively; and no dividend yield. Pro forma net loss information follows: YEARS ENDED DECEMBER 31, NINE MONTHS ENDED ----------------------------- SEPTEMBER 30, 1997 1998 1999 2000 ------- ------- ------- ----------------- (IN THOUSANDS) Net loss: As reported............................... $(3,288) $(5,446) $(6,947) $(8,472) Pro forma................................. (3,290) (5,452) (7,035) (9,010) Basic and diluted net loss per share: As reported............................... $ (0.69) $ (0.86) $ (1.15) $ (1.42) Pro forma................................. (0.69) (0.86) (1.16) (1.51) The Company granted 102,500 common stock options to consultants in exchange for services performed in the year ended December 31, 1998. No options were granted to consultants for the year ended December 31, 1999. During the nine months ended September 30, 2000, the Company granted a total of 20,000 common stock options to a consultant for services to be performed through August 2001. In accordance with SFAS 123 and EITF 96-18, options granted to consultants are periodically revalued as they vest. During the year ended December 31, 1999 and the nine months ended September 30, 2000 in connection with the grant of certain options to employees, the Company recorded deferred stock-based compensation of $720,000 and $1.5 million, respectively, representing the difference between the exercise price and the subsequently determined deemed fair value of the Company's common stock on the date such stock options were granted. The subsequently determined deemed fair value of the Company's common stock ranged from $0.50 to $1.68 during the year ended December 31, 1999, and $1.73 to $3.20 during the nine months ended September 30, 2000. Deferred stock-based compensation is being amortized on a graded vesting method. During the years ended December 31, 1997, 1998 and 1999, and the nine months ended September 30, 2000, the Company recorded noncash deferred stock-based compensation expense of $4,000, $6,000, $93,000 and $557,000, respectively. COMMON STOCK In August 2000, the Company amended and restated its Certificate of Incorporation to increase the number of shares designated as common stock from 40 million to 60 million. F-18

90 XCYTE THERAPIES, INC. (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED) Common stock reserved for future issuance follows: DECEMBER 31, SEPTEMBER 30, 1999 2000 ------------ ------------- Stock options...................................... 2,433,230 2,411,575 Series A preferred stock........................... 8,000,000 7,300,080 Series B preferred stock........................... 4,097,580 4,097,580 Series C preferred stock........................... 7,285,629 7,212,316 Series D preferred stock........................... -- 10,300,000 Preferred stock warrants........................... 646,383 660,754 Common stock warrants.............................. -- 1,132,287 License and technology agreements.................. 1,236,040 1,236,040 ---------- ---------- 23,698,862 34,350,632 ========== ========== COMMON STOCK WARRANTS In August 2000, the Company issued 1,132,287 common stock warrants to private investors in connection with the issuance of Series D preferred stock (see Note 5). COMMON STOCK REPURCHASES During the years ended December 31, 1997 and 1998, the Company repurchased 635,000 and 88,542 shares, respectively, of common stock from founders at par value. The shares were subsequently canceled by the Company. 7. INCOME TAXES At December 31, 1999, the Company had net operating loss carryforwards of approximately $14.2 million and research and development tax credit carryforwards of $749,000 for federal income tax reporting purposes. The net operating losses and tax credits will expire beginning in 2011 if not previously utilized. In certain circumstances, as specified in the Internal Revenue Code, due to ownership changes, the Company's ability to utilize its net operating loss carryforwards may be limited. F-19

91 XCYTE THERAPIES, INC. (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED) Deferred income taxes reflect the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. The significant components of deferred taxes follows (in thousands): DECEMBER 31, ------------------ 1998 1999 ------- ------- Deferred tax assets: Net operating loss carryforwards....................... $ 2,774 $ 4,812 Research and development tax credit.................... 533 749 License agreements..................................... 99 162 Other.................................................. 37 59 ------- ------- 3,443 5,782 Less valuation allowance............................... (3,406) (5,745) ------- ------- Net deferred tax assets.................................. 37 37 Deferred tax liabilities: Fixed assets........................................... (37) (37) ------- ------- Net deferred taxes....................................... $ 0 $ 0 ======= ======= A valuation allowance has been recorded for deferred tax assets because realization is primarily dependent on generating sufficient taxable income prior to the expiration of net operating loss carryforwards. The valuation allowance for deferred tax assets increased $2.1 million during the year ended December 31, 1998 and $2.3 million during the year ended December 31, 1999, principally due to net operating losses recorded during those periods. There have been no offsets or other deductions to the valuation allowance in any period since the Company's inception. 8. LEASE COMMITMENTS AND EQUIPMENT FINANCINGS The Company has commitments for noncancelable operating leases principally for building space and office equipment that require minimum rental payments. The building lease requires payment of a pro rata share of property operating expenses and includes rent escalation clauses (3% annually) and has two five- year renewal options. Subsequent to December 31, 2000, the Company entered into an additional lease for its manufacturing facility (see Note 12). Borrowings outstanding under equipment financing agreements totaled $1.3 million at December 31, 1998 and 1999, and $1.7 million at September 30, 2000. The loans are secured by the related assets, and require monthly principal and interest payments. The loans mature at various dates through the year ended December 31, 2004. The interest rates applicable to the obligations range from 12.85% to 13.71% at December 31, 1998 and 1999 and 12.85% to 14.12% at September 30, 2000. The weighted average interest rate was 13.28% and 13.75% during the year ended December 31, 1998 and 1999, respectively, and 13.36% for the nine months ended September 30, 2000. At September 30, 2000, the Company has $530,000 available to it for equipment financings under its outstanding $1.0 million equipment financing agreement. The outstanding equipment financing agreement expires in April 2003, and requires the Company to comply with certain non-financial covenants. The Company also issued preferred stock warrants (see Note 5) in connection with equipment financings. At September 30, 2000, the net book value of equipment which secures the outstanding borrowings totals $1.7 million. F-20

92 XCYTE THERAPIES, INC. (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED) Future minimum payments under operating leases and equipment financings arrangements at December 31, 1999 are as follows (in thousands): EQUIPMENT FINANCINGS OPERATING ARRANGEMENTS LEASES ------------ --------- Year Ended December 31, 2000................................................ $ 490 $ 502 2001................................................ 570 517 2002................................................ 229 532 2003................................................ 70 539 2004................................................ -- 543 Thereafter.......................................... -- 941 ------ ------ 1,359 $3,574 ====== Less unamortized discount............................. (32) Less current portion.................................. (488) ------ Long-term equipment obligations....................... $ 839 ====== Rent expense totaled $147,000, $271,000, and $453,000 during the years ended December 31, 1997, 1998 and 1999, respectively, and $391,000 for the nine months ended September 30, 2000. 9. 401(K) PLAN The Company sponsors a 401(k) plan for the benefit of its employees. The Company does not presently match employee contributions to the plan. 10. NET LOSS PER SHARE The calculation of basic and diluted loss per share and pro forma basic and diluted loss per share follows (in thousands, except share and per share data): NINE MONTHS ENDED YEARS ENDED DECEMBER 31, SEPTEMBER 30, ------------------------------------- ------------------------ 1997 1998 1999 1999 2000 ---------- ---------- ----------- ---------- ----------- Net loss(A)........................... $ (3,288) $ (5,446) $ (6,947) $ (4,502) $ (8,472) ========== ========== =========== ========== =========== Weighted average outstanding common stock(B)..................... 4,740,629 6,355,442 6,050,042 6,085,919 5,961,946 ========== ========== =========== ========== =========== Basic and diluted net loss per share (A/B)............................... $ (0.69) $ (0.86) $ (1.15) $ (0.74) $ (1.42) ========== ========== =========== ========== =========== Pro forma (unaudited): Weighted average shares used above.... 6,050,042 5,961,946 Pro forma adjustment to reflect weighted effect of assumed conversion of redeemable convertible preferred stock..................... 17,949,222 21,196,590 ----------- ----------- Pro forma weighted average shares outstanding(C)...................... 23,999,264 27,158,536 =========== =========== Pro forma net loss per share (A/C).... $ (0.29) $ (0.31) =========== =========== F-21

93 XCYTE THERAPIES, INC. (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED) Pro forma loss per share (unaudited) is computed by dividing net loss by the weighted average number of shares of common stock outstanding and the weighted average number of shares of convertible and redeemable preferred stock outstanding as if such shares were converted to common stock at the time of issuance. 11. BUSINESS ACQUISITION On August 27, 1997, the Company acquired all of the outstanding stock of CellGenEx, Inc. for 2,999,910 shares of common stock, 526,300 shares of preferred Series A stock, and warrants to purchase 368,410 shares of Series A preferred stock of the Company (see Note 5) which were collectively valued at $1.2 million. Pursuant to an acquisition agreement between the Company and CellGenEx, Inc., the Company reserved 1,582,340 shares of common stock (Milestone Pool) for the Company's possible acquisition of new technology from the scientific founders of CellGenEx, Inc. This Milestone Pool will terminate if not used by December 31, 2003. The Company has determined that since the acquisition, 526,300 shares reserved under this agreement will not be issued because the related milestone requirements cannot be attained. At September 30, 2000, 1,056,040 shares of common stock remain in the Milestone Pool. CellGenEx, Inc. was a development stage company focusing on treatment of human disease through activation of a patient's suppressed immune system. Upon its acquisition CellGenEx, Inc. was merged into the Company. The acquisition was accounted for using the purchase method of accounting. The purchase price was allocated as follows (in thousands): Cash acquired............................................... $ 437 Intangible assets........................................... 802 ------ $1,239 ====== Management determined that all of the excess purchase price over tangible net assets acquired was attributable to intangible assets consisting mostly of a scientific team of four immunologists with significant experience and reputation in the field of immunology. The intangible assets are being amortized to expense on a straight-line basis over the estimated useful life of four years. Related amortization expense totaled $67,000, $201,000 and $200,000 during the years ended December 31, 1997, 1998, and 1999, respectively, and $150,000 during the nine months ended September 30, 2000. The results of operations of CellGenEx, Inc. are included in the results of operations of the Company from the date of acquisition. The pro forma unaudited results of operations for the year ended December 31, 1997, assuming the purchase of CellGenEx, Inc. had been consummated as of January 1, 1997 follows (in thousands, except per share data): (UNAUDITED) ----------- Revenues.................................................... $ 0 Net loss.................................................... $(3,361) Basic and diluted net loss per share........................ $ (0.50) F-22

94 XCYTE THERAPIES, INC. (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED) 12. SUBSEQUENT EVENTS (UNAUDITED) INITIAL PUBLIC OFFERING In December 2000, the Company's Board of Directors authorized the Company to file a Registration Statement with the Securities and Exchange Commission to permit the Company to proceed with an IPO of its common stock (the Offering). If the Company's Offering is consummated, all of the outstanding redeemable convertible preferred stock will be automatically converted into common stock. The unaudited pro forma stockholders' equity at September 30, 2000 has been adjusted for the conversion of outstanding redeemable convertible preferred stock and preferred stock warrants based on the outstanding number of shares of redeemable convertible preferred stock and preferred stock warrants at September 30, 2000. SIGNIFICANT AGREEMENTS In December 2000, the Company and the Fred Hutchinson Cancer Research Center amended the license agreement whereby the Company agreed to pay an additional $25,000 nonrefundable one-time license fee and to issue 150,000 shares of common stock to the Fred Hutchinson Cancer Research Center. RESTATED CERTIFICATE OF INCORPORATION Upon the completion of the IPO, the Company will amend and restate its Certificate of Incorporation to authorize the issuance of up to 100 million shares of common stock, par value $0.001 per share, and five million shares of preferred stock, par value $0.001 per share, the rights and preferences of which may be established from time to time by the Board of Directors. MANUFACTURING FACILITY LEASE In December 2000, the Company entered into an operating lease for its future manufacturing facility. The initial lease term expires in December 2010. The lease contains annual rent escalations of 4.5% and an option to renew the lease for two additional five-year periods. In addition to base rent, the Company is required to pay a pro rata share of the operating costs related to the leased space. Future minimum lease payments under the lease will be as follows (in thousands): Year Ended December 31, 2001...................................................... $ 810 2002...................................................... 846 2003...................................................... 885 2004...................................................... 924 2005...................................................... 965 Thereafter................................................ 5,500 ------ $9,930 ====== The Company is required to provide additional security under the lease agreement totaling $435,000 in the form of cash. The Company also issued a warrant, with an expiration date of either the close of the IPO or December 7, 2005, to the lessor to purchase 80,000 shares of Series D preferred stock at an exercise price of $2.78 in connection with this lease. F-23

95 XCYTE THERAPIES, INC. (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED) 1996 STOCK OPTION PLAN Subsequent to September 30, 2000, the Company issued an additional 249,500 options at an exercise price of $0.40 per share and 29,500 options at an exercise price of $1.00 per share. The terms of the options were consistent with prior issuances. In November and December 2000, three executives elected to early exercise stock options for 513,819 shares of restricted common stock. 2000 STOCK OPTION PLAN The 2000 Stock Option Plan (2000 Plan) provides for the grant of incentive stock options to employees (including employee directors) and nonstatutory stock options to employees, directors and consultants. The 2000 Plan was adopted by the Board of Directors in December 2000 and will be submitted for approval by the stockholders prior to the completion of the IPO. A total of 2.1 million shares of common stock has been reserved for issuance under the 2000 Plan. The number of shares reserved for issuance under the 2000 Plan will be subject to an automatic annual increase on the first day of each fiscal year beginning in 2002 and ending in 2008 equal to the lesser of 500,000 shares, 3% of our outstanding common stock on the last day of the immediately preceding fiscal year, or such lesser number of shares as the Board of Directors determines. With respect to options granted under the 2000 Plan, the plan administrator will determine the term of options, which may not exceed 10 years (or 5 years in the case of an incentive stock option granted to a holder of more than 10% of the total voting power of all classes of stock or a parent in a subsidiary's stock). In no event, may an employee receive awards for more than 1 million shares under the 2000 Plan in any fiscal year. Incentive stock options granted under the 2000 Plan must have an exercise price of at least 100% of the fair market value of the common stock on the date of grant, and not less that 110% of the fair market value in the case of incentive stock options granted to an employee who holds more that 10% of the total voting power of all classes of stock or any parent or subsidiary's stock. 2000 DIRECTOR'S STOCK OPTION PLAN The 2000 Director's Stock Option Plan (2000 Directors' Plan) was adopted by the Board of Directors in December 2000 and will be submitted to the stockholders for approval prior to the closing of the IPO. A total of 400,000 shares of common stock has been reserved for issuance under the 2000 Directors' Plan. Under the 2000 Directors' Plan, each non-employee director who first becomes a non-employee director after the effective date of the plan will receive an automatic initial grant of an option to purchase 25,000 shares of common stock upon becoming a member of the Board of Directors. On the first day of each fiscal year, nonemployee directors will be granted an option to purchase 5,000 shares of common stock if, on such a date, the director has served on the Board of Directors for at least six months. The 2000 Directors' Plan provides that each option granted to a new director shall vest at the rate of 1/3 of the total number of shares subject to such option twelve months after the date of grant with the remaining shares vesting thereafter in equal monthly installments over the next two years so that the option will be fully vested after three years, and each annual option granted to a director shall vest in full at the end of one year. All options granted under the 2000 Directors' Plan will have a term of 10 years and an exercise price equal to the fair market value on the date of the grant. 2000 EMPLOYEE STOCK PURCHASE PLAN The 2000 Employee Stock Purchase Plan (2000 Employee Plan) was adopted by the Board of Directors in December 2000 and will be submitted to the stockholders for approval prior to the closing of F-24

96 XCYTE THERAPIES, INC. (A DEVELOPMENT STAGE ENTERPRISE) NOTES TO FINANCIAL STATEMENTS (CONTINUED) (INFORMATION AS OF SEPTEMBER 30, 2000 AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 2000 IS UNAUDITED) the IPO. A total of 600,000 shares of common stock has been reserved for issuance under the 2000 Employee Plan, none of which have been issued. The number of shares reserved for issuance under the 2000 Employee Plan will be increased on the first day of each of the fiscal years in 2002 to 2008 by the lesser of 300,000 shares; 1% of our outstanding common stock on the last day of the immediately preceding fiscal year; or the number of shares determined by the Board of Directors. Unless terminated earlier by the Board of Directors, the 2000 Employee Plan will terminate in December 2010. F-25

97 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SHARES [XCYTE LOGO] COMMON STOCK ------------------------------ PROSPECTUS ------------------------------ SG COWEN U.S. BANCORP PIPER JAFFRAY DAIN RAUSCHER WESSELS FIRST SECURITY VAN KASPER , 2001 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------

98 >PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by us in connection with the sale of common stock being registered. All amounts are estimates except the SEC registration fee, the NASD filing fee and the Nasdaq National Market listing fee. AMOUNT TO BE PAID ---------- SEC registration fee........................................ $ 22,770 NASD filing fee............................................. 9,125 Nasdaq National Market listing fee.......................... 1,000 Printing and engraving expenses............................. 175,000 Legal fees and expenses..................................... 400,000 Accounting fees and expenses................................ 425,000 Blue Sky qualification fees and expenses.................... 5,000 Transfer Agent and Registrar fees........................... 15,000 Miscellaneous fees and expenses............................. 247,105 ---------- Total..................................................... $1,300,000 ========== - ------------------------- * To be filed by amendment ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporation's Board of Directors to grant, indemnity to directors and officers in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities, including reimbursement for expenses incurred, arising under the Securities Act of 1933, as amended. Article nine of our certificate of incorporation, Exhibit 3.2, and Article VI of our bylaws, Exhibit 3.3, provide for indemnification of our directors, officers, employees and other agents to the maximum extent permitted under the laws of Delaware. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for breach of their fiduciary duties as directors, except liability for: - breach of their duty of loyalty to the corporation or its stockholders; - acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; - unlawful payments of dividends or unlawful stock repurchases or redemptions; and - any transaction from which the director derived an improper personal benefit. In addition, we have entered into indemnification agreements, Exhibit 10.1, with our officers and directors. The underwriting agreement, Exhibit 1.1, also provides for cross-indemnification among us, and the underwriters with respect to certain matters, including matters arising under the Securities Act. We maintain directors' and officers' liability insurance. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES Since December 1, 1997, we have sold and issued the following securities: 1. As of November 30, 2000, we granted and issued options to purchase 1,218,686 shares of our common stock with a weighted average price of $0.20 to a number of our employees, directors and II-1

99 consultants pursuant to our 1996 stock incentive compensation plan. Among those receiving options were Ronald J. Berenson, Mark Bonyhadi, Kathi Cordova, Stewart Craig, Jean Deleage, Peter Langecker, Dawn McCracken and Robert Williams. 2. As of November 30, 2000, we have issued an aggregate of 743,335 shares of our common stock to executive officers, directors and employees upon the exercise of stock options granted pursuant to our 1996 stock incentive compensation plan with an aggregate exercise price of $230,143. Among those that we have issued shares to were Ronald J. Berenson, Kathi Cordova and Dawn McCracken. 3. In July 1998, we granted and issued a warrant with an expiration date of July 8, 2003, to purchase 194,500 shares of Series B Preferred Stock at an exercise price of $1.10 per share to Genetics Institute, Inc. in connection with a license agreement. 4. In July 1998, we issued 7,185,630 shares of Series C Preferred Stock to investors, including but not limited to Alta Partners, ARCH Venture Corporation, entities affiliated with Sprout Group and entities affiliated with Tredegar Investments for an aggregate cash consideration of $12,000,000. 5. In July 1999, we granted and issued a warrant with an expiration date of either the closing of this offering or July 1, 2006, to purchase 12,315 shares of Series C Preferred Stock at an exercise price of $1.67 per share to Phoenix Leasing Incorporated and Robert Kingsbrook, in connection with an equipment lease line. 6. In January 2000, we granted and issued a warrant with an expiration date of January 10, 2007, to purchase 14,371 shares of Series C Preferred Stock at an exercise price of $1.67 per share to General Electric Capital Corporation, in connection with an equipment lease line. 7. In May and August 2000, we issued 10,109,825 shares of our Series D Preferred Stock to investors, including but not limited to Alta Partners, ARCH Venture Corporation, MPM Asset Management LLC, entities affiliated with Sprout Group and Tredegar Investments for an aggregate cash consideration of $28,105,314. 8. In August 2000, we granted and issued warrants with an expiration date of either the closing of this offering or August 8, 2005, to purchase an aggregate of 1,132,287 shares of common stock at an exercise price of $0.30 per share to our Series D investors, in connection with our Series D financing. 9. In December 2000, we granted and issued a warrant with an expiration date of either the closing of this offering or December 7, 2005, to purchase 80,000 shares of Series D Preferred Stock at an exercise price of $2.78 to Hibbs/Woodinville Associates, LLC in connection with a lease. 10. In December 2000, we issued 150,000 shares of our common stock to the Fred Hutchinson Cancer Research Center in connection with a license agreement. The issuances of the above securities were deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) or Regulation D, or other applicable exemption of such Securities Act as transactions by an issuer not involving any public offering. In addition, certain issuances described in Items 1 and 2 were deemed exempt from registration under the Securities Act in reliance upon Rule 701 promulgated under the Securities Act. The recipients of securities in each such transaction represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the share certificates and warrants issued in such transactions. All recipients had adequate access, through their relationships with us, to information about us. II-2

100 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (a) EXHIBITS EXHIBIT NUMBER DESCRIPTION - ------- ----------- 1.1* Form of Underwriting Agreement. 3.1 Amended and Restated Certificate of Incorporation of Xcyte Therapies, Inc. 3.2 Form of Amended and Restated Certificate of Incorporation of Xcyte Therapies, Inc. to be filed and effective upon completion of this offering. 3.3 Amended and Restated Bylaws of Xcyte Therapies, Inc. 4.1* Form of Xcyte Therapies, Inc. Stock Certificate. 5.1* Opinion of Venture Law Group, A Professional Corporation. 10.1 Form of Indemnification Agreement between Xcyte Therapies and each of its Officers and Directors. 10.2 Series D Preferred Stock Purchase Agreement dated May 25, 2000. 10.3 Addendum to Series D Preferred Stock Purchase Agreement and Omnibus Amendment to Series D Financing Agreements dated August 8, 2000. 10.4 Second Addendum to Series D Preferred Stock Purchase Agreement dated August 14, 2000. 10.5 Amended and Restated Investor Rights Agreement dated May 25, 2000. 10.6 Amendment to Amended and Restated Investor Rights Agreement dated October 18, 2000. 10.7 Form of Warrant to purchase Common Stock issued by Xcyte Therapies, Inc. 10.8 Form of Warrant to purchase Series C Preferred Stock issued by Xcyte Therapies, Inc. 10.9 Warrant to Series C Preferred Stock dated January 10, 2000 issued by Xcyte Therapies, Inc. in favor of General Electric Capital Corporation. 10.10 Warrant to purchase Series D Preferred Stock dated December 7, 2000 issued by Xcyte Therapies, Inc. in favor of Hibbs/Woodinville Associates, LLC. 10.11 Senior Loan and Security Agreement dated July 1, 1999 between Xcyte Therapies, Inc. and Phoenix Leasing Incorporated. 10.12 Master Security Agreement dated January 15, 2000 between Xcyte Therapies, Inc. and General Electric Capital Corporation. 10.13 Facility Lease dated June 21, 1999 between Xcyte Therapies, Inc. and Alexandria Real Estate Equities, Inc. 10.14 Facility Lease dated December 7, 2000 between Xcyte Therapies, Inc. and Hibbs/Woodinville Associates, LLC. 10.15 Amended and Restated 1996 Stock Option Plan. 10.16 2000 Stock Option Plan. 10.17 2000 Employee Stock Purchase Plan. 10.18 2000 Directors' Stock Option Plan. 10.19+ License Agreement dated June 28, 1999 between Xcyte Therapies, Inc. and ARCH Development Corporation. 10.20+ License and Supply Agreement dated October 15, 1999 between Xcyte Therapies, Inc. and Diaclone S.A., as amended. 10.21+ Development and Supply Agreement dated August 1, 1999 between Xcyte Therapies, Inc. and Dynal S.A. 10.22+ License Agreement dated July 8, 1998 between Xcyte Therapies, Inc., and Genetics Institute, Inc. 10.23+ Non-Exclusive License Agreement dated October 20, 1999 between Xcyte Therapies, Inc. and the Fred Hutchinson Cancer Research Center, as amended. 10.24+ Services Agreement dated June 6, 2000 between Xcyte Therapies, Inc. and Lonza Biologics PLC. 10.25+ Services Agreement dated June 6, 2000 between Xcyte Therapies, Inc. and Lonza Biologics PLC. 10.26+ License Agreement dated July 30, 1999 between Xcyte Therapies, Inc. and Genecraft LLC. 16.1 Letter from PricewaterhouseCoopers LLP Regarding Change in Accountants. II-3

101 EXHIBIT NUMBER DESCRIPTION - ------- ----------- 23.1 Consent of Ernst & Young LLP Independent Auditors. 23.2 Consent of PricewaterhouseCoopers LLP, Independent Accountants. 23.3* Consent of Venture Law Group (included in Exhibit 5.1). 24.1 Power of Attorney (see page II-4). 27.1 Financial Data Schedule. - ------------------------- * To be supplied by amendment. + Certain information in these exhibits has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request under 17 C.F.R. Sections 200.80(b)(4), 200.83 and 230.406. (b) FINANCIAL STATEMENT SCHEDULES Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto. ITEM 17. UNDERTAKINGS The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreements certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4

102 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Seattle, State of Washington on December 22, 2000. XCYTE THERAPIES, INC. By: /s/ RONALD. J. BERENSON ------------------------------------ Ronald J. Berenson, M.D. President and Chief Executive Officer II-5

103 POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints, jointly and severally, Ronald J. Berenson and Kathi L. Cordova, and each of them, as his attorney-in-fact, with full power of substitution, for him in any and all capacities, to sign any and all amendments to this Registration Statement (including post-effective amendments), and any and all Registration Statements filed pursuant to Rule 462 under the Securities Act of 1933, as amended, in connection with or related to the offering contemplated by this Registration Statement and its amendments, if any, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorney to any and all amendments to said Registration Statement. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated: SIGNATURE TITLE DATE --------- ----- ---- /s/ RONALD J. BERENSON President and Chief Executive December 22, 2000 - ------------------------------------------------ Officer (Principal Executive Ronald J. Berenson, M.D. Officer) /s/ KATHI L. CORDOVA Vice President of Finance December 22, 2000 - ------------------------------------------------ (Principal Financial and Kathi L. Cordova Accounting Officer) /s/ ROBERT E. CURRY Director December 22, 2000 - ------------------------------------------------ Robert E. Curry, Ph.D. /s/ JEAN DELEAGE Director December 22, 2000 - ------------------------------------------------ Jean Deleage, Ph.D. /s/ PETER LANGECKER Director December 22, 2000 - ------------------------------------------------ Peter Langecker, M.D., Ph.D. /s/ ROBERT T. NELSEN Director December 22, 2000 - ------------------------------------------------ Robert T. Nelsen /s/ MICHAEL STEINMETZ Director December 22, 2000 - ------------------------------------------------ Michael Steinmetz, Ph.D. /s/ ROBERT M. WILLIAMS Director December 22, 2000 - ------------------------------------------------ Robert M. Williams, Ph.D. II-6

104 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION - ------- ----------- 1.1* Form of Underwriting Agreement. 3.1 Amended and Restated Certificate of Incorporation of Xcyte Therapies, Inc. 3.2 Form of Amended and Restated Certificate of Incorporation of Xcyte Therapies, Inc. to be filed and effective upon completion of this offering. 3.3 Amended and Restated Bylaws of Xcyte Therapies, Inc. 4.1* Form of Xcyte Therapies, Inc. Stock Certificate. 5.1* Opinion of Venture Law Group, A Professional Corporation. 10.1 Form of Indemnification Agreement between Xcyte Therapies and each of its Officers and Directors. 10.2 Series D Preferred Stock Purchase Agreement dated May 25, 2000. 10.3 Addendum to Series D Preferred Stock Purchase Agreement and Omnibus Amendment to Series D Financing Agreements dated August 8, 2000. 10.4 Second Addendum to Series D Preferred Stock Purchase Agreement dated August 14, 2000. 10.5 Amended and Restated Investor Rights Agreement dated May 25, 2000. 10.6 Amendment to Amended and Restated Investor Rights Agreement dated October 18, 2000. 10.7 Form of Warrant to purchase Common Stock issued by Xcyte Therapies, Inc. 10.8 Form of Warrant to purchase Series C Preferred Stock issued by Xcyte Therapies, Inc. 10.9 Warrant to Series C Preferred Stock dated January 10, 2000 issued by Xcyte Therapies, Inc. in favor of General Electric Capital Corporation. 10.10 Warrant to purchase Series D Preferred Stock dated December 7, 2000 issued by Xcyte Therapies, Inc. in favor of Hibbs/Woodinville Associates, LLC. 10.11 Senior Loan and Security Agreement dated July 1, 1999 between Xcyte Therapies, Inc. and Phoenix Leasing Incorporated. 10.12 Master Security Agreement dated January 15, 2000 between Xcyte Therapies, Inc. and General Electric Capital Corporation. 10.13 Facility Lease dated June 21, 1999 between Xcyte Therapies, Inc. and Alexandria Real Estate Equities, Inc. 10.14 Facility Lease dated December 7, 2000 between Xcyte Therapies, Inc. and Hibbs/Woodinville Associates, LLC. 10.15 Amended and Restated 1996 Stock Option Plan. 10.16 2000 Stock Option Plan. 10.17 2000 Employee Stock Purchase Plan. 10.18 2000 Directors' Stock Option Plan. 10.19+ License Agreement dated June 28, 1999 between Xcyte Therapies, Inc. and ARCH Development Corporation. 10.20+ License and Supply Agreement dated October 15, 1999 between Xcyte Therapies, Inc. and Diaclone S.A., as amended. 10.21+ Development and Supply Agreement dated August 1, 1999 between Xcyte Therapies, Inc. and Dynal S.A. 10.22+ License Agreement dated July 8, between Xcyte Therapies, Inc., and Genetics Institute, Inc. 10.23+ Non-Exclusive License Agreement dated October 20, 1999 between Xcyte Therapies, Inc. and the Fred Hutchinson Cancer Research Center, as amended. 10.24+ Services Agreement dated June 6, 2000 between Xcyte Therapies, Inc. and Lonza Biologics PLC. 10.25+ Services Agreement dated June 6, 2000 between Xcyte Therapies, Inc. and Lonza Biologics PLC. 10.26+ License Agreement dated July 30, 1999 between Xcyte Therapies, Inc. and Genecraft LLC. 16.1 Letter from PricewaterhouseCoopers LLP Regarding Change in Accountants. 23.1 Consent of Ernst & Young LLP, Independent Auditors. 23.2 Consent of PricewaterhouseCoopers LLP, Independent Accountants.

105 EXHIBIT NUMBER DESCRIPTION - ------- ----------- 23.3* Consent of Venture Law Group (included in Exhibit 5.1). 24.1 Power of Attorney (see page II-4). 27.1 Financial Data Schedule. - ------------------------- * To be supplied by amendment. + Certain information in these exhibits has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request under 17 C.F.R. Sections 200.80(b)(4), 200.83 and 230.406..

1 EXHIBIT 3.1 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF XCYTE THERAPIES, INC. Xcyte Therapies, Inc., a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: A. The name of the corporation is Xcyte Therapies, Inc. The corporation was originally incorporated under the name MolecuRx, Inc. and the original Certificate of Incorporation of the corporation was filed with the Delaware Secretary of State on January 5, 1996. B. Pursuant to Sections 228, 242 and 245 of the General Corporation Law of the State of Delaware, this Amended and Restated Certificate of Incorporation restates and amends the provisions of the Certificate of Incorporation of this corporation. C. The text of the Certificate of Incorporation is hereby amended and restated in its entirety to read as follows: ONE. The name of this corporation is Xcyte Therapies, Inc. TWO. The address of the corporation's registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County of New Castle, Zip Code 19801. The name of its registered agent at such address is The Corporation Trust Company. THREE. The purpose of the corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. FOUR. The corporation is authorized to issue two classes of stock to be designated Common Stock and Preferred Stock. The total number of shares of Common Stock which this corporation has authority to issue is 60,000,000 with par value of $.001 per share. The total number of shares of Preferred Stock which this corporation has authority to issue is 28,909,976 with par value of $.001 per share, of which 7,300,080 shares are designated as Series A Preferred Stock ("Series A Preferred"), 4,097,580 shares are designated as Series B Preferred Stock ("Series B Preferred") and 7,212,316 shares are designated as Series C Preferred Stock ("Series C Preferred") and 10,300,000

2 shares are designated as Series D Preferred Stock ("Series D Preferred" and collectively the "Preferred Stock"). The rights, preferences, privileges and restrictions granted to or imposed on the respective classes of the shares of capital stock or the holders thereof are as follows: 1. Dividends. The holders of the Series A Preferred, Series B Preferred, Series C Preferred and Series D Preferred Stock shall be entitled to receive dividends out of assets of the corporation legally available therefor at the rate of $0.076, $0.088, $0.1336 and $0.2224 per share per annum, respectively, subject to adjustment for stock dividends, combinations, splits, recapitalizations or other adjustments payable in cash, however, such dividends shall not be cumulative, and no right shall accrue to holders of the Common Stock or Preferred Stock by reason of the fact that dividends on said shares are not declared in any prior period. Dividends on the Preferred Stock, when and if declared by the Board of Directors, shall be payable in preference and prior to any payment of any dividend on the Common Stock of the corporation. Thereafter, the holders of Preferred Stock and Common Stock shall be entitled, when and if declared by the Board of Directors, to dividends out of the corporation's assets legally available therefor; provided, however, that no such dividends may be declared or paid on any shares of Common Stock or Preferred Stock unless at the same time an equivalent dividend is declared and paid on all outstanding shares of Common Stock and Preferred Stock; and provided further that the dividend on any series of any Preferred Stock shall be payable at the same rate per share as would be payable on the shares of Common Stock or other securities into which such series of Preferred Stock is convertible immediately prior to the record date for such dividend. 2. Liquidation Preference. 2.1 Preference. In the event of any liquidation, dissolution or winding up of the corporation, either voluntarily or involuntarily, the holders of Series A Preferred, Series B Preferred, Series C Preferred and Series D Preferred shall be entitled to receive prior and in preference to any distribution of any of the assets or surplus funds of the corporation to the holders of Common Stock of the corporation by reason of their ownership thereof, $0.95, $1.10, $1.67 and $2.78 per share, respectively for each share of Series A Preferred, Series B Preferred, Series C Preferred or Series D Preferred then so held, plus a further amount equal to any declared but unpaid dividends on such shares (the "Preferred Preference" for each respective series). After the distributions to the holders of Preferred Stock have been made, the remaining assets of the corporation available for distribution to stockholders shall be distributed pro rata among the holders of Common Stock and the Preferred Stock, on an as converted basis, until the holders of Series A Preferred have received an aggregate of $1.90 per share, not including the Preferred Preference, the holders of Series B Preferred have received an aggregate of $2.20 per share, not including the Preferred Preference, the holders of Series C Preferred have received an aggregate of $3.34 per share, not including the Preferred Preference and the holders of Series D Preferred have received an aggregate of $5.56 per share, not including the Preferred Preference (each of such participation amount, the "Participation Amount," and together with the Preferred Preference, the "Liquidation Preference Amount"). After such -2-

3 additional distributions are made to holders of Preferred Stock, the remaining assets of the corporation legally available for distribution shall be distributed ratably among the holders of Common Stock. 2.1.1 If, upon such liquidation, dissolution or winding up of the corporation, the assets of the corporation are insufficient to provide for the cash payment of the full preference due hereunder, such assets as are legally available shall be distributed ratably among the holders of Preferred Stock in proportion to the Preferred Preference that each such holder is otherwise entitled to receive. 2.1.2 Notwithstanding the foregoing, if, upon any liquidation, dissolution or winding up of the corporation, the holders of the outstanding shares of Preferred Stock would receive more than the Liquidation Preference Amount in the event all of their shares were converted into shares of Common Stock immediately prior to the record date for distributions in connection with such liquidation, dissolution or winding up of the corporation, then each holder of an outstanding share of Preferred Stock shall receive, upon delivery of shares of Preferred Stock held by such holder for conversion pursuant to Section 5 below and in lieu of the Liquidation Preference Amount, the number of shares of Common Stock into which each such share of Preferred Stock is then convertible in accordance with the terms hereof, before any amount shall be paid or distributed to the holders of Common Stock or of any other stock ranking on liquidation junior to the Preferred Stock, and thereafter shall share ratably with the holders of Common Stock and any other stock ranking on liquidation junior to the Preferred Stock in the assets available for distribution. The provisions of this paragraph shall not in any way limit the right of the holders of Preferred Stock to elect to convert their shares of Preferred Stock into shares of Common Stock pursuant to Section 5 prior to or in connection with any liquidation, dissolution or winding up of the corporation. 2.2 Extraordinary Transactions. 2.2.1 An "Extraordinary Transaction" shall be any merger, consolidation or sale of all or substantially all of the assets of the corporation in which the corporation's stockholders immediately prior to such transaction, or series of related transactions, possess less than 50% of the voting power of the surviving, continuing or purchasing entity (or parent, if any) immediately after the transaction or series of related transactions. 2.2.2 In connection with an Extraordinary Transaction, the holder(s) of not less than a majority of the outstanding Preferred Stock (the "Preferred Election"), may elect to redeem all (but not less than all) of the outstanding shares of Preferred Stock held by each holder of Preferred Stock on the effective date of such Extraordinary Transaction for an amount per share equal to the Liquidation Preference Amount, such Liquidation Preference Amount to be payable in cash or securities based on the valuation determined in accordance with Section 2.2.5. 2.2.3 Notwithstanding the foregoing, if in connection with any Extraordinary Transaction, the holders of the outstanding shares of Preferred Stock would receive -3-

4 more than the Liquidation Preference Amount if their shares were converted into shares of Common Stock immediately prior to such Extraordinary Transaction, then each holder of an outstanding share of Preferred Stock shall receive, upon delivery of shares of Preferred Stock held by such holder for conversion and in lieu of the Liquidation Preference Amount, the number of shares of Common Stock into which each such share of Preferred Stock is then convertible in accordance with the terms hereof, before any amount shall be paid or distributed to the holders of Common Stock or of any other stock ranking on liquidation junior to the Preferred Stock, and thereafter shall share ratably with the holders of Common Stock and any other stock ranking on liquidation junior to the Preferred Stock in the proceeds of such Extraordinary Transaction. 2.2.4 If, in connection with an Extraordinary Transaction, the Preferred Election is made and the shares of the Preferred Stock are to be redeemed pursuant to subsection 2.2.2 above, the holders of not less than a majority of the outstanding Common Stock may elect to redeem all (but not less than all) of the outstanding shares of Common Stock held by each holder of Common Stock on the effective date of such Extraordinary Transaction. Upon such election and after the payment of the Preferred Preference to the holders of the Preferred Stock pursuant to subsection 2.2.2 above, the corporation shall redeem such shares of Common Stock and the holders of the Common Stock shall share ratably in the proceeds of the Extraordinary Transaction with the holders of the Preferred Stock until such holders of Preferred Stock have received in aggregate their applicable Liquidation Preference Amount, after which time, the remaining proceeds of the Extraordinary Transaction shall be distributed ratably among the holders of the Common Stock. 2.2.5 Valuation of Consideration. In the event of a Extraordinary Transaction, if the consideration received by the corporation is other than cash, its value will be deemed its fair market value. Any securities shall be valued as follows: (i) If traded on a securities exchange or The Nasdaq Stock Market, the value shall be based on a formula approved by the Board of Directors and derived from the closing prices of the securities on such exchange or Nasdaq over a specified time period; (ii) If actively traded over-the-counter, the value shall be based on a formula approved by the Board of Directors and derived from the closing prices of the securities on such exchange or Nasdaq over a specified time period; and (iii) If there is no active public market, the value shall be the fair market value thereof, as determined in good faith by the Board of Directors. 2.2.6 Notice of Transaction. In the event of an Extraordinary Transaction, the corporation shall give each holder of record of Series A Preferred, Series B Preferred, Series C Preferred or Series D Preferred written notice of such impending transaction not later than ten (10) days prior to the stockholders' meeting called to approve such transaction, or twenty (20) days prior to the closing of such transaction, whichever is earlier, and shall also notify such holders in writing of the final approval of such transaction. The first of such notices shall describe the material terms and conditions of the impending transaction and the provisions of this Section 2, and the corporation -4-

5 shall thereafter give such holders prompt notice of any material changes. The transaction shall in no event take place sooner than twenty (20) days after the corporation has given the first notice provided for herein or sooner than ten (10) days after the corporation has given notice of any material changes provided for herein; provided, however, that such periods may be shortened upon the written consent of the holders of Preferred Stock that are entitled to such notice rights or similar notice rights and that represent at least a majority of the voting power of all then outstanding shares of such Preferred Stock. Each holder of shares to be redeemed pursuant to this Section 2.2 shall surrender its certificate or certificates representing such shares to the corporation, in the manner and at the place designated by the corporation, and thereupon the redemption price of such shares shall be payable to the order of the person or entity whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall thereafter be canceled. In the event less than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing such unredeemed shares. Upon redemption, all rights of the holders of such shares of the corporation (except the right to receive the redemption price without interest upon surrender of their certificate or certificates) shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of the corporation or be deemed to be outstanding for any purpose whatsoever. 2.2.7 Insufficient Funds. If the funds of the corporation legally available for redemption pursuant to this Section 2.2 are insufficient to redeem the total number of shares entitled to be redeemed, those funds which are legally available will be used to redeem the shares ratably among the holders entitled to redemption pursuant to this Section 2.2. At any time thereafter when additional funds of the corporation are legally available for the redemption of the entitled shares, such funds will be immediately used to redeem the balance of the shares which the corporation became obligated to redeem pursuant to Section 2.2 but which it has not redeemed. 2.2.8 Effect of Noncompliance. In the event the requirements of this Section 2.2 are not complied with, the corporation shall forthwith either cause the closing of the transaction to be postponed until such requirements have been complied with, or cancel such transaction, in which event the rights, preferences and privileges of the holders of the Series A Preferred, Series B Preferred, Series C Preferred and Series D Preferred shall revert to and be the same as such rights, preferences and privileges existing immediately prior to the date of the first notice referred to in Section 2.2.6 hereof. 3. Redemption Rights. 3.1 Redemption at the Holders' Option. The Preferred Stock shall be redeemable in whole or in part at the option of the holders of a majority of the outstanding shares of Preferred Stock at any time and from time to time after June 30, 2002. Such redemption right may be exercised by giving no less than one hundred twenty (120) days notice by certified or registered mail, postage prepaid to the corporation at its principal office, attention to the president, prior to the date of commencement of such redemption (the "Redemption Date"). After receipt of such notice of -5-

6 a redemption pursuant to this Section 3.1, the corporation shall, to the extent it may lawfully do so and to the extent such redemption will not be violative of senior lending covenants, redeem all of the outstanding shares of Preferred Stock in eight equal installments on the last day of each calendar quarter (commencing with the first calendar quarter ending after the one hundred twenty (120) day notice period). The redemption price of the Series A Preferred, Series B Preferred, Series C Preferred and Series D Preferred shall be $0.95, $1.10, $1.67 and $2.78 per share, respectively, (as adjusted for any stock dividends, combinations or splits) plus any declared but unpaid dividends ("Redemption Price"). Any redemption of only a part of the outstanding Preferred Stock by the corporation pursuant to this Section 3 shall be pro rata as among all holders of Preferred Stock. 3.2 Notice Regarding Redemption. At least thirty (30) but no more than sixty (60) days prior to any Redemption Date, written notice shall be mailed, postage prepaid, to each holder of record (determined at the close of business on the business day next preceding the day on which notice is given) of Preferred Stock to be redeemed, at such holder's post office address last shown on the records of the corporation, notifying such holder of the redemption of such shares, specifying the Redemption Date, the Redemption Price and the date on which such holder's Conversion Rights (as hereinafter defined) as to such shares terminate (such Conversion Rights to expire no later than the close of business on the Redemption Date) and calling upon such holder to surrender to the corporation, in the manner and at the place designated in the continental United States, its certificate or certificates representing the shares to be redeemed (such notice is hereinafter referred to as the "Redemption Notice"). Unless such holder elects to convert its shares in accordance with Section 5 prior to or on the Redemption Date, each holder of shares of Preferred Stock to be redeemed shall surrender its certificate or certificates representing such shares to the corporation, in the manner and at the place designated in the Redemption Notice, and thereupon the Redemption Price of such shares shall be payable to the order of the person or entity whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall thereafter be canceled. In the event less than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing such unredeemed shares. If, prior to or on the Redemption Date, the funds necessary for such redemption shall have been set aside by the corporation and deposited with a bank or trust company, for the benefit of the holders of shares of Preferred Stock whose shares are being redeemed, then from and after the close of business on the Redemption Date, all rights of the holders of such shares of Preferred Stock of the corporation (except the right to receive the Redemption Price without interest upon surrender of their certificate or certificates) shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of the corporation or be deemed to be outstanding for any purpose whatsoever. 3.3 Trust Fund. On or prior to the Redemption Date, the corporation shall deposit the Redemption Price of all shares of Preferred Stock designated for redemption in the Redemption Notice and not yet redeemed or converted with a bank or trust company, having an aggregate capital surplus in excess of $100 million, as a trust fund for the benefit of the respective holders of the shares designated for redemption and not yet redeemed or converted. Any monies deposited by the corporation pursuant to this Section 3.3 for the redemption of shares thereafter converted into shares -6-

7 of Common Stock pursuant to Section 5 hereof no later than the close of business on the Redemption Date shall be returned to the corporation forthwith upon such conversion. The balance of any monies deposited by the corporation pursuant to this Section 3.3 remaining unclaimed at the expiration of one (1) year following the Redemption Date shall thereafter be returned to the corporation upon its request expressed in a resolution of the board of directors of the corporation, provided that the stockholder to which such monies would be payable hereunder shall be entitled, upon surrender of his certificates representing such shares of Preferred Stock to the corporation, to receive such monies but without interest from the Redemption Date. 3.4 Insufficient Funds. If the funds of the corporation legally available for redemption of Preferred Stock on any Redemption Date are insufficient to redeem the total number of shares of Preferred Stock to be redeemed on such date, those funds which are legally available will be used to redeem the shares of Preferred Stock ratably among the holders in accordance with the last sentence of Section 3.1. At any time thereafter when additional funds of the corporation are legally available for the redemption of Preferred Stock, such funds will be immediately used to redeem the balance of the shares of Preferred Stock which the corporation became obligated to redeem on such Redemption Date but which it has not redeemed. 4. Voting Rights. 4.1 Preferred Stock. Except as otherwise provided herein or required by law, the holders of each share of Preferred Stock shall be entitled to vote on all matters and shall be entitled to the number of votes equal to the number of shares of Common Stock into which each share of Preferred Stock could be converted pursuant to Section 5 hereof at the record date for the determination of the stockholders entitled to vote on such matters or, if no such record date is established, at the date such vote is taken. Except as otherwise provided herein or required by law, the Preferred Stock shall have voting rights and powers equal to the voting rights and powers of the Common Stock. Fractional votes shall not, however, be permitted and any fractional voting rights resulting from the above formula shall be rounded to the nearest whole number (with one-half rounded upward to one). 4.2 Election of Directors. The holders of a majority of the Series A Preferred Stock, voting as a separate class, shall be entitled to elect two (2) members of the corporation's board of directors. The holders of a majority of the Series B Preferred Stock, voting as a separate class, shall be entitled to elect one (1) member of the corporation's Board of Directors. The holders of a majority of the Series C Preferred Stock, voting as a separate class, shall be entitled to elect one (1) member of the corporation's Board of Directors. The holders of a majority of the Series D Preferred Stock, voting as a separate class, shall be entitled to elect one (1) member of the corporation's Board of Directors. The holders of Common Stock, voting as a separate class, shall elect two (2) members of the corporation's board of directors. The holders of a majority of the Preferred Stock and a majority of the Common Stock shall jointly elect one (1) member of the corporation's Board of Directors with relevant industry experience. In the event the size of the Board of Directors is increased, the holders of Common Stock and Preferred Stock, voting together -7-

8 as a class, shall elect the remaining directors. In the case of any vacancy in the office of a director elected by a specific class or series of capital stock, a successor shall be elected to hold office for the unexpired term of such director by the affirmative vote of a majority of the shares of such class or series given at a special meeting of such stockholders duly called or by an action by written consent for that purpose. Any director who shall have been elected by a specified group of stockholders may be removed during the aforesaid term of office, either for or without cause, by, and only by, the affirmative vote of the holders of a majority of the shares of such class or series, given at a special meeting of such stockholders duly called or by an action by written consent for that purpose and any such vacancy thereby created may be filled by the vote of the holders of a majority of the shares of such series or class of capital stock represented at such meeting or in such consent. 4.3 Common Stock. Each holder of shares of Common Stock shall be entitled to one vote for each share thereof held. 4.4 Election by Ballot. The election of directors need not be by written ballot unless the Bylaws of the corporation shall so provide. 5. Conversion. The holders of Preferred Stock shall have conversion rights as follows (the "Conversion Rights"): 5.1 Right to Convert. Each share of Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of the corporation or any transfer agent for the Preferred Stock. Each share of Preferred Stock shall be convertible into the number of shares of Common Stock which results from dividing the "Conversion Price" per share in effect for such series of Preferred Stock at the time of conversion into the "Conversion Value" per share of such series of Preferred Stock. The number of shares of Common Stock into which each series of Preferred Stock is convertible is hereinafter referred to as the "Conversion Rate" for such series of Preferred Stock. The Conversion Price per share of Series A Preferred shall be $0.95, the Conversion Price per share of the Series B Preferred shall be $1.10, the Conversion Price per share of the Series C Preferred shall be $1.67 and the Conversion Price per share of the Series D Preferred shall be $2.78. The Conversion Value per share of Series A Preferred shall be $0.95, the Conversion Value per share of Series B Preferred shall be $1.10, the Conversion Value per share of the Series C Preferred shall be $1.67 and the Conversion Value per share of the Series D Preferred shall be $2.78. The Conversion Price of each series of Preferred Stock shall be subject to adjustment as hereinafter provided. 5.2 Automatic Conversion. Each share of Preferred Stock shall automatically be converted into shares of Common Stock at the then effective Conversion Rate immediately upon the closing of a firmly underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering any of the corporation's securities (as that term is defined under the Securities Act of 1933, as then in effect) with a per share public offering price (as adjusted for combinations, stock dividends, subdivisions or split-ups) of at least $4.00 (before deduction of underwriting commissions, discounts and expenses) and with aggregate gross proceeds -8-

9 to the corporation, at the public offering price, of at least $20,000,000. Upon any conversion (automatic or otherwise) any declared but unpaid dividends shall be paid in accordance with Section 5.3 herein. 5.3 Mechanics of Conversion. Before any holder of Preferred Stock shall be entitled to convert such shares into shares of Common Stock, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the corporation or of any transfer agent for such Preferred Stock and shall give written notice to the corporation at such office that it elects to convert the same. The corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Preferred Stock a certificate or certificates for the number of shares of Common Stock to which it shall be entitled as aforesaid and any declared but unpaid dividends on the Preferred Stock. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. 5.4 Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of the Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the corporation shall pay cash equal to such fraction multiplied by the applicable Conversion Price. 5.5 Adjustment of Conversion Price. The Conversion Price of each series of Preferred Stock shall be subject to adjustment from time to time as follows: 5.5.1 If the corporation shall issue any Common Stock or convertible securities other than "Excluded Stock" (as defined below) for a consideration per share less than the Conversion Price of any series of Preferred Stock in effect immediately prior to the issuance of such Common Stock (excluding stock dividends, subdivisions, split-ups, combinations, dividends or recapitalizations which are covered by Sections 5.5.3, 5.5.4, 5.5.5 and 5.5.6), the Conversion Price for such series of Preferred Stock in effect after each such issuance shall thereafter (except as provided in this Section 5.5) be adjusted to a price equal to the quotient obtained by dividing: (1) an amount equal to the sum of (x) the total number of shares of Common Stock outstanding (including any shares of Common Stock issuable upon conversion of the Preferred Stock, or deemed to have been issued pursuant to subdivision (iii) of this clause 5.5.1 and to clause 5.5.2 below) immediately prior to such issuance multiplied by the Conversion Price in effect immediately prior to such issuance, plus (y) the consideration received by the corporation upon such issuance, by -9-

10 (2) the total number of shares of Common Stock outstanding (including any shares of Common Stock issuable upon conversion of the Preferred Stock or deemed to have been issued pursuant to subdivision (iii) of this clause 5.5.1 and to clause 5.5.2 below) immediately prior to such issuance plus the additional shares of Common Stock issued in such issuance (but not including any additional shares of Common Stock deemed to be issued as a result of any adjustment in the Conversion Price of any series of Preferred Stock resulting from such issuance). For purposes of any adjustment of the Conversion Price of any series of Preferred Stock pursuant to this clause 5.5.1, the following provisions shall be applicable: (i) In the case of the issuance of Common Stock for cash, the consideration shall be deemed to be the amount of cash paid therefor after deducting any discounts or commissions paid or incurred by the corporation in connection with the issuance and sale thereof. (ii) In the case of the issuance of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair market value thereof as determined by the board of directors of the corporation, in accordance with generally accepted accounting treatment; provided, however, that if, at the time of such determination, the corporation's Common Stock is traded in the over-the-counter market or on a national or regional securities exchange, such fair market value as determined by the board of directors of the corporation shall not exceed the aggregate "Current Market Price" (as defined below) of the shares of Common Stock being issued. (iii) In the case of the issuance of: (i) options to purchase or rights to subscribe for Common Stock (other than Excluded Stock), (ii) securities by their terms convertible into or exchangeable for Common Stock (other than Excluded Stock), or (iii) options to purchase or rights to subscribe for such convertible or exchangeable securities: (A) the aggregate maximum number of shares of Common Stock deliverable upon exercise of such options to purchase or rights to subscribe for Common Stock shall be deemed to have been issued at the time such options or rights were issued and for a consideration equal to the consideration (determined in the manner provided in subdivisions (1) and (2) above), if any, received by the corporation upon the issuance of such options or rights plus the minimum purchase price provided in such options or rights for the Common Stock covered thereby; (B) the aggregate maximum number of shares of Common Stock deliverable upon conversion of or in exchange for any such convertible or exchangeable securities or upon the exercise of options to purchase or rights to subscribe for such convertible or exchangeable securities and subsequent conversion or exchange thereof, shall be deemed to have been issued at the time such securities were issued or such options or rights were -10-

11 issued and for a consideration equal to the consideration received by the corporation for any such securities and related options or rights (excluding any cash received on account of accrued interest or accrued dividends), plus the minimum additional consideration, if any, to be received by the corporation upon the conversion or exchange of such securities or the exercise of any related options or rights (the consideration in each case to be determined in the manner provided in subdivisions (1) and (2) above); (C) on any change in the number of shares of Common Stock deliverable upon exercise of any such options or rights or conversion of or exchange for such convertible or exchangeable securities, or on any change in the minimum purchase price of such options, rights or securities, other than a change resulting from the antidilution provisions of such options, rights or securities, the Conversion Price shall forthwith be readjusted to such Conversion Price as would have obtained had the adjustment made upon (x) the issuance of such options, rights or securities not exercised, converted or exchanged prior to such change, as the case may be, been made upon the basis of such change or (y) the options or rights related to such securities not converted or exchanged prior to such change, as the case may be, been made upon the basis of such change; and (D) on the expiration of any such options or rights, the termination of any such rights to convert or exchange or the expiration of any options or rights related to such convertible or exchangeable securities, the Conversion Price shall forthwith be readjusted to such Conversion Price as would have obtained had the adjustment made upon the issuance of such options, rights, convertible or exchangeable securities or options or rights related to such convertible or exchangeable securities, as the case may be, been made upon the basis of the issuance of only the number of shares of Common Stock actually issued upon the exercise of such options or rights, upon the conversion or exchange of such convertible or exchangeable securities or upon the exercise of the options or rights related to such convertible or exchangeable securities, as the case may be. 5.5.2 "Excluded Stock" shall mean: (a) all shares of Common Stock and Preferred Stock issued and outstanding on the date hereof; (b) all shares of Common Stock into which the shares of Preferred Stock are convertible; (c) all shares of Common Stock or other securities, or options or warrants to purchase Common Stock or any such other securities, issuable to employees, officers, consultants or directors of, or licensors of technology to, the corporation, under any agreement, arrangement or plan, including any incentive stock plan, approved by the Board of Directors of the corporation; -11-

12 (d) all shares of Common Stock issuable pursuant to the exercise of options, warrants or convertible securities outstanding as of the date this Certificate of Incorporation is filed with the Secretary of State of the State of Delaware; (e) all shares of Common Stock or other securities, or options or warrants to purchase Common Stock or any such other securities, issued in connection with the corporation's Series D Preferred Stock financing or issuable pursuant to such securities; and (f) all shares of Common Stock or other securities, or options or warrants to purchase Common Stock or any such other securities, issuable to landlords, financial institutions or lessors in connection with office leases, commercial credit arrangements, equipment financings or similar transactions. All outstanding shares of Excluded Stock (including any shares issuable upon conversion of the Preferred Stock but excluding shares reserved for issuance for option plans for which options have not yet been granted) shall be deemed to be outstanding for all purposes of the computations of Section 5.5.1 above. 5.5.3 If the number of shares of Common Stock outstanding at any time after the date hereof is increased by a stock dividend payable in shares of Common Stock or by a subdivision or split-up of shares of Common Stock, then, on the date such payment is made or such change is effective, the Conversion Price for each series of Preferred Stock shall be appropriately decreased so that the number of shares of Common Stock issuable on conversion of any shares of the Preferred Stock shall be increased in proportion to such increase of outstanding shares. 5.5.4 If the number of shares of Common Stock outstanding at any time after the date hereof is decreased by a combination of the outstanding shares of Common Stock, then, on the effective date of such combination, the Conversion Price for each series of Preferred Stock shall be appropriately increased so that the number of shares of Common Stock issuable on conversion of shares of the Preferred Stock shall be decreased in proportion to such decrease in outstanding shares. 5.5.5 In case the corporation shall declare a cash dividend upon its Common Stock payable otherwise than out of retained earnings or shall distribute to holders of its Common Stock shares of its capital stock (other than Common Stock), stock or other securities of other persons, evidences of indebtedness issued by the corporation or other persons, assets (excluding cash dividends) or options or rights (excluding options to purchase and rights to subscribe for Common Stock or other securities of the corporation convertible into or exchangeable for Common Stock), then, in each such case, immediately following the record date fixed for the determination of the holders of Common Stock entitled to receive such dividend or distribution, the Conversion Price for each series of Preferred Stock in effect thereafter shall be determined by multiplying the Conversion Price for such series of Preferred Stock in effect immediately prior to such record date by a fraction of which the numerator shall be an amount equal to the remainder of (x) the Current Market Price of -12-

13 one share of Common Stock less (y) the amount of such cash dividend in respect of one share of Common Stock or the fair market value (as determined by the Board of Directors, whose determination shall be conclusive) of the stock, securities, evidences or indebtedness, assets, options or rights so distributed in respect of one share of Common Stock, as the case may be, and of which the denominator shall be the Current Market Price of one share of Common Stock. Such adjustment shall be made on the date such dividend or distribution is made, and shall become effective at the opening of business on the business day next following the record date for the determination of stockholders entitled to such dividend or distribution. 5.5.6 In case, at any time after the date hereof, of any capital reorganization, or any reclassification of the stock of the corporation (other than a change in par value or as a result of a stock dividend or subdivision, split-up or combination of shares), or the consolidation or merger of the corporation with or into another person (other than a consolidation or merger in which the corporation is the continuing entity and which does not result in any change in the Common Stock), or of the sale or other disposition of all or substantially all the properties and assets of the corporation as an entirety to any other person, the shares of Preferred Stock shall, after such reorganization, reclassification, consolidation, merger, sale or other disposition, be convertible into the kind and number of shares of stock or other securities or property of the corporation or of the entity resulting from such consolidation or surviving such merger or to which such properties and assets shall have been sold or otherwise disposed to which such holder would have been entitled if immediately prior to such reorganization, reclassification, consolidation, merger, sale or other disposition he had converted his shares of Preferred Stock into Common Stock. The provisions of this Section 5.5.4 shall similarly apply to successive reorganizations, reclassifications, consolidations, mergers, sales or other dispositions. 5.5.7 All calculations under this Section 5 shall be made to the nearest cent or to the nearest one hundredth (1/100) of a share, as the case may be. 5.5.8 For the purpose of any computation pursuant to this Section 5.5, the "Current Market Price" at any date of one share of Common Stock, shall be deemed to be the average of the highest reported bid and the lowest reported offer prices on the preceding business day as furnished by the National Quotation Bureau, Incorporated (or equivalent recognized source of quotations); provided, however, that if the Common Stock is not traded in such manner that the quotations referred to in this Section 5.5 are available for the period required hereunder, Current Market Price shall be determined in good faith by the Board of Directors of the corporation. 5.6 Minimal Adjustments. No adjustment in a Conversion Price need be made if such adjustment would result in a change in such Conversion Price of less than $0.01. Any adjustment of less than $0.01 which is not made shall be carried forward and shall be made at the time of and together with any subsequent adjustment which, on a cumulative basis, amounts to an adjustment of $0.01 or more in a Conversion Price. -13-

14 5.7 No Impairment. The corporation will not, through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 5 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of Preferred Stock against impairment. This provision shall not restrict the corporation from amending its Certificate of Incorporation in accordance with the General Corporation Law of the State of Delaware. 5.8 Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Rate pursuant to this Section 5, the corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The corporation shall, upon written request at any time of any holder of Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Rate at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of the Preferred Stock held by such holder. 5.9 Notices of Record Date. In the event of any taking by the corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, the corporation shall mail to each holder of Preferred Stock at least twenty (20) days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend or distribution. 5.10 Reservation of Stock Issuable Upon Conversion. The corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock solely for the purpose of effecting the conversion of the shares of Preferred Stock such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of Preferred Stock, the corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose. 5.11 Notices. Any notice required by the provisions of this Section 5 to be given to the holder of shares of Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at his address appearing on the books of the corporation. 6. Protective Provisions. -14-

15 6.1 Series A Protective Provisions. For so long as shares of Series A Preferred shall be outstanding, the corporation shall not, without first obtaining the approval (by vote or written consent, as provided by law) of the holders of more than two-thirds of the outstanding shares of Series A Preferred: 6.1.1 No Adverse Change. Adversely alter or change the powers, preferences or special rights of the Series A Preferred; or 6.1.2 Create Any New Class or Series. Create any new class or series of shares having any powers, preferences, or special rights superior to or on a parity with the Series A Preferred. 6.2 Series B Protective Provisions. For so long as shares of Series B Preferred shall be outstanding, the corporation shall not, without first obtaining the approval (by vote or written consent, as provided by law) of the holders of more than two-thirds of the outstanding shares of Series B Preferred: 6.2.1 No Adverse Change. Adversely alter or change the powers, preferences or special rights of the Series B Preferred; or 6.2.2 Create Any New Class or Series. Create any new class or series of shares having any powers, preferences, or special rights superior to or on a parity with the Series B Preferred. 6.3 Series C Protective Provisions. For so long as shares of Series C Preferred shall be outstanding, the corporation shall not, without first obtaining the approval (by vote or written consent, as provided by law) of the holders of more than two-thirds of the outstanding shares of Series C Preferred: 6.3.1 No Adverse Change. Adversely alter or change the powers, preferences or special rights of the Series C Preferred; or 6.3.2 Create Any New Class or Series. Create any new class or series of shares having any powers, preferences, or special rights superior to or on a parity with the Series C Preferred. 6.4 Series D Protective Provisions. For so long as shares of Series D Preferred shall be outstanding, the corporation shall not, without first obtaining the approval (by vote or written consent, as provided by law) of the holders of more than two-thirds of the outstanding shares of Series D Preferred: -15-

16 6.4.1 No Adverse Change. Adversely alter or change the powers, preferences or special rights of the Series D Preferred; or 6.4.2 Create Any New Class or Series. Create any new class or series of shares having any powers, preferences, or special rights superior to or on a parity with the Series D Preferred. 6.5 Preferred Stock Protective Provisions. For so long as shares of the Preferred Stock shall be outstanding, the corporation shall not, without first obtaining the approval (by vote or written consent, as provided by law) of the holders of a majority of the outstanding shares of Preferred Stock: 6.5.1 Sale of Assets. Sell, lease, exchange, convey, or otherwise dispose of, all or substantially all of the property of the corporation; 6.5.2 Merger or Consolidation. Complete a merger, consolidation or sale of all or substantially all of the assets of the corporation in which the corporation's stockholders immediately prior to such transaction, or series of related transactions, possess less than 50% of the voting securities of the surviving, continuing or purchasing entity (or parent, if any) immediately after the transaction or series of related transactions in which an excess of 50% of the corporation's voting power is transferred; 6.5.3 Dividends/Redemption. Redeem or repurchase or otherwise make any distributions with respect to outstanding securities, other than (i) the repurchase of shares of Common Stock issued to or held by employees, directors or consultants of or to the corporation or any of its subsidiaries upon termination of their employment or services pursuant to agreements providing for the right of such repurchase between the corporation and such persons and (ii) the repurchase of shares of Common Stock in connection with the exercise of the right of first refusal pursuant to agreements providing for the right of first refusal between the corporation and any of its stockholder; 6.5.4 Authorized Number. Increase or decrease the authorized number of shares of Preferred Stock; 6.5.5 Restatement of Certificate/Bylaws. Amend, restate, alter or repeal any provision of the corporation's Certificate of Incorporation or the Bylaws of the corporation; or 6.5.6 Section 305. Do any act or thing which would result in the taxation of the holders of the Preferred Stock under Section 305 of the Internal Revenue Code of 1986, as amended (or any successor provision). 6.6 Preferred Stock Protective Provisions - Super Majority. For so long as shares of the Preferred Stock shall be outstanding, the corporation shall not, without first obtaining the -16-

17 approval (by vote or written consent, as provided by law) of the holders of a two-thirds of the outstanding shares of Preferred Stock: 6.6.1 Board Size. Increase the size of the Board of Directors to a number greater than that set forth in the Bylaws of the corporation. FIVE. The corporation is to have perpetual existence. SIX. Subject to Article FOUR, Section 6 herein, in furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, alter, amend or repeal the Bylaws of the corporation. SEVEN. The number of directors which constitute the whole Board of Directors of the corporation shall be as specified in the Bylaws of the corporation. EIGHT. Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of the corporation may be kept (subject to any provisions contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the corporation. NINE. To the fullest extent permitted by the Delaware General Corporation Law, a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. Neither any amendment nor repeal of this Article NINE, nor the adoption of any provision of this Certificate of Incorporation inconsistent with this Article NINE, shall eliminate or reduce the effect of this Article NINE in respect of any matter occurring, or any cause of action, suit or claim that, but for this Article NINE, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision. TEN. Advance notice of new business and stockholder nominations for the election of directors shall be given in the manner and to the extent provided in the Bylaws of the corporation. ELEVEN. Subject to Article FOUR, Section 6 herein, the corporation reserves the right to amend, alter, change or repeal any provisions contained in this Certificate, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. -17-

18 IN WITNESS WHEREOF, the corporation has caused this Certificate to be signed by Ronald J. Berenson, its President, this __ day of August, 2000. XCYTE THERAPIES, INC. By: -------------------------------------- Ronald J. Berenson, President

1 EXHIBIT 3.2 _______ AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF [COMPANY NAME] The undersigned, _____________ and _______________, hereby certify that: 1. They are the duly elected and acting President and Secretary, respectively, of [COMPANY NAME], a Delaware corporation. 2. The Certificate of Incorporation of this corporation was originally filed with the Secretary of State of Delaware on _____________ under the name of ______________. 3. The Certificate of Incorporation of this corporation shall be amended and restated to read in full as follows: "ARTICLE I The name of this corporation is [COMPANY NAME] (the "Corporation"). ARTICLE II The address of the Corporation's registered office in the State of Delaware is [1209 ORANGE STREET, WILMINGTON, COUNTY OF NEW CASTLE]. The name of its registered agent at such address is [THE CORPORATION TRUST COMPANY]. ARTICLE III The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. ARTICLE IV [UPON THE EFFECTIVE DATE OF THE FILING OF THIS ______ AMENDED AND RESTATED CERTIFICATE OF INCORPORATION, EACH SHARE OF THE CORPORATION'S OUTSTANDING CAPITAL STOCK SHALL BE CONVERTED AND RECONSTITUTED INTO ____ SHARES OF COMMON STOCK OF THE CORPORATION (THE "STOCK SPLIT"). NO FURTHER ADJUSTMENT OF ANY PREFERENCE OR PRICE SET FORTH IN THIS ARTICLE IV SHALL BE MADE AS A RESULT OF THE STOCK SPLIT, AS ALL SHARE AMOUNTS PER SHARE AND PER SHARE NUMBERS SET FORTH IN THIS ______ AMENDED AND RESTATED CERTIFICATE OF INCORPORATION HAVE BEEN APPROPRIATELY ADJUSTED TO REFLECT THE STOCK SPLIT.] (A) The Corporation is authorized to issue two classes of stock to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares which the Corporation is authorized to issue is __________ (__________) shares, each with a par value of $________ per share. _____________ (__________) shares shall be Common Stock and _____________ (___________) shares shall be Preferred Stock.

2 (B) The Preferred Stock may be issued from time to time in one or more series. The Board of Directors is hereby authorized, by filing a certificate pursuant to the applicable law of the state of Delaware and within the limitations and restrictions stated in this Certificate of Incorporation, to determine or alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock and the number of shares constituting any such series and the designation thereof, or any of them; and to increase or decrease the number of shares of any series subsequent to the issuance of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series. ARTICLE V The number of directors of the Corporation shall be fixed from time to time by a bylaw or amendment thereof duly adopted by the Board of Directors. ARTICLE VI [INSERT THE FOLLOWING ARTICLE TO ADD A CLASSIFIED BOARD] [THIS ARTICLE VI SHALL BECOME EFFECTIVE ONLY WHEN THE CORPORATION QUALIFIES FOR AN EXEMPTION FROM SECTION 2115 OF THE CALIFORNIA CORPORATIONS CODE (THE "EFFECTIVE TIME").] On or prior to the date on which the Corporation first provides notice of an annual meeting of the stockholders [FOLLOWING THE EFFECTIVE TIME], the Board of Directors of the Corporation shall divide the directors into three classes, as nearly equal in number as reasonably possible, designated Class I, Class II and Class III, respectively. Directors shall be assigned to each class in accordance with a resolution or resolutions adopted by the Board of Directors. At the first annual meeting of stockholders or any special meeting in lieu thereof [FOLLOWING THE EFFECTIVE TIME], the terms of the Class I directors shall expire and Class I directors shall be elected for a full term of three years. At the second annual meeting of stockholders or any special meeting in lieu thereof [FOLLOWING THE EFFECTIVE TIME], the terms of the Class II directors shall expire and Class II directors shall be elected for a full term of three years. At the third annual meeting of stockholders or any special meeting in lieu thereof [FOLLOWING THE EFFECTIVE TIME], the terms of the Class III directors shall expire and Class III directors shall be elected for a full term of three years. At each succeeding annual meeting of stockholders or special meeting in lieu thereof, directors elected to succeed the directors of the class whose terms expire at such meeting shall be elected for a full term of three years. [PRIOR TO THE EFFECTIVE TIME, THE PROVISIONS OF THE PRECEDING PARAGRAPH SHALL NOT APPLY, AND ALL DIRECTORS SHALL BE ELECTED AT EACH ANNUAL MEETING OF STOCKHOLDERS OR ANY SPECIAL MEETING IN LIEU THEREOF TO HOLD OFFICE UNTIL THE NEXT ANNUAL MEETING OR SPECIAL MEETING IN LIEU THEREOF.] -2-

3 Notwithstanding the foregoing provisions of this Article VI, each director shall serve until his or her successor is duly elected and qualified or until his or her death, resignation, or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. Any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal, or other causes shall be filled by either (i) the affirmative vote of the holders of a majority of the voting power of the then-outstanding shares of voting stock of the Corporation entitled to vote generally in the election of directors (the "Voting Stock") voting together as a single class; or (ii) by the affirmative vote of a majority of the remaining directors then in office, even though less than a quorum of the Board of Directors. Subject to the rights of any series of Preferred Stock then outstanding, newly created directorships resulting from any increase in the number of directors shall, unless the Board of Directors determines by resolution that any such newly created directorship shall be filled by the stockholders, be filled only by the affirmative vote of the directors then in office, even though less than a quorum of the Board of Directors, or by a sole remaining director. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the class of directors in which the new directorship was created or the vacancy occurred and until such director's successor shall have been elected and qualified. In addition to the requirements of law and any other provisions hereof (and notwithstanding the fact that approval by a lesser vote may be permitted by law or any other provision thereof), the affirmative vote of the holders of at least 66 2/3% of the voting power of the then-outstanding stock shall be required to amend, alter, repeal or adopt any provision inconsistent with this Article VI. ARTICLE VII In the election of directors, each holder of shares of any class or series of capital stock of the Corporation shall be entitled to one vote for each share held. No stockholder will be permitted to cumulate votes at any election of directors. ARTICLE VIII If at any time this Corporation shall have a class of stock registered pursuant to the provisions of the Securities Exchange Act of 1934, as amended, for so long as such class is so registered, any action by the stockholders of such class must be taken at an annual or special meeting of stockholders, upon due notice and in accordance with the provisions of the Bylaws of this Corporation, and may not be taken by written consent. ARTICLE IX The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation. -3-

4 ARTICLE X (A) Except as otherwise provided in the Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the affirmative vote of at least 66 2/3% of the voting power of all of the then-outstanding shares of the voting stock of the Corporation entitled to vote. The Board of Directors of the Corporation is expressly authorized to adopt, amend or repeal Bylaws. (B) The directors of the Corporation need not be elected by written ballot unless the Bylaws so provide. (C) Advance notice of stockholder nominations for the election of directors or of business to be brought by the stockholders before any meeting of the stockholders of the Corporation shall be given in the manner provided in the Bylaws. ARTICLE XI Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of the Corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the bylaws of the Corporation. ARTICLE XII The Corporation shall have perpetual existence. ARTICLE XIII (A) To the fullest extent permitted by the General Corporation Law of Delaware, as the same may be amended from time to time, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. If the General Corporation Law of Delaware is hereafter amended to authorize, with the approval of a corporation's stockholders, further reductions in the liability of a corporation's directors for breach of fiduciary duty, then a director of the Corporation shall not be liable for any such breach to the fullest extent permitted by the General Corporation Law of Delaware, as so amended. (B) Any repeal or modification of the foregoing provisions of this Article XIII shall not adversely affect any right or protection of a director of the Corporation with respect to any acts or omissions of such director occurring prior to such repeal or modification. ARTICLE XIV (A) To the fullest extent permitted by applicable law, the Corporation is also authorized to provide indemnification of (and advancement of expenses to) such agents (and any other persons to which Delaware law permits the Corporation to provide indemnification) through Bylaw provisions, agreements with such agents or other persons, vote of stockholders or disinterested directors or otherwise, in excess of the indemnification and advancement otherwise -4-

5 permitted by Section 145 of the General Corporation Law of Delaware, subject only to limits created by applicable Delaware law (statutory or non-statutory), with respect to actions for breach of duty to a corporation, its stockholders, and others. (B) Any repeal or modification of any of the foregoing provisions of this Article XIV shall not adversely affect any right or protection of a director, officer, agent or other person existing at the time of, or increase the liability of any director of the Corporation with respect to any acts or omissions of such director, officer or agent occurring prior to such repeal or modification." * * * -5-

6 The foregoing Amended and Restated Certificate of Incorporation has been duly adopted by this Corporation's Board of Directors and stockholders in accordance with the applicable provisions of Section 228, 242 and 245 of the General Corporation Law of the State of Delaware. Executed at ___________________, on the ____ day of ___________, _____. _____________________________________ __________________, President _____________________________________ __________________, Secretary -6-

1 Exhibit 3.3 BYLAWS OF [COMPANY NAME] [(AS AMENDED AND RESTATED EFFECTIVE __________ __, ____)]

2 TABLE OF CONTENTS Page ---- ARTICLE I - CORPORATE OFFICES................................................................1 1.1 Registered Office...............................................................1 1.2 Other Offices...................................................................1 ARTICLE II - MEETINGS OF STOCKHOLDERS........................................................1 2.1 Place of Meetings...............................................................1 2.2 Annual Meeting..................................................................1 2.3 Special Meeting.................................................................2 2.4 Notice of Stockholder's Meetings; Affidavit of Notice...........................2 2.5 Advance Notice of Stockholder Nominees and Other Stockholder Proposals..........3 2.6 Quorum..........................................................................4 2.7 Adjourned Meeting; Notice.......................................................4 2.8 Conduct of Business.............................................................5 2.9 Voting..........................................................................5 2.10 Waiver of Notice................................................................6 2.11 Record Date for Stockholder Notice; Voting......................................6 2.12 Proxies.........................................................................6 ARTICLE III - DIRECTORS......................................................................7 3.1 Powers..........................................................................7 3.2 Number of Directors.............................................................7 3.3 Election, Qualification and Term of Office of Directors.........................7 3.4 Resignation and Vacancies.......................................................8 3.5 Place of Meetings; Meetings by Telephone........................................9 3.6 Regular Meetings................................................................9 3.7 Special Meetings; Notice........................................................9 3.8 Quorum..........................................................................9 3.9 Waiver of Notice...............................................................10 3.10 Board Action by Written Consent Without a Meeting..............................10 3.11 Fees and Compensation of Directors.............................................10 3.12 Approval of Loans to Officers..................................................10 3.13 Removal of Directors...........................................................11 3.14 Chairman of the Board of Directors.............................................11 ARTICLE IV - COMMITTEES.....................................................................11 4.1 Committees of Directors........................................................11 4.2 Committee Minutes..............................................................12 4.3 Meetings and Action of Committees..............................................12 ARTICLE V - OFFICERS........................................................................12 5.1 Officers.......................................................................12 -i-

3 5.2 Appointment of Officers........................................................12 5.3 Subordinate Officers...........................................................12 5.4 Removal and Resignation of Officers............................................13 5.5 Vacancies in Offices...........................................................13 5.6 Chief Executive Officer........................................................13 5.7 President......................................................................13 5.8 Vice Presidents................................................................14 5.9 Secretary......................................................................14 5.10 Chief Financial Officer........................................................14 5.11 Representation of Shares of Other Corporations.................................15 5.12 Authority and Duties of Officers...............................................15 ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS............15 6.1 Indemnification of Directors and Officers......................................15 6.2 Indemnification of Others......................................................15 6.3 Payment of Expenses in Advance.................................................16 6.4 Indemnity Not Exclusive........................................................16 6.5 Insurance......................................................................16 6.6 Conflicts......................................................................17 ARTICLE VII - RECORDS AND REPORTS...........................................................17 7.1 Maintenance and Inspection of Records..........................................17 7.2 Inspection by Directors........................................................18 ARTICLE VIII - GENERAL MATTERS..............................................................18 8.1 Checks.........................................................................18 8.2 Execution of Corporate Contracts And Instruments...............................18 8.3 Stock Certificates; Partly Paid Shares.........................................18 8.4 Special Designation on Certificates............................................19 8.5 Lost Certificates..............................................................19 8.6 Construction; Definitions......................................................20 8.7 Dividends......................................................................20 8.8 Fiscal Year....................................................................20 8.9 Seal...........................................................................20 8.10 Transfer of Stock..............................................................20 8.11 Stock Transfer Agreements......................................................20 8.12 Registered Stockholders........................................................21 8.13 Facsimile Signatures...........................................................21 ARTICLE IX..................................................................................21 -ii-

4 AMENDED AND RESTARTED BYLAWS OF [COMPANY NAME] ARTICLE I CORPORATE OFFICES 1.1 REGISTERED OFFICE. The address of the Corporation's registered office in the State of Delaware is [1209 ORANGE STREET, WILMINGTON, COUNTY OF NEW CASTLE]. The name of its registered agent at such address is [THE CORPORATION TRUST COMPANY]. 1.2 OTHER OFFICES. The Board of Directors may at any time establish other offices at any place or places where the Corporation is qualified to do business. ARTICLE II MEETINGS OF STOCKHOLDERS 2.1 PLACE OF MEETINGS. Meetings of stockholders shall be held at any place, within or outside the State of Delaware, designated by the Board of Directors. In the absence of any such designation, stockholders' meetings shall be held at the registered office of the Corporation. 2.2 ANNUAL MEETING. (a) The annual meeting of stockholders shall be held each year on a date and at a time designated by resolution of the Board of Directors. At the meeting, directors shall be elected and any other proper business may be transacted. (b) Nominations of persons for election to the Board of Directors of the Corporation and the proposal of business to be transacted by the stockholders may be made at an annual meeting of stockholders (i) pursuant to the Corporation's notice with respect to such meeting, (ii) by or at the direction of the Board of Directors or (iii) by any stockholder of the Corporation who was a stockholder of record at the time of giving of the notice provided for in this Section 2.2, who is entitled to vote at the meeting and who has complied with the notice procedures set forth in this Section 2.2.

5 (c) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of paragraph (b) of this Section 2.2, the stockholder must have given timely notice thereof in writing to the secretary of the Corporation, as provided in Section 2.5, and such business must be a proper matter for stockholder action under the General Corporation Law of Delaware. (d) Only such business shall be conducted at an annual meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in these Bylaws. The chairman of the meeting shall determine whether a nomination or any business proposed to be transacted by the stockholders has been properly brought before the meeting and, if any proposed nomination or business has not been properly brought before the meeting, the chairman shall declare that such proposed business or nomination shall not be presented for stockholder action at the meeting. (e) Nothing in this Section 2.2 shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act. 2.3 SPECIAL MEETING. (a) A special meeting of the stockholders may be called at any time by the Board of Directors, the chairman of the board, the president or by one or more stockholders holding shares in the aggregate entitled to cast not less than [%] of the votes at that meeting. (b) Only such business shall be conducted at a special meeting of the stockholders as shall have been brought before the meeting pursuant to the Corporation's notice of meeting. (c) Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders, if such election is set forth in the notice of such special meeting. Such nominations may be made either by or at the direction of the Board of Directors, or by any stockholder of record entitled to vote at such special meeting, provided the stockholder follows the notice procedures set forth in Section 2.5. (d) Notwithstanding the foregoing provisions of this Section 2.3, a stockholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder with respect to matters set forth in this Section 2.3. 2.4 NOTICE OF STOCKHOLDER'S MEETINGS; AFFIDAVIT OF NOTICE. (a) All notices of meetings of stockholders shall be in writing and shall be sent or otherwise given in accordance with this Section 2.4 of these Bylaws not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting (or such longer or shorter time as is required by Section 2.5 of these Bylaws, if applicable). The notice shall specify the place (if any), date, and hour of the meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Written -2-

6 notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the Corporation. Without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders may be given by electronic mail or other electronic transmission, in the manner provided in Section 232 of the Delaware General Corporation Law. An affidavit of the secretary or an assistant secretary or of the transfer agent of the Corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. (b) If a special meeting is called by stockholders representing the percentage of the total votes outstanding designated in Section 2.3(a), the request shall be in writing, specifying the time of such meeting and the general nature of the business proposed to be transacted, and shall be delivered personally, or sent by registered mail or by facsimile transmission to the chairman of the board, the president, any vice president, or the secretary of the corporation. No business may be transacted at such special meeting otherwise than specified in such request. The officer receiving the request shall cause notice to be promptly given to the stockholders entitled to vote, in accordance with the provisions of this Section 2.4, that a meeting will be held at the time requested by the person or persons calling the meeting, not less than 35 nor more than 60 days after the receipt of the request. If the notice is not given within 20 days after the receipt of the request, the person or persons requesting the meeting may give the notice. Nothing contained in this Section 2.4(b) shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the Board of Directors may be held. 2.5 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND OTHER STOCKHOLDER PROPOSALS. Only persons who are nominated in accordance with the procedures set forth in this Section 2.5 shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of stockholders by or at the direction of the Board of Directors or by any stockholder of the Corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section 2.5. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the secretary of the Corporation. Stockholders may bring other business before the annual meeting, provided that timely notice is provided to the secretary of the Corporation in accordance with this section, and provided further that such business is a proper matter for stockholder action under the General Corporation Law of Delaware. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the Corporation not less than 90 days nor more than 120 days prior to the anniversary date of the prior year's meeting; provided, however, that in the event that (i) the date of the annual meeting is more than 30 days prior to or more than 60 days after such anniversary date, and (ii) less than 60 days notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a directors, (i) the name, age, business address and -3-

7 residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of the Corporation which are beneficially owned by such person and (iv) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934 (including, without limitation, such person's written consent to being name in the proxy statement as a nominee and to serving as a director if elected); (b) as to any other business that the stockholder proposes to bring before the meeting, a brief description of such business, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the proposal is made (i) the name and address of the stockholder, as they appear on the Corporation's books, and of such beneficial owner and (ii) the class and number of shares of the Corporation which are owned of record by such stockholder and beneficially by such beneficial owner. At the request of the Board of Directors any person nominated by the Board of Directors for election as a director shall furnish to the secretary of the Corporation that information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 2.5. The chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by the Bylaws, and if he or she should so determine, he or she shall so declare to the meeting and the defective nomination shall be disregarded. Notwithstanding the foregoing provisions of this Section 2.5, a stockholder shall also comply with all applicable requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder with respect to matters set forth in this Section 2.5. 2.6 QUORUM. The holders of a majority of the shares of stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the Certificate of Incorporation. If, however, such quorum is not present or represented at any meeting of the stockholders, then either (a) the chairman of the meeting or (b) holders of a majority of the shares of stock entitled to vote who are present, in person or by proxy, shall have power to adjourn the meeting to another place (if any), date or time. 2.7 ADJOURNED MEETING; NOTICE. When a meeting is adjourned to another place (if any), date or time, unless these Bylaws otherwise require, notice need not be given of the adjourned meeting if the time and place (if any), thereof and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present and vote at such adjourned meeting, are announced at the meeting at which the adjournment is taken. At the adjourned meeting the Corporation may transact any business that might have been transacted at the original meeting. -4-

8 If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the place (if any), date and time of the adjourned meeting and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present and vote at such adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 2.8 CONDUCT OF BUSINESS. (a) Such person as the Board of Directors may have designated or, in the absence of such a person, the President of the Corporation or, in his or her absence, such person as may be chosen by the holders of a majority of the shares entitled to vote who are present, in person or by proxy, shall call to order any meeting of the stockholders and act as Chairman of the meeting. In the absence of the Secretary of the Corporation, the Secretary of the meeting shall be such person as the Chairman of the meeting appoints. (b) The Chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including the manner of voting and the conduct of business. The date and time of opening and closing of the polls for each matter upon which the stockholders will vote at the meeting shall be announced at the meeting. 2.9 VOTING. (a) The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.11 of these Bylaws, subject to the provisions of Sections 217 and 218 of the General Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners of stock and to voting trusts and other voting agreements). (b) Except as may be otherwise provided in the Certificate of Incorporation, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder. (c) The Corporation may, and to the extent required by law, shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and make a written report thereof. The Corporation may designate one or more alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting may, and to the extent required by law, shall, appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his or her duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his or her ability. Every vote taken by ballots shall be counted by an inspector or inspectors appointed by the chairman of the meeting. (d) All elections shall be determined by a plurality of the votes cast, and except as otherwise required by law, all other matters shall be determined by a majority of the votes cast affirmatively or negatively. -5-

9 2.10 WAIVER OF NOTICE. Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the Certificate of Incorporation or these Bylaws, a written waiver thereof, signed by the person entitled to notice, or waiver by electronic mail or other electronic transmission by such person, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice, or any waiver of notice by electronic transmission, unless so required by the Certificate of Incorporation or these Bylaws. 2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than 60 nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action. If the Board of Directors does not so fix a record date: (a) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. (b) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting, if such adjournment is for thirty (30) days or less; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. 2.12 PROXIES. Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for such stockholder by an instrument in writing or by an electronic transmission permitted by law filed with the secretary of the Corporation, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A proxy shall be deemed signed if the stockholder's name is placed on the proxy (whether by manual signature, typewriting, electronic or telegraphic transmission or otherwise) -6-

10 by the stockholder or the stockholder's attorney-in-fact. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212(e) of the General Corporation Law of Delaware. ARTICLE III DIRECTORS 3.1 POWERS. Subject to the provisions of the General Corporation Law of Delaware and any limitations in the Certificate of Incorporation or these Bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the Corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board of Directors. 3.2 NUMBER OF DIRECTORS. The number of directors constituting the entire Board of Directors shall be [No of Directors]. Thereafter, this number may be changed by a resolution of the Board of Directors or of the stockholders, subject to Section 3.4 of these Bylaws. No reduction of the authorized number of directors shall have the effect of removing any director before such director's term of office expires. 3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS. Except as provided in Section 3.4 of these Bylaws, and unless otherwise provided in the Certificate of Incorporation, directors shall be elected at each annual meeting of stockholders to hold office until the next annual meeting. Directors need not be stockholders unless so required by the Certificate of Incorporation or these Bylaws, wherein other qualifications for directors may be prescribed. Each director, including a director elected to fill a vacancy, shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal. Unless otherwise specified in the Certificate of Incorporation, elections of directors need not be by written ballot. 3.4 RESIGNATION AND VACANCIES. Any director may resign at any time upon written notice to the attention of the secretary of the Corporation. When one or more directors so resigns and the resignation is effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in this section in the filling of other vacancies. Unless otherwise provided in -7-

11 the Certificate of Incorporation, and subject to the rights of the holders of any series of Preferred Stock that may then be outstanding, a vacancy created by the removal of a director by the vote of the stockholders or by court order may be filled only by the affirmative vote of a majority of the shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute a majority of the quorum. Each director so elected shall hold office until the next annual meeting of the stockholders and until a successor has been elected and qualified. Unless otherwise provided in the Certificate of Incorporation or these Bylaws: (a) Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. (b) Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the Certificate of Incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected. If at any time, by reason of death or resignation or other cause, the Corporation should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders in accordance with the provisions of the Certificate of Incorporation or these Bylaws, or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the General Corporation Law of Delaware. If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole Board of Directors (as constituted immediately prior to any such increase), then the Court of Chancery may, upon application of any stockholder or stockholders holding at least 10% of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the General Corporation Law of Delaware as far as applicable. 3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or outside the State of Delaware. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any committee, by means of conference telephone or other communications -8-

12 equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. 3.6 REGULAR MEETINGS. Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the Board of Directors. 3.7 SPECIAL MEETINGS; NOTICE. Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairman of the board, the president, any vice president, the secretary or any two (2) directors. Notice of the time and place of special meetings shall be delivered personally or by telephone to each director or sent by first-class mail or telegram, charges prepaid, addressed to each director at that director's address as it is shown on the records of the Corporation. If the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. If the notice is delivered personally, by facsimile or by electronic transmission or by telephone, telecopy, telegram, telex or other similar means of communication, it shall be delivered at least twenty-four (24) hours before the time of the holding of the meeting, or on such shorter notice as the person or persons calling such meeting may deem necessary and appropriate in the circumstances. Any oral notice given personally, by facsimile or by electronic transmission or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose of the place of the meeting, if the meeting is to be held at the principal executive office of the Corporation. 3.8 QUORUM. At all meetings of the Board of Directors, a majority of the authorized number of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the Certificate of Incorporation. If a quorum is not present at any meeting of the Board of Directors, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting. 3.9 WAIVER OF NOTICE. -9-

13 Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the Certificate of Incorporation or these Bylaws, a written waiver thereof, signed by the person entitled to notice, or waiver by electronic mail or other electronic transmission by such person, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors, or members of a committee of directors, need be specified in any written waiver of notice unless so required by the Certificate of Incorporation or these Bylaws. 3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the Board of Directors or committee, as the case may be, consent thereto in writing and the writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. Written consents representing actions taken by the board or committee may be executed by telex, telecopy or other facsimile transmission, or by electronic mail or other electronic transmission, and such facsimile or electronic transmission shall be valid and binding to the same extent as if it were an original. If the minutes of the board or committee are maintained in paper form, consents obtained by electronic transmission shall be reduced to written form and filed with such minutes. 3.11 FEES AND COMPENSATION OF DIRECTORS. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, the Board of Directors shall have the authority to fix the compensation of directors. No such compensation shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. 3.12 APPROVAL OF LOANS TO OFFICERS. The Corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the Corporation or of its subsidiary, including any officer or employee who is a director of the Corporation or its subsidiary, whenever, in the judgment of the directors, such loan, guaranty or assistance may reasonably be expected to benefit the Corporation. The loan, guaranty or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the Corporation. Nothing in this Section 3.2 contained shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the Corporation at common law or under any statute. 3.13 REMOVAL OF DIRECTORS. -10-

14 [NOTE: THIS PROVISION MUST BE AMENDED IF THE COMPANY ADOPTS A STAGGERED BOARD.] Unless otherwise restricted by statute, by the Certificate of Incorporation or by these Bylaws, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors; provided, however, that if the stockholders of the Corporation are entitled to cumulative voting, if less than the entire Board of Directors is to be removed, no director may be removed without cause if the votes cast against his removal would be sufficient to elect him if then cumulatively voted at an election of the entire Board of Directors. No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such director's term of office. 3.14 CHAIRMAN OF THE BOARD OF DIRECTORS. The Corporation may also have, at the discretion of the Board of Directors, a Chairman of the Board of Directors who shall not be considered an officer of the Corporation. ARTICLE IV COMMITTEES 4.1 COMMITTEES OF DIRECTORS. The Board of Directors may designate one or more committees, each committee to consist of one or more of the directors of the corporation. The Board may designate 1 or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors, or in these Bylaws, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to the following matters: (i) approving or adopting, or recommending to the stockholders, any action or matter expressly required by the General Corporate Law of Delaware to be submitted to stockholders for approval or (ii) adopting, amending or repealing any Bylaw of the corporation. 4.2 COMMITTEE MINUTES. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. -11-

15 4.3 MEETINGS AND ACTION OF COMMITTEES. Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of Section 3.5 (place of meetings and meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), and Section 3.10 (action without a meeting) of these Bylaws, with such changes in the context of such provisions as are necessary to substitute the committee and its members for the Board of Directors and its members; provided, however, that the time of regular meetings of committees may be determined either by resolution of the Board of Directors or by resolution of the committee, that special meetings of committees may also be called by resolution of the Board of Directors and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The Board of Directors may adopt rules for the government of any committee not inconsistent with the provisions of these Bylaws. ARTICLE V OFFICERS 5.1 OFFICERS. The officers of the Corporation shall be [A CHIEF EXECUTIVE OFFICER], a president, a secretary, and a chief financial officer. The Corporation may also have, at the discretion of the Board of Directors, one or more vice presidents, one or more assistant secretaries, one or more assistant treasurers, and any such other officers as may be appointed in accordance with the provisions of Section 5.3 of these Bylaws. Any number of offices may be held by the same person. 5.2 APPOINTMENT OF OFFICERS. The officers of the Corporation, except such officers as may be appointed in accordance with the provisions of Sections 5.3 or 5.5 of these Bylaws, shall be appointed by the Board of Directors, subject to the rights, if any, of an officer under any contract of employment. 5.3 SUBORDINATE OFFICERS. The Board of Directors may appoint, or empower the chief executive officer or the president to appoint, such other officers and agents as the business of the Corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these Bylaws or as the Board of Directors may from time to time determine. 5.4 REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority of -12-

16 the Board of Directors at any regular or special meeting of the Board of Directors or, except in the case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors. Any officer may resign at any time by giving written notice to the attention of the secretary of the Corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the Corporation under any contract to which the officer is a party. 5.5 VACANCIES IN OFFICES. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors. [5.6 CHIEF EXECUTIVE OFFICER. SUBJECT TO SUCH SUPERVISORY POWERS, IF ANY, AS MAY BE GIVEN BY THE BOARD OF DIRECTORS TO THE CHAIRMAN OF THE BOARD, IF ANY, THE CHIEF EXECUTIVE OFFICER OF THE CORPORATION SHALL, SUBJECT TO THE CONTROL OF THE BOARD OF DIRECTORS, HAVE GENERAL SUPERVISION, DIRECTION, AND CONTROL OF THE BUSINESS AND THE OFFICERS OF THE CORPORATION. HE OR SHE SHALL PRESIDE AT ALL MEETINGS OF THE STOCKHOLDERS AND, IN THE ABSENCE OR NONEXISTENCE OF A CHAIRMAN OF THE BOARD, AT ALL MEETINGS OF THE BOARD OF DIRECTORS AND SHALL HAVE THE GENERAL POWERS AND DUTIES OF MANAGEMENT USUALLY VESTED IN THE OFFICE OF CHIEF EXECUTIVE OFFICER OF A CORPORATION AND SHALL HAVE SUCH OTHER POWERS AND DUTIES AS MAY BE PRESCRIBED BY THE BOARD OF DIRECTORS OR THESE BYLAWS.] 5.7 PRESIDENT. Subject to such supervisory powers, if any, as may be given by the Board of Directors to the chairman of the board (if any) [OR THE CHIEF EXECUTIVE OFFICER], the president shall have general supervision, direction, and control of the business and other officers of the Corporation. He or she shall have the general powers and duties of management usually vested in the office of president of a corporation and such other powers and duties as may be prescribed by the Board of Directors or these Bylaws. 5.8 VICE PRESIDENTS. In the absence or disability of the [CHIEF EXECUTIVE OFFICER AND] president, the vice presidents, if any, in order of their rank as fixed by the Board of Directors or, if not ranked, a vice president designated by the Board of Directors, shall perform all the duties of the president and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors, these Bylaws, the president or the chairman of the board. -13-

17 5.9 SECRETARY. The secretary shall keep or cause to be kept, at the principal executive office of the Corporation or such other place as the Board of Directors may direct, a book of minutes of all meetings and actions of directors, committees of directors, and stockholders. The minutes shall show the time and place of each meeting, the names of those present at directors' meetings or committee meetings, the number of shares present or represented at stockholders' meetings, and the proceedings thereof. The secretary shall keep, or cause to be kept, at the principal executive office of the Corporation or at the office of the Corporation's transfer agent or registrar, as determined by resolution of the Board Of Directors, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation. The secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors required to be given by law or by these Bylaws. He or she shall keep the seal of the Corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by these Bylaws. 5.10 CHIEF FINANCIAL OFFICER. The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the Corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital retained earnings, and shares. The books of account shall at all reasonable times be open to inspection by any director. The chief financial officer shall deposit all moneys and other valuables in the name and to the credit of the Corporation with such depositories as may be designated by the Board of Directors. He or she shall disburse the funds of the Corporation as may be ordered by the Board of Directors, shall render to the president, the chief executive officer, or the directors, upon request, an account of all his or her transactions as chief financial officer and of the financial condition of the Corporation, and shall have other powers and perform such other duties as may be prescribed by the Board of Directors or the Bylaws. 5.11 REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The chairman of the board, the chief executive officer, the president, any vice president, the chief financial officer, the secretary or assistant secretary of this Corporation, or any other person authorized by the Board of Directors or the chief executive officer or the president or a vice president, is authorized to vote, represent, and exercise on behalf of this Corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this Corporation. The authority granted herein may be exercised either -14-

18 by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by the person having such authority. 5.12 AUTHORITY AND DUTIES OF OFFICERS. In addition to the foregoing authority and duties, all officers of the Corporation shall respectively have such authority and perform such duties in the management of the business of the Corporation as may be designated from time to time by the Board of Directors or the stockholders. ARTICLE VI INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS 6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Corporation shall, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware, indemnify each of its directors and officers against expenses (including attorneys' fees), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the Corporation. For purposes of this Section 6.1, a "director" or "officer" of the Corporation includes any person (a) who is or was a director or officer of the Corporation, (b) who is or was serving at the request of the Corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, or (c) who was a director or officer of a Corporation which was a predecessor corporation of the Corporation or of another enterprise at the request of such predecessor corporation. 6.2 INDEMNIFICATION OF OTHERS. The Corporation shall have the power, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware, to indemnify each of its employees and agents (other than directors and officers) against expenses (including attorneys' fees), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the Corporation. For purposes of this Section 6.2, an "employee" or "agent" of the Corporation (other than a director or officer) includes any person (a) who is or was an employee or agent of the Corporation, (b) who is or was serving at the request of the Corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or (c) who was an employee or agent of a corporation which was a predecessor corporation of the Corporation or of another enterprise at the request of such predecessor corporation. 6.3 PAYMENT OF EXPENSES IN ADVANCE. Expenses incurred in defending any action or proceeding for which indemnification is required pursuant to Section 6.1 or for which indemnification is permitted -15-

19 pursuant to Section 6.2 following authorization thereof by the Board of Directors shall be paid by the Corporation in advance of the final disposition of such action or proceeding upon receipt of an undertaking by or on behalf of the indemnified party to repay such amount if it shall ultimately be determined, by final judicial decision from which there is no further right to appeal, that the indemnified party is not entitled to be indemnified as authorized in this Article VI. 6.4 INDEMNITY NOT EXCLUSIVE. The indemnification provided by this Article VI shall not be deemed exclusive of any other rights to which those seeking indemnification may been titled under any Bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office, to the extent that such additional rights to indemnification are authorized in the Certificate of Incorporation. 6.5 INSURANCE. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of the General Corporation Law of Delaware. 6.6 CONFLICTS. No indemnification or advance shall be made under this Article VI, except where such indemnification or advance is mandated by law or the order, judgment or decree of any court of competent jurisdiction, in any circumstance where it appears: (a) That it would be inconsistent with a provision of the Certificate of Incorporation, these Bylaws, a resolution of the stockholders or an agreement in effect at the time of the accrual of the alleged cause of the action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or (b) That it would be inconsistent with any condition expressly imposed by a court in approving a settlement. ARTICLE VII RECORDS AND REPORTS 7.1 MAINTENANCE AND INSPECTION OF RECORDS. The Corporation shall, either at its principal executive offices or at such place or places as designated by the Board of Directors, keep a record of its stockholders listing their -16-

20 names and addresses and the number and class of shares held by each stockholder, a copy of these Bylaws as amended to date, accounting books, and other records. Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the Corporation's stock ledger, a list of its stockholders, and its other books and records and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the Corporation at its registered office in Delaware or at its principal place of business. A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order for each class of stock and showing the address of each such stockholder and the number of shares registered in each such stockholder's name, shall be open to the examination of any such stockholder for a period of at least ten (10) days prior to the meeting in the manner provided by law. The stock list shall also be open to the examination of any stockholder during the whole time of the meeting as provided by law. This list shall presumptively determine the identity of the stockholders entitled to vote at the meeting and the number of shares held by each of them. 7.2 INSPECTION BY DIRECTORS. Any director shall have the right to examine the Corporation's stockledger, a list of its stockholders, and its other books and records for a purpose reasonably related to his or her position as a director. The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director is entitled to the inspection sought. The Court may summarily order the Corporation to permit the director to inspect any and all books and records, the stock ledger, and the stock list and to make copies or extracts therefrom. The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other and further relief as the Court may deem just and proper. ARTICLE VIII GENERAL MATTERS 8.1 CHECKS. From time to time, the Board of Directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the Corporation, and only the persons so authorized shall sign or endorse those instruments. 8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS. -17-

21 The Board of Directors, except as otherwise provided in these Bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the Corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. 8.3 STOCK CERTIFICATES; PARTLY PAID SHARES. The shares of the Corporation shall be represented by certificates, provided that the Board of Directors of the Corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation. Notwithstanding the adoption of such a resolution by the Board of Directors, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the Corporation by the chairman or vice-chairman of the Board of Directors, or the chief executive officer or the president or vice-president, and by the chief financial officer or an assistant treasurer, or the secretary or an assistant secretary of the Corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue. The Corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, upon the books and records of the Corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the Corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon. 8.4 SPECIAL DESIGNATION ON CERTIFICATES. If the Corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the Corporation shall issue to represent -18-

22 such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the Corporation shall issue to represent such class or series of stock a statement that the Corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. 8.5 LOST CERTIFICATES. Except as provided in this Section 8.5, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the Corporation and canceled at the same time. The Corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate previously issued by it, alleged to have been lost, stolen or destroyed, and the Corporation may require the owner of the lost, stolen or destroyed certificate, or the owner's legal representative, to give the Corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares. 8.6 CONSTRUCTION; DEFINITIONS. Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the Delaware General Corporation Law shall govern the construction of these Bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term "person" includes both a corporation and a natural person. 8.7 DIVIDENDS. The directors of the Corporation, subject to any restrictions contained in (a) the General Corporation Law of Delaware or (b) the Certificate of Incorporation, may declare and pay dividends upon the shares of its capital stock. Dividends may be paid in cash, in property, or in shares of the Corporation's capital stock. The directors of the Corporation may set apart out of any of the funds of the Corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the Corporation, and meeting contingencies. 8.8 FISCAL YEAR. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors and may be changed by the Board of Directors. 8.9 SEAL. -19-

23 The Corporation may adopt a corporate seal, which may be altered at pleasure, and may use the same by causing it or a facsimile thereof, to be impressed or affixed or in any other manner reproduced. 8.10 TRANSFER OF STOCK. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction in its books. 8.11 STOCK TRANSFER AGREEMENTS. The Corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the Corporation to restrict the transfer of shares of stock of the Corporation of any one or more classes owned by such stockholders in any manner not prohibited by the General Corporation Law of Delaware. 8.12 REGISTERED STOCKHOLDERS. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. 8.13 FACSIMILE SIGNATURES. In addition to the provisions for use of facsimile signatures elsewhere specifically authorized in these Bylaws, facsimile signatures of any officer or officers of the Corporation may be used whenever and as authorized by the Board of Directors or a committee thereof. ARTICLE IX AMENDMENTS The Bylaws of the Corporation may be adopted, amended or repealed by the stockholders entitled to vote; provided, however, that the Corporation may, in its Certificate of Incorporation, confer the power to adopt, amend or repeal Bylaws upon the directors. The fact that such power has been so conferred upon the directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal Bylaws. -20-

24 CERTIFICATE OF ADOPTION OF AMENDED AND RESTATED BYLAWS OF [COMPANY NAME] The undersigned hereby certifies that the undersigned is the duly elected, qualified, and acting Secretary of [Company Name] (the "Corporation"), and that the foregoing Amended and Restated Bylaws, comprising [No of Pages] pages, were adopted the Bylaws of the corporation on [Date Adopted], by the Board of Directors of the corporation. Executed this _____ day of _________________, ___. ---------------------------- [Secretary Name], Secretary

1 EXHIBIT 10.1 INDEMNIFICATION AGREEMENT This Indemnification Agreement (the "Agreement") is made as of December __, 2000, by and between Xcyte Therapies, Inc., a Delaware corporation (the "Company"), and ___________ (the "Indemnitee"). RECITALS The Company and Indemnitee recognize the increasing difficulty in obtaining liability insurance for directors, officers and key employees, the significant increases in the cost of such insurance and the general reductions in the coverage of such insurance. The Company and Indemnitee further recognize the substantial increase in corporate litigation in general, subjecting directors, officers and key employees to expensive litigation risks at the same time as the availability and coverage of liability insurance has been severely limited. Indemnitee does not regard the current protection available as adequate under the present circumstances, and Indemnitee and agents of the Company may not be willing to continue to serve as agents of the Company without additional protection. The Company desires to attract and retain the services of highly qualified individuals, such as Indemnitee, and to indemnify its directors, officers and key employees so as to provide them with the maximum protection permitted by law. AGREEMENT In consideration of the mutual promises made in this Agreement, and for other good and valuable consideration, receipt of which is hereby acknowledged, the Company and Indemnitee hereby agree as follows: 1. INDEMNIFICATION. (a) THIRD PARTY PROCEEDINGS. The Company shall indemnify Indemnitee if Indemnitee is or was a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Company) by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld) actually and reasonably incurred by Indemnitee in connection with such action, suit or proceeding if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe Indemnitee's conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that Indemnitee did not act in good faith and in a manner which Indemnitee

2 reasonably believed to be in or not opposed to the best interests of the Company, or, with respect to any criminal action or proceeding, that Indemnitee had reasonable cause to believe that Indemnitee's conduct was unlawful. (b) PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. The Company shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made a party to any threatened, pending or completed action or proceeding by or in the right of the Company or any subsidiary of the Company to procure a judgment in its favor by reason of the fact that Indemnitee is or was a director, officer, employee or agent of the Company, or any subsidiary of the Company, by reason of any action or inaction on the part of Indemnitee while an officer or director or by reason of the fact that Indemnitee is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) and, to the fullest extent permitted by law, amounts paid in settlement (if such settlement is approved in advance by the Company, which approval shall not be unreasonably withheld), in each case to the extent actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such action or suit if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company and its stockholders, except that no indemnification shall be made in respect of any claim, issue or matter as to which Indemnitee shall have been finally adjudicated by court order or judgment to be liable to the Company in the performance of Indemnitee's duty to the Company and its stockholders unless and only to the extent that the court in which such action or proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such expenses which such court shall deem proper. (c) MANDATORY PAYMENT OF EXPENSES. To the extent that Indemnitee has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 1(a) or Section 1(b) or the defense of any claim, issue or matter therein, Indemnitee shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by Indemnitee in connection therewith. 2. NO EMPLOYMENT RIGHTS. Nothing contained in this Agreement is intended to create in Indemnitee any right to continued employment. 3. EXPENSES; INDEMNIFICATION PROCEDURE. (a) ADVANCEMENT OF EXPENSES. The Company shall advance all expenses incurred by Indemnitee in connection with the investigation, defense, settlement or appeal of any civil or criminal action, suit or proceeding referred to in Section l(a) or Section 1(b) hereof (including amounts actually paid in settlement of any such action, suit or proceeding). Indemnitee hereby undertakes to repay such amounts advanced only if, and to the extent that, it shall ultimately be determined that Indemnitee is not entitled to be indemnified by the Company as authorized hereby. (b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a condition precedent to his or her right to be indemnified under this Agreement, give the Company notice in -2-

3 writing as soon as practicable of any claim made against Indemnitee for which indemnification will or could be sought under this Agreement. Notice to the Company shall be directed to the Chief Executive Officer of the Company and shall be given in accordance with the provisions of Section 12(d) below. In addition, Indemnitee shall give the Company such information and cooperation as it may reasonably require and as shall be within Indemnitee's power. (c) PROCEDURE. Any indemnification and advances provided for in Section 1 and this Section 3 shall be made no later than thirty (30) days after receipt of the written request of Indemnitee. If a claim under this Agreement, under any statute, or under any provision of the Company's Certificate of Incorporation or Bylaws providing for indemnification, is not paid in full by the Company within thirty (30) days after a written request for payment thereof has first been received by the Company, Indemnitee may, but need not, at any time thereafter bring an action against the Company to recover the unpaid amount of the claim and, subject to Section 11 of this Agreement, Indemnitee shall also be entitled to be paid for the expenses (including attorneys' fees) of bringing such action. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in connection with any action, suit or proceeding in advance of its final disposition) that Indemnitee has not met the standards of conduct which make it permissible under applicable law for the Company to indemnify Indemnitee for the amount claimed, but the burden of proving such defense shall be on the Company and Indemnitee shall be entitled to receive interim payments of expenses pursuant to Section 3(a) unless and until such defense may be finally adjudicated by court order or judgment from which no further right of appeal exists. It is the parties' intention that if the Company contests Indemnitee's right to indemnification, the question of Indemnitee's right to indemnification shall be for the court to decide, and neither the failure of the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its stockholders) to have made a determination that indemnification of Indemnitee is proper in the circumstances because Indemnitee has met the applicable standard of conduct required by applicable law, nor an actual determination by the Company (including its Board of Directors, any committee or subgroup of the Board of Directors, independent legal counsel, or its stockholders) that Indemnitee has not met such applicable standard of conduct, shall create a presumption that Indemnitee has or has not met the applicable standard of conduct. (d) NOTICE TO INSURERS. If, at the time of the receipt of a notice of a claim pursuant to Section 3(b) hereof, the Company has director and officer liability insurance in effect, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies. (e) SELECTION OF COUNSEL. In the event the Company shall be obligated under Section 3(a) hereof to pay the expenses of any proceeding against Indemnitee, the Company, if appropriate, shall be entitled to assume the defense of such proceeding, with counsel approved by Indemnitee, upon the delivery to Indemnitee of written notice of its election so to do. After delivery of such notice, approval of such counsel by Indemnitee and the retention of such counsel -3-

4 by the Company, the Company will not be liable to Indemnitee under this Agreement for any fees of counsel subsequently incurred by Indemnitee with respect to the same proceeding, provided that (i) Indemnitee shall have the right to employ counsel in any such proceeding at Indemnitee's expense; and (ii) if (A) the employment of counsel by Indemnitee has been previously authorized by the Company, (B) Indemnitee shall have reasonably concluded that there may be a conflict of interest between the Company and Indemnitee in the conduct of any such defense or (C) the Company shall not, in fact, have employed counsel to assume the defense of such proceeding, then the fees and expenses of Indemnitee's counsel shall be at the expense of the Company. 4. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY. (a) SCOPE. Notwithstanding any other provision of this Agreement, the Company hereby agrees to indemnify the Indemnitee to the fullest extent permitted by law, notwithstanding that such indemnification is not specifically authorized by the other provisions of this Agreement, the Company's Certificate of Incorporation, the Company's Bylaws or by statute. In the event of any change, after the date of this Agreement, in any applicable law, statute, or rule which expands the right of a Delaware corporation to indemnify a member of its board of directors or an officer, such changes shall be deemed to be within the purview of Indemnitee's rights and the Company's obligations under this Agreement. In the event of any change in any applicable law, statute or rule which narrows the right of a Delaware corporation to indemnify a member of its board of directors or an officer, such changes, to the extent not otherwise required by such law, statute or rule to be applied to this Agreement shall have no effect on this Agreement or the parties' rights and obligations hereunder. (b) NONEXCLUSIVITY. The indemnification provided by this Agreement shall not be deemed exclusive of any rights to which Indemnitee may be entitled under the Company's Certificate of Incorporation, its Bylaws, any agreement, any vote of stockholders or disinterested members of the Company's Board of Directors, the General Corporation Law of the State of Delaware, or otherwise, both as to action in Indemnitee's official capacity and as to action in another capacity while holding such office. The indemnification provided under this Agreement shall continue as to Indemnitee for any action taken or not taken while serving in an indemnified capacity even though he or she may have ceased to serve in any such capacity at the time of any action, suit or other covered proceeding. 5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the expenses, judgments, fines or penalties actually or reasonably incurred in the investigation, defense, appeal or settlement of any civil or criminal action, suit or proceeding, but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such expenses, judgments, fines or penalties to which Indemnitee is entitled. 6. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee acknowledge that in certain instances, Federal law or public policy may override applicable state law and prohibit the Company from indemnifying its directors and officers under this Agreement or otherwise. -4-

5 For example, the Company and Indemnitee acknowledge that the Securities and Exchange Commission (the "SEC") has taken the position that indemnification is not permissible for liabilities arising under certain federal securities laws, and federal legislation prohibits indemnification for certain ERISA violations. Indemnitee understands and acknowledges that the Company has undertaken or may be required in the future to undertake with the SEC to submit the question of indemnification to a court in certain circumstances for a determination of the Company's right under public policy to indemnify Indemnitee. 7. OFFICER AND DIRECTOR LIABILITY INSURANCE. The Company shall, from time to time, make the good faith determination whether or not it is practicable for the Company to obtain and maintain a policy or policies of insurance with reputable insurance companies providing the officers and directors of the Company with coverage for losses from wrongful acts, or to ensure the Company's performance of its indemnification obligations under this Agreement. Among other considerations, the Company will weigh the costs of obtaining such insurance coverage against the protection afforded by such coverage. In all policies of director and officer liability insurance, Indemnitee shall be named as an insured in such a manner as to provide Indemnitee the same rights and benefits as are accorded to the most favorably insured of the Company's directors, if Indemnitee is a director; or of the Company's officers, if Indemnitee is not a director of the Company but is an officer; or of the Company's key employees, if Indemnitee is not an officer or director but is a key employee. Notwithstanding the foregoing, the Company shall have no obligation to obtain or maintain such insurance if the Company determines in good faith that such insurance is not reasonably available, if the premium costs for such insurance are disproportionate to the amount of coverage provided, if the coverage provided by such insurance is limited by exclusions so as to provide an insufficient benefit, or if Indemnitee is covered by similar insurance maintained by a parent or subsidiary of the Company. 8. SEVERABILITY. Nothing in this Agreement is intended to require or shall be construed as requiring the Company to do or fail to do any act in violation of applicable law. The Company's inability, pursuant to court order, to perform its obligations under this Agreement shall not constitute a breach of this Agreement. The provisions of this Agreement shall be severable as provided in this Section 8. If this Agreement or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the Company shall nevertheless indemnify Indemnitee to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated, and the balance of this Agreement not so invalidated shall be enforceable in accordance with its terms. 9. EXCEPTIONS. Any other provision herein to the contrary notwithstanding, the Company shall not be obligated pursuant to the terms of this Agreement: (a) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance expenses to Indemnitee with respect to proceedings or claims initiated or brought voluntarily by Indemnitee and not by way of defense, except with respect to proceedings brought to establish or enforce a right to indemnification under this Agreement or any other statute or law or otherwise as required under Section 145 of the Delaware General Corporation Law, but such indemnification or -5-

6 advancement of expenses may be provided by the Company in specific cases if the Board of Directors finds it to be appropriate; (b) LACK OF GOOD FAITH. To indemnify Indemnitee for any expenses incurred by Indemnitee with respect to any proceeding instituted by Indemnitee to enforce or interpret this Agreement, if a court of competent jurisdiction determines that each of the material assertions made by Indemnitee in such proceeding was not made in good faith or was frivolous; (c) INSURED CLAIMS. To indemnify Indemnitee for expenses or liabilities of any type whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes or penalties, and amounts paid in settlement) to the extent such expenses or liabilities have been paid directly to Indemnitee by an insurance carrier under a policy of officers' and directors' liability insurance maintained by the Company; or (d) CLAIMS UNDER SECTION 16(b). To indemnify Indemnitee for expenses or the payment of profits arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended, or any similar successor statute. 10. CONSTRUCTION OF CERTAIN PHRASES. (a) For purposes of this Agreement, references to the "Company" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that if Indemnitee is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving corporation as Indemnitee would have with respect to such constituent corporation if its separate existence had continued. (b) For purposes of this Agreement, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on Indemnitee with respect to an employee benefit plan; and references to "serving at the request of the Company" shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants, or beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan, Indemnitee shall be deemed to have acted in a manner "not opposed to the best interests of the Company" as referred to in this Agreement. 11. ATTORNEYS' FEES. In the event that any action is instituted by Indemnitee under this Agreement to enforce or interpret any of the terms hereof, Indemnitee shall be entitled to be paid all court costs and expenses, including reasonable attorneys' fees, incurred by Indemnitee -6-

7 with respect to such action, unless as a part of such action, the court of competent jurisdiction determines that each of the material assertions made by Indemnitee as a basis for such action were not made in good faith or were frivolous. In the event of an action instituted by or in the name of the Company under this Agreement or to enforce or interpret any of the terms of this Agreement, Indemnitee shall be entitled to be paid all court costs and expenses, including attorneys' fees, incurred by Indemnitee in defense of such action (including with respect to Indemnitee's counterclaims and cross-claims made in such action), unless as a part of such action the court determines that each of Indemnitee's material defenses to such action were made in bad faith or were frivolous. 12. MISCELLANEOUS. (a) GOVERNING LAW. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of Delaware, without giving effect to principles of conflict of law. (b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter herein and merges all prior discussions between them. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, shall be effective unless in writing signed by the parties to this Agreement. The failure by either party to enforce any rights under this Agreement shall not be construed as a waiver of any rights of such party. (c) CONSTRUCTION. This Agreement is the result of negotiations between and has been reviewed by each of the parties hereto and their respective counsel, if any; accordingly, this Agreement shall be deemed to be the product of all of the parties hereto, and no ambiguity shall be construed in favor of or against any one of the parties hereto. (d) NOTICES. Any notice, demand or request required or permitted to be given under this Agreement shall be in writing and shall be deemed sufficient when delivered personally or sent by telegram or fax, or forty-eight (48) hours after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, and addressed to the party to be notified at such party's address as set forth below or as subsequently modified by written notice. (e) COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. (f) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the Company and its successors and assigns, and inure to the benefit of Indemnitee and Indemnitee's heirs, legal representatives and assigns. (g) SUBROGATION. In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of -7-

8 Indemnitee, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Company to effectively bring suit to enforce such rights. [Signature Page Follows] -8-

9 The parties hereto have executed this Agreement as of the day and year set forth on the first page of this Agreement. XCYTE THERAPIES, INC. By: -------------------------------------- Title: ----------------------------------- Address: 1124 Columbia Street, Suite 130 Seattle, WA 98104 AGREED TO AND ACCEPTED: <> - --------------------------------------- (Signature) Address: -9-

1 EXHIBIT 10.2 ------------------------ ------------------------ XCYTE THERAPIES, INC. SERIES D PREFERRED STOCK PURCHASE AGREEMENT MAY 25, 2000 ------------------------ ------------------------

2 TABLE OF CONTENTS PAGE ---- 1. PURCHASE AND SALE OF STOCK 3 1.1 AUTHORIZATION, SALE AND ISSUANCE OF SHARES.........................................3 1.2 CLOSING............................................................................3 1.3 DELIVERY...........................................................................3 1.4 ADDITIONAL CLOSINGS................................................................4 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY...........................................4 2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION......................................4 2.2 AUTHORIZATION......................................................................4 2.3 CAPITALIZATION.....................................................................5 2.4 SUBSIDIARIES.......................................................................6 2.5 GOVERNMENTAL CONSENTS..............................................................6 2.6 PROPRIETARY INFORMATION AGREEMENT..................................................6 2.7 PATENTS AND TRADEMARKS.............................................................6 2.8 FINANCIAL STATEMENTS...............................................................7 2.9 CHANGES............................................................................7 2.10 LIABILITIES........................................................................8 2.11 LITIGATION.........................................................................8 2.12 COMPLIANCE WITH OTHER INSTRUMENTS..................................................8 2.13 OFFERING...........................................................................9 2.14 AGREEMENTS; ACTION.................................................................9 2.15 LABOR AGREEMENTS AND ACTIONS......................................................10 2.16 TAX RETURNS, PAYMENTS AND ELECTIONS...............................................10 2.17 TITLE TO PROPERTY AND ASSETS......................................................10 2.18 REGISTRATION RIGHTS...............................................................10 2.19 EMPLOYEE BENEFIT PLANS............................................................10 2.20 OBLIGATIONS OF MANAGEMENT.........................................................11 2.21 ENVIRONMENTAL AND SAFETY LAWS.....................................................11 2.22 DISCLOSURE........................................................................11 2.23 SECTION 83(B) ELECTIONS...........................................................11 2.24 REAL PROPERTY HOLDING CORPORATION.................................................11 2.25 INSURANCE.........................................................................11 2.26 INVESTMENT COMPANY ACT............................................................11 3. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR.........................................11 3.1 AUTHORIZATION.....................................................................11 3.2 PURCHASE ENTIRELY FOR OWN ACCOUNT.................................................12 3.3 DISCLOSURE OF INFORMATION.........................................................12 3.4 INVESTMENT EXPERIENCE.............................................................12 3.5 REGULATION D......................................................................12 3.6 RESTRICTED SECURITIES.............................................................12 3.7 LEGENDS...........................................................................13

3 4. CONDITIONS OF INVESTOR'S OBLIGATIONS AT CLOSING........................................13 4.1 REPRESENTATIONS AND WARRANTIES....................................................13 4.2 PERFORMANCE.......................................................................13 4.3 CERTIFICATE.......................................................................13 4.4 COMPLIANCE CERTIFICATE............................................................13 4.5 PROCEEDINGS AND DOCUMENTS.........................................................13 4.6 BOARD OF DIRECTORS................................................................14 4.7 RIGHTS AGREEMENT..................................................................14 4.8 CO-SALE AGREEMENT.................................................................14 4.9 OPINION OF COMPANY COUNSEL........................................................14 4.10 MINIMUM INVESTMENT................................................................14 5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING.....................................14 5.1 REPRESENTATIONS AND WARRANTIES....................................................14 5.2 LEGAL MATTERS.....................................................................14 6. MISCELLANEOUS..........................................................................14 6.1 SURVIVAL OF WARRANTIES............................................................15 6.2 SUCCESSORS AND ASSIGNS............................................................15 6.3 GOVERNING LAW.....................................................................15 6.4 COUNTERPARTS......................................................................15 6.5 TITLES AND SUBTITLES..............................................................15 6.6 NOTICES...........................................................................15 6.7 FINDER'S FEE......................................................................15 6.8 AMENDMENTS AND WAIVERS............................................................16 6.9 SEVERABILITY......................................................................16 6.10 EXCULPATION AMONG INVESTORS.......................................................16 6.11 EXPENSES..........................................................................16 EXHIBITS A Schedule of Investors B Form of Amended and Restated Certificate of Incorporation C Schedule of Exceptions D Form of Proprietary Information Agreement E Form of Amended and Restated Investor Rights Agreement F Form of Amended and Restated Right of First Refusal and CoSale Agreement G Form of Opinion of Counsel to the Company -2-

4 XCYTE THERAPIES, INC. STOCK PURCHASE AGREEMENT THIS SERIES D PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is made as of the 25th day of May 2000, by and between Xcyte Therapies, Inc., a Delaware corporation, located at 1124 Columbia Street, Suite 130, Seattle, WA 98104 (the "Company"), and the investors listed on Exhibit A hereto, each of which is herein referred to as an "Investor." WHEREAS, the Company desires to issue and sell up to 7,194,245 shares of Series D Preferred Stock to the Investors; and WHEREAS, the Investors desire to purchase such shares from the Company on the terms and subject to the conditions of this Agreement. NOW THEREFORE, the parties hereby agree as follows: 1. Purchase and Sale of Stock. 1.1 Authorization, Sale and Issuance of Shares (a) The Company has authorized the sale and issuance of up to 7,194,245 shares of Series D Preferred Stock (the "Shares"), with the Shares having the rights, preferences, privileges and restrictions as set forth in the Company's Restated Certificate of Incorporation in the form satisfactory to the Investors, a copy of which is attached hereto as Exhibit B (the "Certificate"). The Common Stock issuable upon conversion of the Shares is referred to hereinafter as the "Conversion Shares." (b) Subject to the terms and conditions of this Agreement, the Company shall sell and issue to each Investor, and each Investor agrees, severally and not jointly, to purchase from the Company, that number of Shares set forth opposite each Investor's name on Exhibit A attached hereto for the purchase price of $2.78 per share as set forth thereon. 1.2 Closing. The purchase and sale of the Shares shall take place at the offices of Venture Law Group, 4750 Carillon Point, Kirkland, Washington, at 10:00 a.m., on May 25, 2000, or at such other time and place as the Company and Investors may agree (which time and place are designated as the "Closing"). The date of such Closing is hereinafter referred to as the "Closing Date." 1.3 Delivery. At the Closing, the Company shall deliver to each Investor a certificate representing the Shares which such Investor is purchasing against delivery to the

5 Company by such Investor of a check, wire transfer of immediately available funds payable to the Company's order or cancellation of indebtedness (or any combination thereof) in the aggregate amount of the purchase price therefor. 1.4 Additional Closings. If the full number of Series D Preferred Stock of the Company is not sold at the Closing, the Company shall have the right, at any time prior to August 8, 2000 (the "Subsequent Closing Date"), to sell the remaining authorized but unissued shares of Series D Preferred Stock to one or more additional purchasers as determined by the Company, or to any Purchaser hereunder who wishes to acquire additional shares of Series D Preferred Stock at the price and on the terms set forth herein, provided that any such additional purchaser shall be required to execute an Addendum Agreement substantially in the form attached hereto as Exhibit H. Any additional purchaser so acquiring shares of Series D Preferred Stock shall be considered a "Purchaser" for purposes of this Agreement and an "Investor" for the purposes of the Agreements (as defined below), and any Series D Preferred Stock so acquired by such additional purchaser shall be considered "Shares" for purposes of this Agreement and all other agreements contemplated hereby. 2. Representations and Warranties of the Company. The Company hereby represents and warrants to each Investor that, except as set forth on the Schedule of Exceptions attached hereto as Exhibit C, which exceptions shall be deemed to be representations and warranties as if made hereunder: 2.1 Organization, Good Standing and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as now conducted and as proposed to be conducted. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure so to qualify would have a material adverse effect on its business or properties. As of the Closing, the Certificate shall be in the form attached hereto as Exhibit B and the Bylaws of the Company shall be in the form provided to counsel for the Investors prior to the Closing. 2.2 Authorization. (a) The Company has all requisite corporate power and authority to execute and deliver, and to consummate the transactions contemplated by this Agreement, the Amended and Restated Investor Rights Agreement attached as Exhibit E ("Rights Agreement") and the Amended and Restated Right of First Refusal and Co-Sale Agreement attached as Exhibit F (the "Co-Sale Agreement" with the Agreement and Rights Agreement, the "Financing Documents"). All corporate action on the part of the Company, its officers, directors and stockholders necessary for the execution and delivery of, and the consummation of the transactions contemplated by the Financing Documents, the performance of all obligations of the -4-

6 Company under the Financing Documents and the authorization, sale, issuance (or reservation for issuance) and delivery of the Shares being sold hereunder and the Conversion Shares has been taken or will be taken prior to the Closing. The Financing Documents, upon execution and delivery by the Company and assuming the due and proper execution and delivery by the other parties, constitute valid and binding obligations of the Company enforceable in accordance with their respective terms, except as such enforcement may be limited by bankruptcy, insolvency, moratorium and other laws of general application affecting the enforcement of creditors' rights. (b) The Shares, when issued in compliance with the provisions of this Agreement, will be validly issued, fully paid and nonassessable and will be free of any liens or encumbrances known to, or caused or created by, the Company; provided, however, that the Shares may be subject to restrictions on transfer under state and/or federal securities laws as set forth herein, as may be required by changes in such laws and as contemplated by the Financing Documents. Upon conversion of the Shares into the Conversion Shares in conformity with the Certificate, such Conversion Shares will be duly authorized, validly issued, fully paid and nonassessable, and will be free of any liens or encumbrances caused or created by the Company; provided, however, that the Conversion Shares may be subject to restrictions on transfer under state and/or federal securities laws as set forth herein, as may be required by changes in such law and as contemplated by the Financing Documents. (c) Except as set forth herein or in the Financing Documents, no entity has any right of first refusal or any preemptive rights in connection with the issuance of the Shares, the Conversion Shares or any future issuances of securities by the Company. 2.3 Capitalization. (a) Immediately prior to the Closing, the authorized capital of the Company shall consist of: (i) 40,000,000 shares of Common Stock, and (ii), 25,909,976 shares of Preferred Stock (the "Preferred Stock"), of which 7,300,080 have been designated Series A Preferred Stock, 4,097,580 have been designated Series B Preferred Stock, 7,212,316 have been designated Series C Preferred Stock and 7,300,000 have been designated Series D Preferred Stock. Immediately prior to the Closing, 5,964,247 shares of Common Stock, 6,860,512 shares of Series A Preferred Stock, warrants to purchase 439,568 shares of Series A Preferred Stock, 3,903,080 shares of Series B Preferred Stock, warrants to purchase 194,500 shares of Series B Preferred Stock, 7,185,630 shares of Series C Preferred Stock, and warrants to purchase 26,686 shares of Series C Preferred Stock and no shares of Series D Preferred Stock will be outstanding. (b) Except as set forth in this Agreement and the exhibits thereto, there are no outstanding options, warrants, rights (including conversion or preemptive rights) or agreements for the purchase or acquisition from the Company of any shares of its capital stock except that the Company has reserved (i) the Shares for issuance at each Closing, (ii) the Common Stock issuable upon conversion of the Preferred Stock, (iii) 2,500,000 shares of -5-

7 Common Stock reserved for issuance pursuant to a stock option plan adopted by the Company 992,441 options have been granted and remain outstanding, with 1,420,121 shares remaining for grant, (iv) 898,150 shares of Common Stock reserved for issuance to scientific founders upon the achievement of certain milestones, and (v) 157,890 shares reserved for issuance to Carl June or his assignees upon the Company's acquisition of certain future technology. 2.4 Subsidiaries. The Company does not presently own or control, directly or indirectly, any interest in any other corporation, association, or other business entity. 2.5 Governmental Consents. (a) No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority on the part of the Company is required in connection with the consummation of the transactions contemplated by the Financing Documents. (b) No consent, approval, waiver or other action by any person under any contract, agreement, indenture, lease, instrument or other document to which the Company is a party or bound is required or necessary for the execution, delivery and performance of, or the consummation of the transactions contemplated by, any of the Financing Documents by the Company. 2.6 Proprietary Information Agreement. Each former and present employee, consultant and officer of the Company has executed and each future employee, consultant and officer will execute, a Proprietary Information Agreement in the form attached hereto as Exhibit D and no exceptions have been taken by any such employee, consultant or officer to the terms of such agreement. The Company, after reasonable investigation, is not aware that any of its employees, officers or consultants are in violation thereof, and the Company will use its best efforts to prevent any such violation. 2.7 Patents and Trademarks. The Company has sufficient title and ownership of all patents, trademarks, service marks, trade names, copyrights, trade secrets, information, proprietary rights and processes necessary for its business as now conducted and as proposed to be conducted without any conflict with or infringement of the rights of others. There are no outstanding options, licenses, or agreements of any kind relating to the foregoing, nor is the Company bound by or a party to any options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, proprietary rights and processes of any other person or entity. The Company has not received any communications alleging that the Company has violated or, by conducting its business as proposed, would violate any of the patents, trademarks, service marks, trade names, copyrights or trade secrets or other proprietary rights of any other person or entity. The Company is not aware that any of its employees is obligated under any contract (including -6-

8 licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with the use of his or her best efforts to promote the interests of the Company or that would conflict with the Company's business as proposed to be conducted. Neither the execution nor delivery of this Agreement, nor the carrying on of the Company's business by the employees of the Company, nor the conduct of the Company's business as proposed, will, to the best of the Company's knowledge, conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument under which any of such employees is now obligated. The Company does not believe it is or will be necessary to utilize any inventions of any of its employees (or people it currently intends to hire) made prior to their employment by the Company. 2.8 Financial Statements. The Company has delivered to each Investor (i) its unaudited balance sheet as of March 31, 2000 and unaudited statement of income for the period from January 1, 2000 to March 31, 2000 and unaudited financial statements as of December 31, 1999 (collectively the "Financial Statements"). The Financial Statements, together with the notes thereto, are complete and correct in all material respects and have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods indicated, except as disclosed therein, and present fairly the financial condition and position of the Company as of March 31, 2000; provided, however, that the unaudited financial statements are subject to normal recurring year-end audit adjustments (which are not expected to be material), and do not contain all footnotes required under generally accepted accounting principles. 2.9 Changes. Since March 31, 2000, there has not been: (a) Any change in the assets, liabilities, financial condition or operations of the Company from that reflected in the Financial Statements, other than changes in the ordinary course of business, or any other event or condition of any character, any of which individually or in the aggregate has had or is expected to have a material adverse effect on such assets, liabilities, financial condition or operations of the Company; (b) Any resignation or termination of any key officers of the Company; and the Company, to the best of its knowledge, does not know of the impending resignation or termination of employment of any such officer; (c) Any material change, except in the ordinary course of business, in the contingent obligations of the Company by way of guaranty, endorsement, indemnity, warranty or otherwise; -7-

9 (d) Any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the properties, business or prospects or financial condition of the Company; (e) Any direct or indirect loans made by the Company to, or any material change in, any compensation arrangement or agreement with, any stockholder, employee, officer or director of the Company, other than advances made in the ordinary course of business; (f) Any declaration or payment of any dividend or other distribution of the assets of the Company; (g) Any debt, obligation or liability incurred, assumed or guaranteed by the Company, except those for immaterial amounts and for current liabilities incurred in the ordinary course of business; or any waiver by the Company of a valuable right or of a material debt owed to it; (h) Any sale, assignment or transfer of any patents, trademarks, copyrights, trade secrets or other intangible assets; and (i) To the Company's knowledge, any change in any material agreement to which the Company is a party or by which it is bound which materially and adversely affects the business, assets, liabilities, financial condition, operations or prospects of the Company, including compensation agreements with the Company's employees. 2.10 Liabilities. The Company has no material liabilities and knows of no material contingent liabilities not disclosed in the Financial Statements, except current liabilities incurred in the ordinary course of business subsequent to March 31, 2000, which have not been, either in any individual case or in the aggregate, materially adverse. 2.11 Litigation. There is no action, suit, proceeding or investigation pending or currently threatened against the Company that questions the validity of this Agreement or the right of the Company to enter into it, or to consummate the transactions contemplated hereby, or which might result, either individually or in the aggregate, in any material adverse changes in the assets, condition, affairs or prospects of the Company, financially or otherwise, or any change in the current equity ownership of the Company, nor is the Company aware that there is any basis for the foregoing. The foregoing includes, without limitation, actions pending or threatened (or any basis therefor known to the Company) involving the prior employment of any of the Company's employees, their use in connection with the Company's business of any information or techniques allegedly proprietary to any of their former employers, or their obligations under any agreements with prior employers. The Company is not a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or -8-

10 instrumentality. There is no action, suit, proceeding or investigation by the Company currently pending or which the Company intends to initiate. 2.12 Compliance with Other Instruments. The Company is not in violation or default of any provision of its Certificate or Bylaws or any provision of any mortgage, indenture, contract, agreement, instrument, judgment, order, writ, or decree to which it is a party or by which it is bound or, to its knowledge, of any provision of federal or state statute, rule or regulation applicable to the Company which would materially and adversely affect the business, assets, liabilities, financial condition, operations or prospects of the Company. The execution, delivery and performance of this Agreement, the Rights Agreement and the Co-Sale Agreement and the consummation of the transactions contemplated hereby and thereby will not result in any such material violation or be in conflict with or constitute, with or without the passage of time and giving of notice, either a default under any such provision, instrument, judgment, order, writ, decree or contract or an event which results in the creation of any lien, charge or encumbrance upon any assets of the Company. 2.13 Offering. Subject in part to the accuracy of the Investors' representations set forth in Section 3 hereof, the offer, sale and issuance of the Shares as contemplated by this Agreement and the issuance of the Conversion Shares upon the conversion of such Shares are exempt from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"), and the registration, qualification or compliance requirements of any applicable blue sky or other state securities laws, and neither the Company nor any authorized agent acting on its behalf will take any action that would cause the loss of any such exemption. 2.14 Agreements; Action. (a) There are no agreements, understandings or proposed transactions between the Company and any of its officers, directors, affiliates, or any affiliate thereof. (b) There are no agreements, understandings, instruments, contracts or proposed transactions to which the Company is a party or by which it is bound which involve (i) obligations of, or payments to the Company in excess of $25,000, or (ii) the license of any patent, copyright, trade secret or other proprietary right to or from the Company (other than licenses arising from the purchase of "off-the-shelf" products) or (iii) obligations of, or payments by, the Company to any officer, director, employee or family member of any such individual. (c) The Company has not (i) declared or paid any dividends, or authorized or made any distribution upon or with respect to any class or series of its capital stock, (ii) incurred any indebtedness for money borrowed or incurred any other liabilities individually in excess of $25,000 or in excess of $75,000 in the aggregate, (iii) made any loans or advances to any person, other than ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise disposed of any of its assets or rights, other than in the ordinary course of business. -9-

11 (d) The Company is not a party to and is not bound by any contract, agreement or instrument, or subject to any restriction under its Certificate or Bylaws, which materially adversely affects its business as now conducted and as proposed to be conducted. (e) The Company has not engaged in the past twelve (12) months in any discussion (i) with any representative of any corporation or corporations regarding the consolidation or merger of the Company with or into any such corporation or corporations, (ii) with any corporation, partnership, association or other business entity or any individual regarding the sale, conveyance or disposition of all or substantially all of the assets of the Company, or (iii) regarding any other form of liquidation, dissolution or winding up of the Company. 2.15 Labor Agreements and Actions. The Company is not bound by or subject to (and none of its assets or properties is bound by or subject to) any written or oral, express or implied, contract, commitment or arrangement with any labor union, and no labor union has requested or, to the knowledge of the Company, has sought to represent any of the employees, representatives or agents of the Company. There is no strike or other labor dispute involving the Company pending, or to the knowledge of the Company threatened, which could have a material adverse effect on the assets, properties, financial condition, operating results, or business of the Company (as such business is presently conducted and as it is proposed to be conducted), nor is the Company aware of any labor organization activity involving its employees. To the best of its knowledge, the Company is not aware that any officer or key employee, or that any group of key employees, intends to terminate their employment with the Company, nor does the Company have a present intention to terminate the employment of any of the foregoing. The employment of each officer and employee of the Company is terminable at the will of the Company. 2.16 Tax Returns, Payments and Elections. The Company has filed all tax returns and reports as required by law. These returns and reports are true and correct in all material respects. The Company has paid all taxes and other assessments due, except those contested by it in good faith which are listed in the Schedule of Exceptions, attached hereto as Exhibit C. The provision for taxes of the Company as shown in the Balance Sheet is adequate for taxes due or accrued as of the date thereof. The Company has not elected pursuant to the Internal Revenue Code of 1986, as amended (the "Code"), to be treated as a Subchapter S corporation or a collapsible corporation pursuant to Section 1362(a) or Section 341(f) of the Code, respectively, nor has it made any other elections pursuant to the Code (other than elections which relate solely to methods of accounting, depreciation or amortization) which would have a material effect on the Company, its financial condition, its business as presently conducted or proposed to be conducted or any of its properties or material assets. 2.17 Title to Property and Assets. The Company owns its property and assets free and clear of all mortgages, liens, loans and encumbrances, except such encumbrances and liens which arise in the ordinary course of business and do not materially impair the Company's -10-

12 ownership or use of such property or assets. With respect to the property and assets it leases, the Company is in compliance with such leases and, to the best of its knowledge, holds a valid leasehold interest free of any liens, claims or encumbrances. 2.18 Registration Rights. Except as provided in the Rights Agreement, a form of which is attached hereto as Exhibit E, the Company has not granted or agreed to grant any registration rights, including piggyback rights, to any person or entity. 2.19 Employee Benefit Plans. The Company does not have any Employee Benefit Plan as defined in the Employee Retirement Income Security Act of 1974, as amended. 2.20 Obligations of Management. Each officer of the Company is currently devoting his or her full-time to the conduct of the business of the Company. The Company is not aware of any officer or key employee or the Company planning to work less than full-time at the Company in the future. 2.21 Environmental and Safety Laws. To the best of its knowledge, the Company is not in violation of any applicable statute, law or regulation relating to the environment or occupational health and safety, and to its knowledge, no material expenditures are or will be required in order to comply with any such existing statute, law or regulation. 2.22 Disclosure. The Company has fully provided each Investor with all the information which such Investor has requested for deciding whether to purchase the Shares and all information which the Company believes is reasonably necessary to enable such Investor to make such decision. To the best of the Company's knowledge, neither this Agreement, the Rights Agreement, the Co-Sale Agreement nor any other statements or certificates made or delivered in connection herewith, when taken as a whole, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements herein or therein not misleading. 2.23 Section 83(b) Elections. To the Company's knowledge, all elections and notices permitted by Section 83(b) of the Internal Revenue Code and analogous provisions of applicable state tax laws have been timely filed by all employees who have purchased shares of the Company's common stock under agreements that provide for the vesting of such shares. 2.24 Real Property Holding Corporation. The Company is not a real property holding corporation within the meaning of Internal Revenue Code Section 897(c)(2) and any regulations promulgated thereunder. 2.25 Insurance. The Company has fire and casualty insurance policies with coverage customary for companies similarly situated to the Company. -11-

13 2.26 Investment Company Act. The Company is not an "investment company", or a company "controlled" by an "investment", within the meaning of the Investment Company Act of 1940, as amended. 3. Representations and Warranties of the Investor. Each Investor hereby severally and not jointly represents and warrants that: 3.1 Authorization. This Agreement when executed and delivered by such Investor shall constitute a valid and legally binding obligation, enforceable in accordance with its terms, subject to the effect of applicable bankruptcy, insolvency, reorganization, moratorium or other similar federal or state laws affecting the rights of creditors and the effect of rules of law governing specific performance, injunctive relief or other equitable remedies. 3.2 Purchase Entirely for Own Account. This Agreement is made with each Investor in reliance upon such Investor's representations and warranties to the Company, which by such Investor's execution of this Agreement such Investor hereby confirms, that the Shares to be received by such Investor and the Conversion Shares (collectively, the "Securities") will be acquired for investment for such Investor's own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that such Investor has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, each Investor further represents that such Investor does not have any contract, undertaking, agreement or arrangement with any person or entity to sell, transfer or grant participation to such person or to any third person, with respect to any of the Securities. Each Investor represents that it has full power and authority to enter into this Agreement. 3.3 Disclosure of Information. Each Investor believes it has received all the information it considers necessary or appropriate for deciding whether to purchase the Shares. Each Investor further represents that it has had an opportunity to ask questions, if any, and receive answers from the Company regarding the terms and conditions of the offering of the Shares. The foregoing, however, does not limit or modify the representations and warranties of the Company in Section 2 of this Agreement or the right of the Investors to rely thereon. 3.4 Investment Experience. Each Investor is an investor in securities of companies in the development stage and acknowledges that it is able to fend for itself, and bear the economic risk of its investment and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Shares. If other than an individual, Investor also represents it has not been organized for the purpose of acquiring the Shares. 3.5 Regulation D. Each Investor is an "Accredited Investor" as that term is defined in Regulation D promulgated under the Securities Act. -12-

14 3.6 Restricted Securities. Each Investor understands that the Shares it is purchasing (and the Conversion Shares) are characterized as "restricted securities" under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the Securities Act only in certain limited circumstances. In this connection, each Investor represents that it is familiar with Rule 144, as presently in effect, and understands the resale limitations imposed thereby and by the Securities Act. 3.7 Legends. It is understood that the certificates evidencing the Series D Preferred Stock (or the Conversion Shares) may bear one or all of the following legends: (a) "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT. THESE SECURITIES ARE SUBJECT TO A CERTAIN VOTING PROVISION ENTERED INTO BY AND AMONG THE INVESTORS." (b) Any other legends required by the laws of the State of Delaware or any other applicable blue sky or state securities laws. 4. Conditions of Investor's Obligations at Closing. The obligations of each Investor under this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions, any of which may be waived in whole or in part by such Investor with respect to himself, herself or itself unless required by state or federal law: 4.1 Representations and Warranties. The representations and warranties of the Company contained in Section 2 shall be true on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of the date of the Closing. 4.2 Performance. The Company shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing. 4.3 Certificate. The Certificate shall have been filed with the Secretary of State of the State of Delaware. -13-

15 4.4 Compliance Certificate. The President of the Company shall deliver to counsel for the Investors at the Closing a certificate certifying that the conditions specified in Sections 4.1, 4.2 and 4.3 have been fulfilled and stating that there shall have been no adverse change in the business, affairs, prospects, operations, properties, assets, liabilities or condition of the Company since the date of this Agreement. 4.5 Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated at the Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to each Investor and counsel to any of the Investors, and they shall have received all such counterpart original and certified or other copies of such documents as they may reasonably request. 4.6 Board of Directors. As of the Closing, the Board of Directors will be comprised of seven members: Ronald J. Berenson, Robert Curry, Jean Deleage, Steve Johnson, Peter Langecker, Robert Nelsen and Robert Williams. 4.7 Rights Agreement. The Company and the Investors shall have entered into the Rights Agreement in the form attached hereto as Exhibit E. 4.8 Co-Sale Agreement. The Company, Ronald Berenson, Carl June, Jeffrey Bluestone, Jeffrey Ledbetter and Craig Thompson and certain of the Investors shall have entered into the Co-Sale Agreement in the form attached hereto as Exhibit F. 4.9 Opinion of Company Counsel. The Investors shall have received from Venture Law Group, counsel to the Company, an opinion addressed to them, dated the Closing Date, in the form attached hereto as Exhibit G. 4.10 Minimum Investment. As of the Closing Date, the sale and issuance of the Shares by the Company shall amount to a minimum investment by the Investors of at least eleven million (11,000,000) dollars. 5. Conditions of the Company's Obligations at Closing. The obligations of the Company to each Investor under this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions any of which may be waived in whole or in part by the Company unless required by state or federal law: 5.1 Representations and Warranties. The representations and warranties of each Investor contained in Section 3 hereof shall be true and correct on and as of the Closing Date with the same effect as though such representations and warranties had been made on and as of that date; and each Investor shall have performed all obligations and conditions required to be performed or observed by he, she or it on or prior to the Closing Date. -14-

16 5.2 Legal Matters. All material matters of a legal nature which pertain to this agreement and the transactions contemplated hereby, shall have been reasonably approved by counsel to the Company. 6. Miscellaneous. 6.1 Survival of Warranties. The warranties, representations and covenants of the Company and Investors contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement and the Closing and shall in no way be affected by any investigation of the subject matter thereof made by or on behalf of the Investors or the Company. 6.2 Successors and Assigns. The terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 6.3 Governing Law. This Agreement shall be governed by and construed under the laws of the State of Washington. 6.4 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 6.5 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 6.6 Notices. Unless otherwise provided, any notice required or permitted under this Agreement shall be given in writing and shall be deemed effectively given upon personal deliver to the party to be notified, the refusal of delivery by such person, or five (5) days after deposit with the United States Post Office, by registered or certified mail, postage prepaid and addressed to the party to be notified at the address indicated for such party in Exhibit A attached hereto or in the case of the Company on the first page of this Agreement, or at such other address as such party may designate by ten (10) days' advance written notice to the other parties. 6.7 Finder's Fee. Each party represents that it neither is nor will be obligated for any finders' fee or commission in connection with this transaction. Each Investor agrees to indemnify and to hold harmless the Company from any liability for any commission or compensation in the nature of a finders' fee (and the costs and expenses of defending against such liability or asserted liability) for which the Investor or any of its officers, partners, employees, or -15-

17 representatives is responsible. The Company agrees to indemnify and hold harmless each Investor from any liability for any commission or compensation in the nature of a finders' fee (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officers, employees or representatives is responsible. 6.8 Amendments and Waivers. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the holders of a majority of the Shares. Any amendment or waiver effected in accordance with this Section 6.8 shall be binding upon each holder of any securities purchased under this Agreement at the time outstanding (including securities into which such securities are convertible), each future holder of all such securities, and the Company; provided, however, that no condition set forth in Section 4 hereof may be waived with respect to any Investor who does not consent thereto. 6.9 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms. 6.10 Exculpation Among Investors. Each Investor acknowledges that it is not relying upon any person, firm or corporation, other than the Company and its officers and directors, in making its investment decision to invest in the Company. Each Investor agrees that no other Investor nor the respective controlling persons, officers, directors, partners, agents or employees of any such other Investor shall be liable for any action heretofore or hereafter taken or omitted to be taken by any of them in connection with each Investor's purchase of the Shares and Conversion Shares. 6.11 Expenses. Upon the Closing of the purchase and sale of securities as contemplated by this Agreement and the exhibits thereto, the Company shall pay the fees and reasonable expenses of counsel for the Investors, which fees shall not exceed $15,000.00. (signature page follows) -16-

18 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. XCYTE THERAPIES, INC. By: -------------------------------------- Name: ------------------------------------ (print) Title: ----------------------------------- PURCHASERS: ----------------------------------------- (Print name of Purchaser) By: -------------------------------------- Name: ------------------------------------ (print) Title: ----------------------------------- [SIGNATURE PAGE TO XCYTE THERAPIES, INC. SERIES D PURCHASE AGREEMENT]

19 EXHIBIT A SCHEDULE OF INVESTORS NUMBER OF SERIES D INVESTOR NAME AND ADDRESS PREFERRED SHARES AMOUNT OF INVESTMENT DLJ CAPITAL CORP. 6,475 $18,000.50 3000 Sand Hill Road Building Three, Suite 170 Menlo Park, CA 94025 Attn: Philippe Chambon, M.D. Ph.D. DLJ FIRST ESC L.P. 32,374 $89,999.72 3000 Sand Hill Road Building Three, Suite 170 Menlo Park, CA 94025 Attn: Philippe Chambon, M.D. Ph.D. SPROUT CAPITAL VII, L.P. 281,622 $782,909.16 3000 Sand Hill Road Building Three, Suite 170 Menlo Park, CA 94025 Attn: Philippe Chambon, M.D. Ph.D. THE SPROUT CEO FUND, L.P. 3,270 $9,090.60 3000 Sand Hill Road Building Three, Suite 170 Menlo Park, CA 94025 Attn: Philippe Chambon, M.D. Ph.D. ARCH VENTURE FUND III, L.P. 962,230 $2,674,999.40 1000 Second Avenue, Suite 3700 Seattle, WA 98104-1053 Attn: Bob Nelsen ALTA CALIFORNIA PARTNERS, L.P. 571,491 $1,588,744.98 One Embarcadero Center, Suite 4050 San Francisco, CA 94111 Attn: Jean Deleage ALTA EMBARCADERO PARTNERS, LLC 13,056 $36,295.68 One Embarcadero Center, Suite 4050 San Francisco, CA 94111

20 NUMBER OF SERIES D INVESTOR NAME AND ADDRESS PREFERRED SHARES AMOUNT OF INVESTMENT Attn: Jean Deleage TGI FUND II, LC 286,022 $795,141.16 6501 Columbia Center 701 - 5th Avenue Seattle, WA 98104 Attn: Michael Beblo and Steven Johnson FALCON TECHNOLOGY PARTNERS, L.P. 95,341 $265,047.98 600 Dorset Road Devon, PA 19333 Attn: Jim Rathman VULCAN VENTURES INC. 719,424 $1,999,998.72 110 110th Avenue, NE, Suite 550 Bellevue, WA 98004 Attn: Ruth B. Kunath FLUKE CAPITAL MANAGEMENT, L.P. 89,928 $249,999.84 11400 SE 6th Street, Suite 230 Bellevue, WA 98004 Attn: Dennis Weston TOM ALBERG 719,424 $1,999,998.72 c/o Madrona Investment Group 1000 2nd Avenue Seattle, WA 98104 MGN OPPORTUNITY GROUP LLC 359,712 $999,999.36 Matthew G. Norton Company The Norton Building 801 Second Avenue, Suite 1300 Seattle, WA 98104 Attn: Stephen Humphreys -2-

21 NUMBER OF SERIES D INVESTOR NAME AND ADDRESS PREFERRED SHARES AMOUNT OF INVESTMENT ARNOLD L. HOLM, JR. 36,000 $100,080.00 Holm Construction Services 310 3rd Avenue NE, Suite 103 Issaquah, WA 98027 HENRY JAMES 89,928 $249,999.84 22420 North Dogwood Lane Woodway, WA 98020 OKI ENTERPRISES, LLC 359,712 $999,999.36 c/o Scott Oki 10838 Main Street Bellevue, WA 98004 VLG INVESTMENTS LLC 12,619 $35,080.82 c/o Elias J. Blawie 2800 Sand Hill Road Menlo Park, CA 94025 VLG ASSOCIATES 2000 1,770 $4,920.60 c/o Elias J. Blawie 2800 Sand Hill Road Menlo Park, CA 94025 SONYA F. ERICKSON 1,799 $5001.22 4750 Carillon Point Kirkland, WA 98033 TOTAL 4,642,197 $12,905,307.66 -3-

22 EXHIBIT B FORM OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION (SEE TAB NO. 4)

23 EXHIBIT C SCHEDULE OF EXCEPTIONS

24 EXHIBIT D FORM OF PROPRIETARY INFORMATION AGREEMENT

25 EXHIBIT E FORM OF AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT (SEE TAB NO. 2)

26 EXHIBIT F FORM OF AMENDED AND RESTATED RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT (SEE TAB NO. 3)

27 EXHIBIT G FORM OF OPINION OF COUNSEL TO THE COMPANY (SEE TAB NO. 11)

1 EXHIBIT 10.3 XCYTE THERAPIES, INC. ADDENDUM TO SERIES D PREFERRED STOCK PURCHASE AGREEMENT AND OMNIBUS AMENDMENT TO SERIES D FINANCING AGREEMENTS This Addendum to Series D Preferred Stock Purchase Agreement and Omnibus Amendment to Series D Financing Agreements (the "Addendum") is made as of the 8th day of August, 2000 by and among Xcyte Therapies, Inc., a Delaware corporation (the "Company"), the investors listed on Exhibit A attached hereto (each an "Additional Purchaser" and together the "Additional Purchasers"), the holders of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock listed on Exhibit B hereto (each a "Series A Investor," "Series B Investor" and "Series C Investor" and together the "Series A Investors," "Series B Investors" and "Series C Investors"), the existing holders of Series D Preferred Stock listed on Exhibit C hereto (each an "Initial Series D Investor," together the "Initial Series D Investors" and together with the Series A Investors, Series B Investors and Series C Investors, the "Investors") and Ronald J. Berenson, Jeffrey Bluestone, Carl June, Jeffrey Ledbetter and Craig Thompson, each of whom is herein referred to as a "Founder." All capitalized terms not defined herein shall have the meaning set forth in the Purchase Agreement (defined herein). RECITALS WHEREAS, on May 25, 2000, the Company entered into a Series D Preferred Stock Purchase Agreement attached hereto as Exhibit F (the "Purchase Agreement") with the Initial Series D Investors. The Purchase Agreement provides in Section 1.4 thereof that additional investors may, under conditions set forth therein, become parties to the Purchase Agreement at any time on or before August 8, 2000; WHEREAS, the parties hereto desire, through this Addendum, to amend the Purchase Agreement, the Amended and Restated Investor Rights Agreement dated as of May 25, 2000 by and among the Company, the Founders and the Investors attached hereto as Exhibit G (the "Investor Rights Agreement") and the Amended and Restated Right of First Refusal and Co-Sale Agreement attached hereto as Exhibit H (the "Co-Sale Agreement" and together with the Purchase Agreement and the Investor Rights Agreement, the "Agreements"); WHEREAS, pursuant to the terms of Section 8.1 of the Investor Rights Agreement, the Investors' Rights Agreement may be amended only with the written consent of the Company and the holders of a two-thirds of the Registrable Securities (as defined therein) then outstanding, (as defined therein); WHEREAS, pursuant to the terms of Section 7.4 of the Co-Sale Agreement, the Co-Sale Agreement may be amended only with the written consent of the Company, each Stockholder (as defined therein) and the holders of a majority of the Investor Stock (as defined therein) then outstanding, (as defined therein); WHEREAS, pursuant to the terms of Section 6.8 of the Purchase Agreement, the Purchase Agreement may be amended only with the written consent of the Company and Initial -1-

2 Series D Investors holding at least a majority of the Stock (or the Common Stock issuable upon conversion thereof); WHEREAS, the Company, the Additional Purchasers, the undersigned Investors and the undersigned Founders, constituting the holders of sufficient shares of capital stock of the Company to amend each of the Agreements, desire to amend certain terms and conditions of the Agreements; NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS: AGREEMENT In consideration of the mutual promises, covenants and conditions hereinafter set forth, the parties hereto mutually agree as follows: 1. AUTHORIZATION AND SALE OF PREFERRED STOCK AND WARRANTS. 1.1 AUTHORIZATION OF PREFERRED STOCK. The Company has authorized the issuance pursuant to this Addendum of up to 9,390,400 shares of its Series D Preferred Stock (the "Additional Shares") and the issuance of Warrants to purchase 1,051,712 shares of Common Stock (the "Warrants") to the Initial Series D Investors and the Additional Purchasers. The rights, preferences, privileges and restrictions of the Series D Preferred Stock are as set forth in the Company's Amended and Restated Certificate of Incorporation attached as Exhibit J to the Purchase Agreement (the "Restated Certificate"). 1.2 SALE OF PREFERRED STOCK AND WARRANTS. Subject to the terms and conditions hereof, at the Closing (as defined in Section 2.1 hereof) the Company will issue and sell to each Additional Purchaser, and each Additional Purchaser severally agrees to purchase from the Company, that number of Additional Shares at a cash purchase price of $2.78 per share of Series D Preferred Stock and Warrants at a cash purchase price of $0.001 per share of Common Stock specified opposite such Additional Purchaser's name on Exhibit A hereto. Each of the Additional Purchasers, by their signatures hereto, shall hereby (i) become parties to the Purchase Agreement, as amended by this Addendum (ii) be considered a "Purchaser" for all purposes under the Purchase Agreement, (iii) have all the rights and obligations of a Purchaser thereunder, (iv) become parties to the Investors' Rights Agreement, as amended, and Voting Agreement, as amended, (v) be considered a "Series D Investor" for all purposes under the Investor Rights Agreement, as amended, and (vi) have all the rights and obligations of an Investor thereunder. In addition, at the Closing, the Company will issue and sell to each Initial Series D Investor the Warrants specified opposite such Initial Series D Investor's name on Exhibit A hereto at a cash purchase price of $0.001 per share. The Additional Shares, the Warrants and the Common Stock issuable upon exercise of the Warrants (the "Warrant Shares") acquired by the Additional Purchasers and the Initial Series D Investors hereunder shall be considered "Shares" for all purposes under the Purchase Agreement, as amended. -2-

3 2. CLOSING; DELIVERY. 2.1 CLOSING. The closing of the purchase and sale of the Additional Shares and Warrants hereunder (the "Closing") shall be held at the offices of Venture Law Group, Kirkland, Washington, at 10:00 a.m., on August 8, 2000, or at such other time and place as the Company and the Additional Purchasers may agree. 2.2 DELIVERY. At the Closing, the Company will deliver to each Additional Purchaser a certificate representing the number of Additional Shares and Warrants set forth opposite such Additional Purchaser's name on Exhibit A, against payment of the purchase price therefor by each Additional Purchaser by check or wire transfer to the Company. In addition, the Company will deliver to each Initial Series D Investor the Warrants specified opposite such Initial Series D Investor's name on Exhibit A, against payment of the purchase price therefor by each Initial Series D Investor by check or wire transfer to the Company. 3. DISCLOSURE; CAPITALIZATION. 3.1 DISCLOSURE. Each Additional Purchaser hereby acknowledges receipt of the Purchase Agreement and the exhibits thereto. The Company affirms to each Additional Purchaser that: (i) The representations and warranties of the Company set forth in Section 2 of the Purchase Agreement were true and accurate when made; (ii) Those representations and warranties, which are incorporated herein by this reference and made a part hereof, remain true and accurate in all material respects as of the date hereof, except (A) for changes resulting from the transactions contemplated in the Purchase Agreement and (B) as set forth in the Schedule of Exceptions to Representations and Warranties attached hereto as Exhibit D. (iii) The conditions to closing set forth in Section 4 of the Purchase Agreement and in Section 5 hereof have been satisfied, provided that the conditions set forth in Section 4.1 of the Purchase Agreement shall include references to changes in the Company's representations and warranties and the Company's status, respectively, as set forth herein and in the Exhibits attached hereto, and resulting from the consummation of the transactions contemplated by the Purchase Agreement. 3.2 CAPITALIZATION. Immediately prior to the Closing, the authorized capital of the Company shall consist of: (i) Immediately prior to the Closing, the authorized capital of the Company shall consist of: (a) 40,000,000 shares of Common Stock, and (b) 28,109,976 shares of Preferred Stock (the "Preferred Stock"), of which 7,300,080 have been designated Series A Preferred Stock, 4,097,580 have been designated Series B Preferred Stock, 7,212,316 have been designated Series C Preferred Stock and 9,500,000 have been designated Series D Preferred Stock. Immediately prior to the Closing, 5,965,234 shares of Common Stock, 6,860,512 shares -3-

4 of Series A Preferred Stock, warrants to purchase 439,568 shares of Series A Preferred Stock, 3,903,080 shares of Series B Preferred Stock, and warrants to purchase 194,500 shares of Series B Preferred Stock, 7,185,630 shares of Series C Preferred Stock, warrants to purchase 26,686 shares of Series C Preferred Stock and 4,642,197 shares of Series D Preferred Stock will be outstanding. (ii) Except as set forth in this Agreement and the exhibits thereto, there are no outstanding options, warrants, rights (including conversion or preemptive rights) or agreements for the purchase or acquisition from the Company of any shares of its capital stock except that the Company has reserved (a) the Shares for issuance at Closing, (b) the Common Stock issuable upon conversion of the Preferred Stock, (c) 2,500,000 shares of Common Stock reserved for issuance pursuant to a stock option plan adopted by the Company of which options to purchase 988,453 shares have been granted and remain outstanding, with 1,423,122 shares remaining for grant (d) 898,150 shares of Common Stock reserved for issuance to scientific founders upon the achievement of certain milestones, and (e) 157,890 shares of Common Stock reserved for issuance to Carl June or his assignees upon the Company's acquisition of certain future technology. (iii) Based in part upon the representations of each Purchaser in this Addendum and subject to the provisions of Section 2.5 of the Purchase Agreement, the Stock (and the Common Stock issuable upon conversion thereof) has been issued or will be issued in compliance with all applicable federal and state securities laws. 4. REPRESENTATIONS AND WARRANTIES OF ADDITIONAL PURCHASERS AND INITIAL SERIES D INVESTORS. Each Additional Purchaser and Initial Series D Investor, severally and not jointly, acknowledges that such Additional Purchaser has reviewed the representations and warranties set forth in Section 3 of the Purchase Agreement and agrees with the Company that such representations and warranties, which are incorporated herein by this reference and made a part hereof, are true and correct as of the date hereof as they relate to such Additional Purchaser's purchase of the Additional Shares and Warrants, or Initial Series D Investor's purchase of Warrants, as the case may be, hereunder. 5. CONDITIONS TO ADDITIONAL PURCHASERS' OBLIGATIONS AT CLOSING. The obligation of each Additional Purchaser to purchase the Additional Shares at the Closing is subject to the fulfillment to such Additional Purchaser's satisfaction at or prior to the Closing of the following conditions: 5.1 REPRESENTATIONS AND WARRANTIES CORRECT; PERFORMANCE OF OBLIGATIONS. The representations and warranties made by the Company in Section 3 hereof shall be true and correct when made, and shall be true and correct on the date of the Closing with the same force and effect as if they had been made on and as of said date, subject to changes contemplated by this Addendum; and the Company shall have performed all obligations and conditions herein required to be performed or observed by it at or prior to the Closing. -4-

5 5.2 CONSENTS AND WAIVERS. The Company shall have obtained any and all consents and waivers necessary or appropriate for consummation of the transactions contemplated by this Addendum. 5.3 LEGAL OPINION. Upon request, each of the Additional Purchasers will be entitled to receive from Venture Law Group, legal counsel for the Company, a legal opinion addressed to the Additional Purchasers substantially in the form attached hereto as Exhibit I. 6. CONDITIONS TO COMPANY'S OBLIGATIONS AT CLOSING. The obligations of the Company under Sections 1.1 and 1.2 of this Addendum are subject to the fulfillment at or before the Closing of each of the following conditions: 6.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of each Additional Purchaser and Initial Series D Investor contained in Section 4 hereof shall be true at the Closing. 6.2 CONSENTS AND WAIVERS. The Company shall have obtained any and all consents and waivers necessary or appropriate for the Purchasers to become parties to the Investor Rights Agreement for the consummation of the transactions contemplated by this Addendum. 7. AMENDMENTS TO AGREEMENTS. 7.1 STOCK PURCHASE AGREEMENT. The Purchase Agreement is amended to provide for the sale by the Company of Series D Preferred Stock and Warrants, substantially in the form attached hereto as Exhibit E, to purchase that number of shares of Common Stock indicated on Exhibit A; and all references to "Shares" in the Purchase Agreement shall be amended to include the Warrant Shares, as appropriate. 7.2 INVESTOR RIGHTS AGREEMENT. (i) Section 1.1(g) of the Investor Rights Agreement is hereby amended to read in its entirety as follows: "(a) The term "Registrable Securities" means (1) the Common Stock issued or issuable upon conversion of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock or any Common Stock issued upon conversion of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock issuable upon the exercise of outstanding warrants to purchase such shares of Preferred Stock, (2) up to 1,051,712 shares of Common Stock of the Company issued or issuable upon exercise of warrants issued to the holders of Series D Preferred Stock, (3) up to 6,158 shares of Common Stock of the Company issued or issuable upon conversion of the Series C Preferred Stock issued or issuable upon exercise of that certain warrant issued to Phoenix Leasing Incorporated, (4) up to -5-

6 6,157 shares of Common Stock of the Company issued or issuable upon conversion of the Series C Preferred Stock issued or issuable upon exercise of that certain warrant issued to Robert Kingsbook and (5) any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, such Preferred Stock or Common Stock, excluding in all cases, however, (i) any Registrable Securities sold by a person in a transaction in which such person's rights under this Section 1 are not assigned, or (ii) any Registrable Securities sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction; and" (ii) Section 1.11(a)(ii) of the Investor Rights Agreement is hereby amended to read in its entirety as follows: "(i) as soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder's or Holders' Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within 15 days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to this Section 1.11: (1) if Form S-3 is not available for such offering by the Holders; (2) if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public (net of any underwriters' discounts or commissions) of less than $1,000,000; (3) if the Company shall furnish to the Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such Form S-3 Registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 registration statement for a period of not more than 120 days after receipt of the request of the Holder or Holders under this Section 1.11; provided, however, that the Company shall not utilize this right more than once in any twelve (12) month period; (4) if the Company has already effected one registration on Form S-3 within the past six (6) months for the Holders pursuant to this Section 1.11; (5) in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, -6-

7 qualification or compliance; (6) if the Company, within ten (10) days of the receipt of the request of the initiating Holders, gives notice of its bona fide intention to effect the filing of a registration statement with the Commission within ninety (90) days of receipt of such request (other than with respect to a registration statement relating to a Rule 145 transaction, or an offering solely to employees); or (7) during the period starting with the date ninety (90) days prior to the Company's estimated date of filing of, and ending on the date six (6) months immediately following, the effective date of any registration statement pertaining to securities of the Company (other than a registration of securities in a Rule 145 transaction or with respect to an employee benefit plan), provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective." (iii) Section 3 of the Investor Rights Agreement is hereby amended to read in its entirety as follows: "3. Voting Provisions. The undersigned hereby agree that in all elections of directors of the Company the Investors will vote their shares such that one nominee designated by Alta Venture Partners, one nominee designated by the Sprout Group, one nominee designated by ARCH Venture Fund III, L.P., one nominee designated by TGI Fund II and one nominee designated by MPM Capital will be elected to the Company's Board of Directors. This Section 3 shall automatically terminate upon the earlier to occur of: (i) a Qualified Public Offering or (ii) when the Company first becomes subject to the periodic reporting requirements of Sections 12(g) or 15(d) of the Securities Exchange Act of 1934, as amended." (iv) Waiver of Preemptive Rights. To the extent that an Investor under the Investor Rights Agreement or Additional Purchaser is not purchasing its pro rata share of Series D Preferred Stock pursuant to the Purchase Agreement or Addendum, all rights under the Preemptive Rights set forth in Section 2 of the Investor Rights Agreement to purchase such securities and to receive notice is hereby waived. This waiver is effective upon the execution of this Addendum. 7.3 CO-SALE AGREEMENT. (i) Section 1.1 of the Co-Sale Agreement is hereby amended to read in its entirety as follows: "1.1 "Common Stock Equivalents" means and includes all shares of the Company's Common Stock issued and outstanding at the relevant time plus (i) all shares of Common Stock issuable upon exercise of any options, warrants and other rights of any kind that are then -7-

8 exercisable, and (ii) all shares of Common Stock issuable upon conversion or exchange of (A) any convertible securities, including, without limitation, Preferred Stock and debt securities then outstanding, which are by their terms then convertible into or exchangeable for Common Stock, or (B) any such convertible securities issuable upon exercise of options, warrants or other rights that are then exercisable." (ii) Section 1.4 of the Co-Sale Agreement is hereby amended to read in its entirety as follows: "1.4 "Investor Stock" means (i) as to the Investors, the Common Stock Equivalents currently owned or hereafter acquired by the Investors, or (ii) as to the Transferee, the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, shares exercisable into Common Stock issued in connection with the Series D Preferred Stock or the Common Stock transferred to the Transferee by Investor and still held by Transferee (expressed in Common Stock Equivalents) plus all Common Stock Equivalents acquired by Transferee pursuant to Section 2.3 of this Agreement." (iii) Section 1.6 of the Co-Sale Agreement is hereby amended to read in its entirety as follows: "1.6 "Transferee" means (i) any transferee of at least twenty percent (20%) of the Investors' originally-purchased Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock, the Common Stock issued upon conversion thereof or the Common Stock issued upon exercise of Warrants held by Investors or (ii) any transferee who is an affiliate of the Investor effecting the transfer, including, with respect to a party which is a partnership or limited liability company, its partners, members or an affiliated entity managed by the same manager or managing partner or management company, or managed or owned by an entity controlling, controlled by or under common control with, such manager or managing partner or management company." (iv) Section 7.4 of the Co-Sale Agreement is hereby amended to read in its entirety as follows: "7.4 Amendment. Any amendment, modification or waiver of this Agreement shall be effective only with the written consent of the Investors holding more than fifty percent (50%) of the then outstanding Investor Stock, a majority of the Stockholders and the Company; provided, -8-

9 however, that any person may waive, reduce or release (in whole or in part) any of its rights hereunder without the consent of any other parties hereto. Any waiver by a party of its rights hereunder shall be effective only if evidenced by a written instrument executed by a duly authorized representative of such party. Any amendment or waiver effected in accordance with this Section 7.4 shall be binding upon the Company, the Investors and the Stockholders, and each of their respective successors and assigns. Notwithstanding the foregoing, the Company may, without obtaining any further consent of the Investors and Stockholders, amend this Agreement to the extent necessary to grant rights and obligations on a pari passu basis with the rights and obligations of the Series D Preferred Stock Investors hereunder to investors in any subsequent round of financing prior to the Subsequent Closing Date (as such term is defined in the Series D Preferred Stock Purchase Agreement), and such investors shall become parties to this Agreement by executing a counterpart hereof." 8. MISCELLANEOUS. 8.1 INCORPORATION BY REFERENCE. The provisions set forth in Section 6 of the Purchase Agreement (other than Section 6.6) are incorporated herein by this reference and made a part hereof. Except as otherwise set forth herein, the terms and conditions of the Purchase Agreement shall remain in full force and effect notwithstanding the execution of this Agreement and are incorporated in their entirety herein and made a part of this Addendum as if fully set forth herein. 8.2 NOTICES. Any notice required or permitted by this Addendum and/or the Agreements shall be in writing and shall be deemed sufficient upon delivery, when delivered personally or sent by overnight courier telegram or fax, or forty-eight (48) hours after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, and addressed to the party to be notified at such party's address or fax number (as set forth below or in the Purchase Agreement or on Exhibit A hereto or thereto, or as subsequently modified by written notice) and (a) if to the Company, with a copy to Sonya F. Erickson, Venture Law Group, 4750 Carillon Point, Kirkland, Washington 98033, fax number (425) 739-8750 or (b) if to the Purchasers, with a copy to Laura Hodges-Taylor, Goodwin, Proctor & Hoar LLP, Exchange Place, Boston, MA 02109, fax number (617) 570-8150. 8.3 COUNTERPARTS. This Addendum may be executed in any number of counterparts, each of which may be executed by less than all of the Additional Purchasers, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument. -9-

10 8.4 FEES AND EXPENSES. The Company shall pay the reasonable fees and expenses of Goodwin, Proctor & Hoar LLP, the counsel for the Purchasers, incurred with respect to this Agreement, the documents referred to herein and the transactions contemplated hereby and thereby, provided such fees and expenses do not exceed $20,000. [Signature page follows] -10-

11 The parties hereto have executed this Addendum as of the date first set forth above. XCYTE THERAPIES, INC. By: --------------------------------------------- Ron J. Berenson, Chief Executive Officer Address: 1124 Columbia Street, Suite 130 Seattle, WA 98104 Fax: (206) 262-6200 SIGNATURE PAGE TO XCYTE THERAPIES, INC. ADDENDUM TO SERIES D STOCK PURCHASE AGREEMENT AND OMNIBUS AMENDMENT TO SERIES D FINANCING DOCUMENTS

12 ADDITIONAL PURCHASERS: MPM BIOVENTURES II, L.P. By: MPM Asset Management II, L.P., its General Partner By: MPM Asset Management II LLC, its General Partner By: --------------------------------------------- Name: Title: MPM BIOVENTURES II-QP, L.P. By: MPM Asset Management II, L.P., its General Partner By: MPM Asset Management II LLC, its General Partner By: --------------------------------------------- Name: Title: MPM BIOVENTURES GMBH & CO. PARALLEL-BETEILIGUNGS KG By: MPM Asset Management II, L.P., its General Partner By: MPM Asset Management II LLC, its General Partner By: --------------------------------------------- Name: Title: MPM ASSET MANAGEMENT INVESTORS 2000 B LLC By: --------------------------------------------- Name: Title: SIGNATURE PAGE TO XCYTE THERAPIES, INC. ADDENDUM TO SERIES D STOCK PURCHASE AGREEMENT AND OMNIBUS AMENDMENT TO SERIES D FINANCING DOCUMENTS

13 ADDITIONAL PURCHASERS: ---------------------------------- JOHN E. PARKEY Address: Tredegar Investments 6501 Columbia Center 701 Fifth Avenue Seattle, WA 98104 SIGNATURE PAGE TO XCYTE THERAPIES, INC. ADDENDUM TO SERIES D STOCK PURCHASE AGREEMENT AND OMNIBUS AMENDMENT TO SERIES D FINANCING DOCUMENTS

14 ADDITIONAL PURCHASERS: ---------------------------------- NEIL RUZIC Address: c/o Little Stirrup Cay Research Limited 345 East Lake Front Drive Beverly Shores, IN 46301 SIGNATURE PAGE TO XCYTE THERAPIES, INC. ADDENDUM TO SERIES D STOCK PURCHASE AGREEMENT AND OMNIBUS AMENDMENT TO SERIES D FINANCING DOCUMENTS

15 ADDITIONAL PURCHASERS: ---------------------------------- ARCH VENTURE FUND III, L.P. By: --------------------------------------------- Name: ------------------------------------------- (print) Title: ------------------------------------------ Address: 1000 Second Avenue, Suite 3700 Seattle, WA 98104-1053 Attn: Bob Nelsen SIGNATURE PAGE TO XCYTE THERAPIES, INC. ADDENDUM TO SERIES D STOCK PURCHASE AGREEMENT AND OMNIBUS AMENDMENT TO SERIES D FINANCING DOCUMENTS

16 ADDITIONAL PURCHASERS: ---------------------------------- JIM ROBERTS Address: 2540 Shoreland Drive South Seattle, WA 98144 SIGNATURE PAGE TO XCYTE THERAPIES, INC. ADDENDUM TO SERIES D STOCK PURCHASE AGREEMENT AND OMNIBUS AMENDMENT TO SERIES D FINANCING DOCUMENTS

17 ADDITIONAL PURCHASERS: ---------------------------------- MARK GROUDINE Address: 1142 20th Avenue East Seattle, WA 98112 SIGNATURE PAGE TO XCYTE THERAPIES, INC. ADDENDUM TO SERIES D STOCK PURCHASE AGREEMENT AND OMNIBUS AMENDMENT TO SERIES D FINANCING DOCUMENTS

18 FOUNDERS: - ------------------------------------ RONALD J. BERENSON - ------------------------------------ JEFFREY BLUESTONE - ------------------------------------ CARL JUNE - ------------------------------------ JEFFREY LEDBETTER - ------------------------------------ CRAIG THOMPSON SIGNATURE PAGE TO XCYTE THERAPIES, INC. ADDENDUM TO SERIES D STOCK PURCHASE AGREEMENT AND OMNIBUS AMENDMENT TO SERIES D FINANCING DOCUMENTS

19 INITIAL SERIES D INVESTORS: DLJ CAPITAL CORP. By: --------------------------------------- Name: ------------------------------------- (print) Title: ------------------------------------ Address: 3000 Sand Hill Road, Bldg. 3, Suite 170 Menlo Park, CA 94025 DLJ FIRST ESC, L.P. By: --------------------------------------- Name: ------------------------------------- (print) Title: ------------------------------------ Address: 3000 Sand Hill Road, Bldg. 3, Suite 170 Menlo Park, CA 94025 SPROUT CAPITAL VII, L.P. By: --------------------------------------- Name: ------------------------------------- (print) Title: ------------------------------------ Address: 3000 Sand Hill Road, Bldg. 3, Suite 170 Menlo Park, CA 94025 THE SPROUT CEO FUND, L.P. By: --------------------------------------- Name: ------------------------------------- (print) Title: ------------------------------------ Address: 3000 Sand Hill Road, Bldg. 3, Suite 170 Menlo Park, CA 94025 SIGNATURE PAGE TO XCYTE THERAPIES, INC. ADDENDUM TO SERIES D STOCK PURCHASE AGREEMENT AND OMNIBUS AMENDMENT TO SERIES D FINANCING DOCUMENTS

20 INITIAL SERIES D INVESTORS: ARCH VENTURE FUND III, L.P. By: --------------------------------------- Name: ------------------------------------- (print) Title: ------------------------------------ Address: 1000 Second Avenue, Suite 3700 Seattle, WA 98104-1053 Attn: Bob Nelsen SERIES A AND B INVESTOR: ARCH VENTURE FUND II, L.P. By: --------------------------------------- Name: ------------------------------------- (print) Title: ------------------------------------ Address: 1000 Second Avenue, Suite 3700 Seattle, WA 98104-1053 Attn: Bob Nelsen SIGNATURE PAGE TO XCYTE THERAPIES, INC. ADDENDUM TO SERIES D STOCK PURCHASE AGREEMENT AND OMNIBUS AMENDMENT TO SERIES D FINANCING DOCUMENTS

21 INITIAL SERIES D INVESTORS: ALTA CALIFORNIA PARTNERS, L.P. By: --------------------------------------- Name: ------------------------------------- (print) Title: ------------------------------------ Address: One Embarcadero Center, Suite 4050 San Francisco, CA 94111 Attn: Jean Deleage ALTA EMBARCADERO PARTNERS, LLC By: --------------------------------------- Name: ------------------------------------- (print) Title: ------------------------------------ Address: One Embarcadero Center, Suite 4050 San Francisco, CA 94111 Attn: Jean Deleage SIGNATURE PAGE TO XCYTE THERAPIES, INC. ADDENDUM TO SERIES D STOCK PURCHASE AGREEMENT AND OMNIBUS AMENDMENT TO SERIES D FINANCING DOCUMENTS

22 INITIAL SERIES D INVESTORS: - ------------------------------------ TGI FUND II, LC Address: 6501 Columbia Center 701 5th Avenue Seattle, WA 98104 Attn: Michael Beblo & Dave Maki SIGNATURE PAGE TO XCYTE THERAPIES, INC. ADDENDUM TO SERIES D STOCK PURCHASE AGREEMENT AND OMNIBUS AMENDMENT TO SERIES D FINANCING DOCUMENTS

23 INITIAL SERIES D INVESTORS: - ------------------------------------ FALCON TECHNOLOGY PARTNERS, L.P. Address: 600 Dorset Road Devon, PA 19333 Attn: Jim Rathman SIGNATURE PAGE TO XCYTE THERAPIES, INC. ADDENDUM TO SERIES D STOCK PURCHASE AGREEMENT AND OMNIBUS AMENDMENT TO SERIES D FINANCING DOCUMENTS

24 INITIAL SERIES D INVESTORS: - ------------------------------------ VULCAN VENTURES, INC. Address: 110 110th Avenue NE, Suite 550 Bellevue, WA 98004 Attn: Ruth B. Kunath SIGNATURE PAGE TO XCYTE THERAPIES, INC. ADDENDUM TO SERIES D STOCK PURCHASE AGREEMENT AND OMNIBUS AMENDMENT TO SERIES D FINANCING DOCUMENTS

25 INITIAL SERIES D INVESTORS: - ------------------------------------ FLUKE CAPITAL MANAGEMENT, L.P. Address: 11400 SE 6th Street, Suite 230 Bellevue, WA 98004 Attn: Dennis Weston SIGNATURE PAGE TO XCYTE THERAPIES, INC. ADDENDUM TO SERIES D STOCK PURCHASE AGREEMENT AND OMNIBUS AMENDMENT TO SERIES D FINANCING DOCUMENTS

26 INITIAL SERIES D INVESTORS: - ------------------------------------ TOM ALBERG Address: c/o Madrona Investment Group 1000 2nd Avenue Seattle, WA 98104 SIGNATURE PAGE TO XCYTE THERAPIES, INC. ADDENDUM TO SERIES D STOCK PURCHASE AGREEMENT AND OMNIBUS AMENDMENT TO SERIES D FINANCING DOCUMENTS

27 INITIAL SERIES D INVESTORS: - ------------------------------------ MGN OPPORTUNITY GROUP LLC Address: The Norton Building 801 Second Avenue, Suite 1300 Seattle, WA 98104 Attn: Stephen Humphreys SIGNATURE PAGE TO XCYTE THERAPIES, INC. ADDENDUM TO SERIES D STOCK PURCHASE AGREEMENT AND OMNIBUS AMENDMENT TO SERIES D FINANCING DOCUMENTS

28 INITIAL SERIES D INVESTORS: - ------------------------------------ ARNOLD L. HOLM, JR. Address: Holm Construction Services 310 3rd Avenue NE, Suite 103 Issaquah, WA 98027 SIGNATURE PAGE TO XCYTE THERAPIES, INC. ADDENDUM TO SERIES D STOCK PURCHASE AGREEMENT AND OMNIBUS AMENDMENT TO SERIES D FINANCING DOCUMENTS

29 INITIAL SERIES D INVESTORS: - ------------------------------------ HENRY JAMES Address: 22420 North Dogwood Lane Woodway, WA 98020 SIGNATURE PAGE TO XCYTE THERAPIES, INC. ADDENDUM TO SERIES D STOCK PURCHASE AGREEMENT AND OMNIBUS AMENDMENT TO SERIES D FINANCING DOCUMENTS

30 INITIAL SERIES D INVESTORS: - ------------------------------------ OKI ENTERPRISES, LLC Address: c/o Scott Oki 10838 Main Street Bellevue, WA 98004 SIGNATURE PAGE TO XCYTE THERAPIES, INC. ADDENDUM TO SERIES D STOCK PURCHASE AGREEMENT AND OMNIBUS AMENDMENT TO SERIES D FINANCING DOCUMENTS

31 INITIAL SERIES D INVESTORS: - ------------------------------------ VLG INVESTMENTS LLC Address: c/o Elias J. Blawie 2800 Sand Hill Road Menlo Park, CA 94025 - ------------------------------------ VLG ASSOCIATES 2000 Address: c/o Elias J. Blawie 2800 Sand Hill Road Menlo Park, CA 94025 SIGNATURE PAGE TO XCYTE THERAPIES, INC. ADDENDUM TO SERIES D STOCK PURCHASE AGREEMENT AND OMNIBUS AMENDMENT TO SERIES D FINANCING DOCUMENTS

32 INITIAL SERIES D INVESTORS: - ------------------------------------ SONYA F. ERICKSON Address: 4750 Carillon Point Kirkland, WA 98033 SERIES C WARRANT HOLDER: - ------------------------------------ PHOENIX GROWTH CAPITAL CORP. Address: 2401 Kerner Boulevard San Rafael, CA 94901-5529 Attn: Bob Borges SERIES C WARRANT HOLDER: - ------------------------------------ ROBERT KINGSBOOK Address: c/o Capital Finance Group 6777 Moore Drive Oakland, CA 94611 SIGNATURE PAGE TO XCYTE THERAPIES, INC. ADDENDUM TO SERIES D STOCK PURCHASE AGREEMENT AND OMNIBUS AMENDMENT TO SERIES D FINANCING DOCUMENTS

33 SERIES A, B, OR C INVESTOR: By: ------------------------------------ Its: ------------------------------------ ------------------------------------ Print Name SIGNATURE PAGE TO XCYTE THERAPIES, INC. ADDENDUM TO SERIES D STOCK PURCHASE AGREEMENT AND OMNIBUS AMENDMENT TO SERIES D FINANCING DOCUMENTS

34 EXHIBIT A SCHEDULE OF ADDITIONAL PURCHASERS NUMBER OF AMOUNT NUMBER OF WARRANT PURCHASE PRICE NAME/ADDRESS INVESTED SHARES SHARES OF WARRANTS ------------ -------- ------ ------ ----------- MPM BIOVENTURES II, LP One Cambridge Center $ 891,598.82 320,719 35,921 $ 35.92 Cambridge, MA 02142 MPM BIOVENTURES II-QP, LP One Cambridge Center $ 8,078,402.00 2,905,900 325,460 $ 325.46 Cambridge, MA 02142 MPM BIOVENTURES GMBH & CO. PARALLEL-BETEILIGUNGS KG $ 2,844,001.16 1,023,022 114,578 $ 114.58 One Cambridge Center Cambridge, MA 02142 MPM ASSET MANAGEMENT INVESTORS 2000 B LLC $ 185,998.68 66,906 7,494 $ 7.49 One Cambridge Center Cambridge, MA 02142 JOHN E. PARKEY Tredegar Investments $ 50,001.08 17,986 2,014 $ 2.01 6501 Columbia Center 701 Fifth Avenue Seattle, WA 98104 NEIL RUZIC Little Stirrup Cay Research Ltd. $ 50,001.08 17,986 2,014 $ 2.01 345 Each Lake Front Drive Beverly Shores, IN 46301 ARCH VENTURE FUND III, L.P. 1000 Second Avenue, Suite 3700 $ 999,999.36 359,712 40,287 $ 40.29 Seattle, WA 98104-1053 Attn: Bob Nelsen JIM ROBERTS 2540 Shoreland Drive South $ 50,001.08 17,986 2,014 $ 2.01 Seattle, WA 98144

35 NUMBER OF AMOUNT NUMBER OF WARRANT PURCHASE PRICE NAME/ADDRESS INVESTED SHARES SHARES OF WARRANTS ------------ -------- ------ ------ ----------- MARK GROUDINE 1142 20th Avenue East $ 50,001.08 17,986 2,014 $ 2.01 Seattle, WA 98112 DLJ CAPITAL CORP 3000 Sand Hill Road 725 $ 0.73 Building Three, Suite 170 Menlo Park, CA 94025 Attn: Bob Curry DLJ FIRST ESC L.P. 3000 Sand Hill Road 3,625 $ 3.63 Building Three, Suite 170 Menlo Park, CA 94025 Attn: Bob Curry SPROUT CAPITAL VII, L.P. 3000 Sand Hill Road 31,541 $ 31.54 Building Three, Suite 170 Menlo Park, CA 94025 Attn: Bob Curry THE SPROUT CEO FUND, L.P. 3000 Sand Hill Road 366 $ 0.37 Building Three, Suite 170 Menlo Park, CA 94025 Attn: Bob Curry ARCH VENTURE FUND III, L.P. 1000 Second Avenue, Suite 3700 107,769 $ 107.77 Seattle, WA 98104-1053 Attn: Bob Nelsen ALTA CALIFORNIA PARTNERS, L.P. One Embarcadero Center, Suite 4050 64,006 $ 64.01 San Francisco, CA 94111 Attn: Jean Deleage

36 NUMBER OF AMOUNT NUMBER OF WARRANT PURCHASE PRICE NAME/ADDRESS INVESTED SHARES SHARES OF WARRANTS ------------ -------- ------ ------ ----------- ALTA EMBARCADERO PARTNERS, LLC One Embarcadero Center, Suite 4050 1,462 $ 1.46 San Francisco, CA 94111 Attn: Jean Deleage TGI FUND II, LC 6501 Columbia Center 32,034 $ 32.03 701 -- 5th Avenue Seattle, WA 98104 Attn: Michael Beblo and Dave Maki FALCON TECHNOLOGY PARTNERS, L.P. 600 Dorset Road 10,678 $ 10.68 Devon, PA 19333 Attn: Jim Rathman VULCAN VENTURES INC. 110 110th Avenue, NE, Suite 550 80,575 $ 80.58 Bellevue, WA 98004 Attn: Ruth B. Kunath FLUKE CAPITAL MANAGEMENT, L.P. 11400 SE 6th Street, Suite 230 10,071 $ 10.07 Bellevue, WA 98004 Attn: Dennis Weston and Kevin Gabelein TOM ALBERG c/o Madrona Investment Group 80,575 $ 80.58 1000 2nd Avenue Seattle, WA 98104 MGN OPPORTUNITY GROUP LLC Matthew G. Norton Company 40,287 $ 40.29 The Norton Building 801 Second Avenue, Suite 1300 Seattle, WA 98104 Attn: Stephen Humphreys

37 NUMBER OF AMOUNT NUMBER OF WARRANT PURCHASE PRICE NAME/ADDRESS INVESTED SHARES SHARES OF WARRANTS ------------ -------- ------ ------ ----------- ARNOLD L. HOLM, JR. Holm Construction Services 4,032 $ 4.03 310 3rd Avenue NE, Suite 103 Issaquah, WA 98027 HENRY JAMES 22420 North Dogwood Lane 10,071 $ 10.07 Woodway, WA 98020 OKI ENTERPRISES, LLC c/o Scott Oki 40,287 $ 40.29 10838 Main Street Bellevue, WA 98004 VLG INVESTMENTS LLC c/o Elias J. Blawie 1,413 1.41 2800 Sand Hill Road Menlo Park, CA 94025 VLG ASSOCIATES 2000 c/o Elias J. Blawie 198 .20 2800 Sand Hill Road Menlo Park, CA 94025 SONYA F. ERICKSON 4750 Carillon Point 201 $ .20 Kirkland, WA 98033 TOTAL $13,200,000.34 4,748,203 1,051,712 $ 1051.71

38 EXHIBIT B SERIES A, SERIES B AND SERIES C INVESTORS INVESTOR NAME AND ADDRESS NUMBER OF SHARES - ------------------------- ---------------- Alta California Partners, L.P. Series A: 1,840,086 One Embarcadero Center Series B: 787,294 Suite 4050 Series C: 949,635 San Francisco, CA 94111 Attn: Elaine Walker and Jean Deleage Tel: (415) 362-4022 Fax: (415) 362-6178 Alta Embarcadero Partners, LLC Series A: 54,651 One Embarcadero Center Series B: 17,987 Suite 4050 Series C: 21,696 San Francisco, CA 94111 Attn: Elaine Walker and Jean Deleage Tel: (415) 362-4022 Fax: (415) 362-6178 ARCH Venture Fund II, L.P. Series A: 631,579 8735 West Higgins Road Series B: 363,636 Suite 235 Chicago, IL 60631 Attn: Melanie Davis Tel: (773) 380-6600 Fax: (773) 380-6606 1000 Second Avenue, Suite 3700 Seattle, WA 98104 Attn: Bob Nelsen CV Sofinnova Venture Partners III Series A: 947,368 140 Geary Street, 10th Floor Series B: 338,289 San Francisco, CA 94108 Series C: 59,880 Attn.: Michael Powell Tel: (415) 228-3387 Fax: (415) 228-3390

39 INVESTOR NAME AND ADDRESS NUMBER OF SHARES - ------------------------- ---------------- DLJ Capital Corp. Series A: 52,632 3000 Sand Hill Road Series B: 10,909 Bldg. 3, Ste. 170 Series C: 22,859 Menlo Park, CA 94025 Tel: (650) 234-2700 Fax: (650) 234-2779 Attn: Bob Curry DLJ First ESC L.P. Series A: 263,158 3000 Sand Hill Road Series B: 54,545 Bldg. 3, Ste. 170 Series C: 114,294 Menlo Park, CA 94025 Tel: (650) 234-2700 Fax: (650) 234-2779 Attn: Bob Curry Sprout Capital VII, L.P. Series A: 2,289,197 3000 Sand Hill Road Series B: 474,488 Bldg. 3, Ste. 170 Series C: 994,235 Menlo Park, CA 94025 Tel: (650) 234-2700 Fax: (650) 234-2779 Attn: Bob Curry The Sprout CEO Fund, L.P. Series A: 26,592 3000 Sand Hill Road Series B: 5,512 Bldg. 3, Ste. 170 Series C: 11,549 Menlo Park, CA 94025 Tel: (650) 234-2700 Fax: (650) 234-2779 Attn: Bob Curry Ron Berenson, M.D. Series A: 57,895 PO Box 1598 Mercer Island, WA 98040 Tel: (206) 232-1433 Fax: (206) 236-1876 GC&H Investments Series A: 26,316 1 Maritime Plaza, 20th Fl. San Francisco, CA 94111 Attn: John L. Cordoza Tel: (415) 693-2600

40 INVESTOR NAME AND ADDRESS NUMBER OF SHARES - ------------------------- ---------------- WS Investment Company Series A: 26,316 650 Page Mill Road Palo Alto, CA 94304 Tel: (650) 443-9300 Fax: (650) 845-5000 Attn: J. Casey McGlynn Paul Etsekson Series A: 26,316 Fleet Pride P.O. Box 80986 Seattle, WA 98108 Tel: (206) 654-8089 Fax: (206) 343-1499 Gary P. Farber IRA Rollover Series A: 26,316 Summit Partners 16102 S.E. Cougar Mountain Way Bellevue, WA 98006 Tel: (206) 447-9020 Mrs. Thomas Georges, Jr. Series A: 26,316 1814 S.W. Jackson Street Portland, OR 97201 Tel: (503) 227-3898 Thomas Georges, Jr. Series A: 10,526 1814 S.W. Jackson Street Portland, OR 97201 Tel: (503) 227-3898 Michael S. Rabson Series A: 2,632 c/o Maxygen, Inc. 515 Galveston Drive Redwood City, CA 94063 Benjamin Stern Series A: 26,316 528 Laidlaw Blvd Winnipeg, Canada R3POK9

41 INVESTOR NAME AND ADDRESS NUMBER OF SHARES - ------------------------- ---------------- SMS Series B: 22,727 Bader Martin Ross & Smith, P.S. 1000 Second Avenue, 34th Floor Seattle, WA 98104 Tel: (206) 621-1900 Fax: (206) 682-1874 Attn: Walter R. Smith, CPA ARCH Development Corporation Walker 213 Series A: 157,890 1101 East 58th Street Chicago, IL 60637 Attn: Terry Willey ARCH Venture Fund III, L.P. Series A: 157,890 8735 West Higgins Road Series B: 1,681,818 Suite 235 Series C: 1,119,265 Chicago, IL 60631 Attn: Melanie Davis Tel: (773) 380-6600 Fax: (773) 380-6606 1000 Second Avenue, Suite 3700 Seattle, WA 98104-1053 Attn: Bob Nelsen Jeffrey Ledbetter Series A: 157,890 18798 Ridgefield Road N.W. Shoreline, WA 98177 Marylin Parsons Series A: 52,630 306 NW 113th Place Seattle, WA 98177 TGI Fund II, LC Series C: 1,796,410 6501 Columbia Center 701-5th Avenue Seattle, WA 98104 Attn: Michael Beblo and Dave Maki

42 INVESTOR NAME AND ADDRESS NUMBER OF SHARES - ------------------------- ---------------- Vengott LC Series C: 179,641 6501 Columbia Center 701-5th Avenue Seattle, WA 98104 Attn: Michael Beblo and Steven Johnson Steven M. Johnson Series C: 32,934 6501 Columbia Center 701-5th Avenue Seattle, WA 98104 John E. Parkey Series C: 29,940 6501 Columbia Center 701-5th Avenue Seattle, WA 98104 Charles A. Blanchard Series C: 14,970 6501 Columbia Center 701-5th Avenue Seattle, WA 98104 Anthony P. Russo, Trustee Series C: 14,970 Anthony P. Russo Separate Property Trust U/A 9/11/90 6501 Columbia Center 701-5th Avenue Seattle, WA 98104 David J. Maki Series C: 14,970 Tredegar Investments 6300 Columbia Center 701 Fifth Avenue Seattle, WA 98104-7092 R. Ray Cummings Series C: 11,976 Cummings Consulting 8695 NE Grizdale Lane Bainbridge Island, WA 98110 Falcon Technology Partners, L.P. Series C: 598,802 600 Dorset Road Devon, PA 19333 Attn: Jim Rathman

43 INVESTOR NAME AND ADDRESS NUMBER OF SHARES - ------------------------- ---------------- Vulcan Ventures Inc. Series C: 598,802 110 110th Avenue NE, Suite 550 Bellevue, WA 98004 Attn: Ruth B. Kunath Fluke Capital Management, L.P. Series C: 598,802 11400 SE 6th Street, Suite 230 Bellevue, WA 98004 Attn: Dennis P. Weston & Kevin C. Gabelein

44 EXHIBIT C INITIAL SERIES D INVESTORS NUMBER OF SERIES D INVESTOR NAME AND ADDRESS PREFERRED SHARES - ------------------------- ------------------ DLJ CAPITAL CORP 6,475 3000 Sand Hill Road Building Three, Suite 170 Menlo Park, CA 94025 Attn: Bob Curry DLJ FIRST ESC L.P. 32,374 3000 Sand Hill Road Building Three, Suite 170 Menlo Park, CA 94025 Attn: Bob Curry SPROUT CAPITAL VII, L.P. 281,622 3000 Sand Hill Road Building Three, Suite 170 Menlo Park, CA 94025 Attn: Bob Curry THE SPROUT CEO FUND, L.P. 3,270 3000 Sand Hill Road Building Three, Suite 170 Menlo Park, CA 94025 Attn: Bob Curry ARCH VENTURE FUND III, L.P. 962,230 1000 Second Avenue, Suite 3700 Seattle, WA 98104-1053 Attn: Bob Nelsen ALTA CALIFORNIA PARTNERS, L.P. 571,491 One Embarcadero Center, Suite 4050 San Francisco, CA 94111 Attn: Jean Deleage ALTA EMBARCADERO PARTNERS, LLC 13,056 One Embarcadero Center, Suite 4050 San Francisco, CA 94111 Attn: Jean Deleage

45 NUMBER OF SERIES D INVESTOR NAME AND ADDRESS PREFERRED SHARES - ------------------------- ------------------ TGI FUND II, LC 286,022 6501 Columbia Center 701 - 5th Avenue Seattle, WA 98104 Attn: Michael Beblo and Dave Maki FALCON TECHNOLOGY PARTNERS, L.P. 95,341 600 Dorset Road Devon, PA 19333 Attn: Jim Rathman VULCAN VENTURES INC 719,424 110 110th Avenue, NE, Suite 550 Bellevue, WA 98004 Attn: Ruth B. Kunath FLUKE CAPITAL MANAGEMENT, L.P. 89,928 11400 SE 6th Street, Suite 230 Bellevue, WA 98004 Attn: Dennis Weston and Kevin Gabelein TOM ALBERG 719,424 c/o Madrona Investment Group 1000 2nd Avenue Seattle, WA 98104 MGN OPPORTUNITY GROUP LLC 359,712 Matthew G. Norton Company The Norton Building 801 Second Avenue, Suite 1300 Seattle, WA 98104 Attn: Stephen Humphreys ARNOLD L. HOLM, JR. 36,000 Holm Construction Services 310 3rd Avenue NE, Suite 103 Issaquah, WA 98027 HENRY JAMES 89,928 22420 North Dogwood Lane Woodway, WA 98020

46 NUMBER OF SERIES D INVESTOR NAME AND ADDRESS PREFERRED SHARES - ------------------------- ------------------ OKI ENTERPRISES, LLC 359,712 c/o Scott Oki 10838 Main Street Bellevue, WA 98004 VLG INVESTMENTS LLC 12,619 c/o Elias J. Blawie 2800 Sand Hill Road Menlo Park, CA 94025 VLG ASSOCIATES 2000 1,770 c/o Elias J. Blawie 2800 Sand Hill Road Menlo Park, CA 94025 SONYA F. ERICKSON 1,799 4750 Carillon Point Kirkland, WA 98033

47 EXHIBIT D SCHEDULE OF EXCEPTIONS

48 EXHIBIT E FORM OF WARRANTS

49 EXHIBIT F SERIES D PREFERRED STOCK PURCHASE AGREEMENT (SEE TAB NO. 1)

50 EXHIBIT G AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (SEE TAB NO. 2)

51 EXHIBIT H AMENDED AND RESTATED RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT (SEE TAB NO. 3)

52 EXHIBIT I LEGAL OPINION OF VENTURE LAW GROUP (SEE TAB NO. 24)

53 EXHIBIT J AMENDED AND RESTATED CERTIFICATE OF INCORPORATION (SEE TAB NO. 17)

1 EXHIBIT 10.4 XCYTE THERAPIES, INC. SECOND ADDENDUM TO SERIES D PREFERRED STOCK PURCHASE AGREEMENT This Second Addendum to Series D Preferred Stock Purchase Agreement (the "Second Addendum") is made as of the 14th day of August, 2000 by and among Xcyte Therapies, Inc., a Delaware corporation (the "Company"), the investors listed on Exhibit A attached hereto (each an "Additional Purchaser" and together the "Additional Purchasers"), and the existing holders of Series D Preferred Stock listed on Exhibit B hereto (each an "Initial Series D Investor," together the "Initial Series D Investors"). All capitalized terms not defined herein shall have the meaning set forth in the Purchase Agreement (defined herein). RECITALS WHEREAS, on May 25, 2000, the Company entered into a Series D Preferred Stock Purchase Agreement, as amended by the Addendum to Series D Preferred Stock Purchase Agreement and Omnibus Amendment to Series B Financing Agreements dated as of August 8, 2000 (the "Purchase Agreement") with the Initial Series D Investors. The Purchase Agreement provides in Section 1.4 thereof that additional investors may, under conditions set forth therein, become parties to the Purchase Agreement at any time on or before August 8, 2000; WHEREAS, pursuant to the terms of Section 6.8 of the Purchase Agreement, the Purchase Agreement may be amended only with the written consent of the Company and Initial Series D Investors holding at least a majority of the Stock (or the Common Stock issuable upon conversion thereof); WHEREAS, the Company, the Additional Purchasers, the undersigned Initial Series D Investors, constituting the holders of sufficient shares of capital stock of the Company to amend the Purchase Agreement, desire to amend certain terms and conditions of the Purchase Agreement; NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS: AGREEMENT In consideration of the mutual promises, covenants and conditions hereinafter set forth, the parties hereto mutually agree as follows: 1. AUTHORIZATION AND SALE OF PREFERRED STOCK AND WARRANTS. 1.1 AUTHORIZATION OF PREFERRED STOCK. The Company has authorized the issuance pursuant to this Second Addendum of up to 719,425 shares of its Series D Preferred Stock (the "Additional Shares") and the issuance of Warrants to purchase 80,575 shares of Common Stock (the "Warrants") to the Additional Purchasers. The rights, preferences, privileges and restrictions of the Series D Preferred Stock are as set forth in the Company's -1-

2 Amended and Restated Certificate of Incorporation attached as Exhibit C to the Purchase Agreement (the "Restated Certificate"). 1.2 SALE OF PREFERRED STOCK AND WARRANTS. Subject to the terms and conditions hereof, at the Closing (as defined in Section 2.1 hereof) the Company will issue and sell to each Additional Purchaser, and each Additional Purchaser severally agrees to purchase from the Company, that number of Additional Shares at a cash purchase price of $2.78 per share of Series D Preferred Stock and Warrants at a cash purchase price of $0.001 per share of Common Stock specified opposite such Additional Purchaser's name on Exhibit A hereto. Each of the Additional Purchasers, by their signatures hereto, shall hereby (i) become parties to the Purchase Agreement, as amended by this Second Addendum (ii) be considered a "Purchaser" for all purposes under the Purchase Agreement, (iii) have all the rights and obligations of a Purchaser thereunder, (iv) become parties to the Investors' Rights Agreement, as amended, and Voting Agreement, as amended, (v) be considered a "Series D Investor" for all purposes under the Investor Rights Agreement, as amended, and (vi) have all the rights and obligations of an Investor thereunder. The Additional Shares, the Warrants and the Common Stock issuable upon exercise of the Warrants (the "Warrant Shares") acquired by the Additional Purchasers hereunder shall be considered "Shares" for all purposes under the Purchase Agreement, as amended. 2. CLOSING; DELIVERY. 2.1 CLOSING. The closing of the purchase and sale of the Additional Shares and Warrants hereunder (the "Closing") shall be held at the offices of Venture Law Group, Kirkland, Washington, at 10:00 a.m., on August 14, 2000, or at such other time and place as the Company and the Additional Purchasers may agree. 2.2 DELIVERY. At the Closing, the Company will deliver to each Additional Purchaser a certificate representing the number of Additional Shares and Warrants set forth opposite such Additional Purchaser's name on Exhibit A, against payment of the purchase price therefor by each Additional Purchaser by check or wire transfer to the Company. 3. DISCLOSURE; CAPITALIZATION. -------------------------- 3.1 DISCLOSURE. Each Additional Purchaser hereby acknowledges receipt of the Purchase Agreement and the exhibits thereto. The Company affirms to each Additional Purchaser that: (i) The representations and warranties of the Company set forth in Section 2 of the Purchase Agreement were true and accurate when made; (ii) Those representations and warranties, which are incorporated herein by this reference and made a part hereof, remain true and accurate in all material respects as of the date hereof, except (A) for changes resulting from the transactions contemplated in the Purchase Agreement and (B) as set forth in the Schedule of Exceptions to Representations and Warranties attached hereto as Exhibit D. -2-

3 (iii) The conditions to closing set forth in Section 4 of the Purchase Agreement and in Section 5 hereof have been satisfied, provided that the conditions set forth in Section 4.1 of the Purchase Agreement shall include references to changes in the Company's representations and warranties and the Company's status, respectively, as set forth herein and in the Exhibits attached hereto, and resulting from the consummation of the transactions contemplated by the Purchase Agreement. 3.2 CAPITALIZATION. Immediately prior to the Closing, the authorized capital of the Company shall consist of: (i) Immediately prior to the Closing, the authorized capital of the Company shall consist of: (a) 60,000,000 shares of Common Stock, and (b) 28,909,976 shares of Preferred Stock (the "Preferred Stock"), of which 7,300,080 have been designated Series A Preferred Stock, 4,097,580 have been designated Series B Preferred Stock, 7,212,316 have been designated Series C Preferred Stock and 10,300,000 have been designated Series D Preferred Stock. Immediately prior to the Closing, 5,965,234 shares of Common Stock, 6,860,512 shares of Series A Preferred Stock, warrants to purchase 439,568 shares of Series A Preferred Stock, 3,903,080 shares of Series B Preferred Stock, and warrants to purchase 194,500 shares of Series B Preferred Stock, 7,185,630 shares of Series C Preferred Stock, warrants to purchase 26,686 shares of Series C Preferred Stock and 9,390,400 shares of Series D Preferred Stock will be outstanding. (ii) Except as set forth in this Agreement and the exhibits thereto, there are no outstanding options, warrants, rights (including conversion or preemptive rights) or agreements for the purchase or acquisition from the Company of any shares of its capital stock except that the Company has reserved (a) the Shares for issuance at Closing, (b) the Common Stock issuable upon conversion of the Preferred Stock, (c) 2,500,000 shares of Common Stock reserved for issuance pursuant to a stock option plan adopted by the Company of which options to purchase 1,037,453 shares have been granted and remain outstanding, with 1,374,122 shares remaining for grant (d) 898,150 shares of Common Stock reserved for issuance to scientific founders upon the achievement of certain milestones, (e) 157,890 shares of Common Stock reserved for issuance to Carl June or his assignees upon the Company's acquisition of certain future technology and (f) the Warrants to purchase 1,051,712 shares of Common Stock issued pursuant to the Purchase Agreement, as amended. (iii) Based in part upon the representations of each Purchaser in this Second Addendum and subject to the provisions of Section 2.5 of the Purchase Agreement, the Stock (and the Common Stock issuable upon conversion thereof) has been issued or will be issued in compliance with all applicable federal and state securities laws. 4. REPRESENTATIONS AND WARRANTIES OF ADDITIONAL PURCHASERS AND INITIAL SERIES D INVESTORS. Each Additional Purchaser and Initial Series D Investor, severally and not jointly, acknowledges that such Additional Purchaser has reviewed the representations and warranties set forth in Section 3 of the Purchase Agreement and agrees with the Company that such representations and warranties, which are incorporated herein by this reference and made a part -3-

4 hereof, are true and correct as of the date hereof as they relate to such Additional Purchaser's purchase of the Additional Shares and Warrants hereunder. 5. CONDITIONS TO ADDITIONAL PURCHASERS' OBLIGATIONS AT CLOSING. The obligation of each Additional Purchaser to purchase the Additional Shares at the Closing is subject to the fulfillment to such Additional Purchaser's satisfaction at or prior to the Closing of the following conditions: 5.1 REPRESENTATIONS AND WARRANTIES CORRECT; PERFORMANCE OF OBLIGATIONS. The representations and warranties made by the Company in Section 3 hereof shall be true and correct when made, and shall be true and correct on the date of the Closing with the same force and effect as if they had been made on and as of said date, subject to changes contemplated by this Second Addendum; and the Company shall have performed all obligations and conditions herein required to be performed or observed by it at or prior to the Closing. 5.2 CONSENTS AND WAIVERS. The Company shall have obtained any and all consents and waivers necessary or appropriate for consummation of the transactions contemplated by this Second Addendum. 5.3 LEGAL OPINION. Upon request, each of the Additional Purchasers will be entitled to receive from Venture Law Group, legal counsel for the Company, a legal opinion addressed to the Additional Purchasers substantially in the form attached hereto as Exhibit E. 6. CONDITIONS TO COMPANY'S OBLIGATIONS AT CLOSING. The obligations of the Company under Sections 1.1 and 1.2 of this Second Addendum are subject to the fulfillment at or before the Closing of each of the following conditions: 6.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties of each Additional Purchaser and Initial Series D Investor contained in Section 4 hereof shall be true at the Closing. 6.2 CONSENTS AND WAIVERS. The Company shall have obtained any and all consents and waivers necessary or appropriate for the Purchasers to become parties to the Investor Rights Agreement for the consummation of the transactions contemplated by this Second Addendum. 7. AMENDMENT TO STOCK PURCHASE AGREEMENT. Section 1.4 of the Purchase Agreement is hereby amended to read in its entirety as follows: "1.4 Additional Closings. If the full number of Series D Preferred Stock of the Company is not sold at the Closing, the Company shall have the right, at any time prior to August 18, 2000 (the "Subsequent Closing Date"), to sell the remaining authorized but unissued shares of Series D Preferred Stock to one or more additional purchasers as determined by the Company, or to any Purchaser hereunder who wishes to acquire additional shares of Series D Preferred Stock at the price and on the terms set forth herein, provided that any -4-

5 such additional purchaser shall be required to execute an Second Addendum Agreement substantially in the form attached hereto as Exhibit F. Any additional purchaser so acquiring shares of Series D Preferred Stock shall be considered a "Purchaser" for purposes of this Agreement and an "Investor" for the purposes of the Agreements (as defined below), and any Series D Preferred Stock so acquired by such additional purchaser shall be considered "Shares" for purposes of this Agreement and all other agreements contemplated hereby." 8. MISCELLANEOUS. 8.1 INCORPORATION BY REFERENCE. The provisions set forth in Section 6 of the Purchase Agreement (other than Section 6.6) are incorporated herein by this reference and made a part hereof. Except as otherwise set forth herein, the terms and conditions of the Purchase Agreement shall remain in full force and effect notwithstanding the execution of this Agreement and are incorporated in their entirety herein and made a part of this Second Addendum as if fully set forth herein. 8.2 NOTICES. Any notice required or permitted by this Second Addendum and/or the Agreements shall be in writing and shall be deemed sufficient upon delivery, when delivered personally or sent by overnight courier telegram or fax, or forty-eight (48) hours after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, and addressed to the party to be notified at such party's address or fax number (as set forth below or in the Purchase Agreement or on Exhibit A hereto or thereto, or as subsequently modified by written notice) and (a) if to the Company, with a copy to Sonya F. Erickson, Venture Law Group, 4750 Carillon Point, Kirkland, Washington 98033, fax number (425) 739-8750 or (b) if to the Purchasers, with a copy to Richard Porter, Kirkland & Ellis, Aon Center, 200 East Randolph Drive Chicago, Illinois 60601, fax number (312) 861-2200. 8.3 COUNTERPARTS. This Second Addendum may be executed in any number of counterparts, each of which may be executed by less than all of the Additional Purchasers, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument. [Signature page follows] -5-

6 The parties hereto have executed this Second Addendum as of the date first set forth above. XCYTE THERAPIES, INC. By: ---------------------------------------- Ron J. Berenson, Chief Executive Officer Address: 1124 Columbia Street, Suite 130 Seattle, WA 98104 Fax: (206) 262-6200 SIGNATURE PAGE TO XCYTE THERAPIES, INC. SECOND ADDENDUM TO SERIES D STOCK PURCHASE AGREEMENT

7 ADDITIONAL PURCHASERS: VECTOR FUND MANAGEMENT, L.P. By: ------------------------------------- Name: ------------------------------------- (print) Title: ------------------------------------- Address: 1751 Lake Cook Road, Suite 350 Deerfield, IL 60015 Attn: Doug Reed, M.D. SIGNATURE PAGE TO XCYTE THERAPIES, INC. SECOND ADDENDUM TO SERIES D STOCK PURCHASE AGREEMENT

8 INITIAL SERIES D INVESTORS: MPM BIOVENTURES II, L.P. By: MPM Asset Management II, L.P., its General Partner By: MPM Asset Management II LLC, its General Partner By: ------------------------------------ Name: Title: MPM BIOVENTURES II-QP, L.P. By: MPM Asset Management II, L.P., its General Partner By: MPM Asset Management II LLC, its General Partner By: ------------------------------------ Name: Title: MPM BIOVENTURES GMBH & CO. PARALLEL-BETEILIGUNGS KG By: MPM Asset Management II, L.P., its General Partner By: MPM Asset Management II LLC, its General Partner By: ------------------------------------ Name: Title: MPM ASSET MANAGEMENT INVESTORS 2000 B LLC By: ------------------------------------ Name: Title: SIGNATURE PAGE TO XCYTE THERAPIES, INC. SECOND ADDENDUM TO SERIES D STOCK PURCHASE AGREEMENT

9 INITIAL SERIES D INVESTORS: --------------------------------- JOHN E. PARKEY Address: Tredegar Investments 6501 Columbia Center 701 Fifth Avenue Seattle, WA 98104 SIGNATURE PAGE TO XCYTE THERAPIES, INC. SECOND ADDENDUM TO SERIES D STOCK PURCHASE AGREEMENT

10 INITIAL SERIES D INVESTORS: --------------------------------- NEIL RUZIC Address: c/o Little Stirrup Cay Research Limited 345 East Lake Front Drive Beverly Shores, IN 46301 SIGNATURE PAGE TO XCYTE THERAPIES, INC. SECOND ADDENDUM TO SERIES D STOCK PURCHASE AGREEMENT

11 INITIAL SERIES D INVESTORS: ARCH VENTURE FUND III, L.P. By: ---------------------------------- Name: ---------------------------------- (print) Title: ---------------------------------- Address: 1000 Second Avenue, Suite 3700 Seattle, WA 98104-1053 Attn: Bob Nelsen SIGNATURE PAGE TO XCYTE THERAPIES, INC. SECOND ADDENDUM TO SERIES D STOCK PURCHASE AGREEMENT

12 INITIAL SERIES D INVESTORS: --------------------------------- JIM ROBERTS Address: 2540 Shoreland Drive South Seattle, WA 98144 SIGNATURE PAGE TO XCYTE THERAPIES, INC. SECOND ADDENDUM TO SERIES D STOCK PURCHASE AGREEMENT

13 INITIAL SERIES D INVESTORS: --------------------------------- MARK GROUDINE Address: 1142 20th Avenue East Seattle, WA 98112 SIGNATURE PAGE TO XCYTE THERAPIES, INC. SECOND ADDENDUM TO SERIES D STOCK PURCHASE AGREEMENT

14 INITIAL SERIES D INVESTORS: DLJ CAPITAL CORP. By: ------------------------------------------- Name: ------------------------------------------- (print) Title: ------------------------------------------- Address: 3000 Sand Hill Road, Bldg. 3, Suite 170 Menlo Park, CA 94025 DLJ FIRST ESC, L.P. By: ------------------------------------------- Name: ------------------------------------------- (print) Title: ------------------------------------------- Address: 3000 Sand Hill Road, Bldg. 3, Suite 170 Menlo Park, CA 94025 SPROUT CAPITAL VII, L.P. By: ------------------------------------------- Name: ------------------------------------------- (print) Title: ------------------------------------------- Address: 3000 Sand Hill Road, Bldg. 3, Suite 170 Menlo Park, CA 94025 THE SPROUT CEO FUND, L.P. By: ------------------------------------------- Name: ------------------------------------------- (print) Title: ------------------------------------------- Address: 3000 Sand Hill Road, Bldg. 3, Suite 170 Menlo Park, CA 94025 SIGNATURE PAGE TO XCYTE THERAPIES, INC. SECOND ADDENDUM TO SERIES D STOCK PURCHASE AGREEMENT

15 INITIAL SERIES D INVESTORS: ARCH VENTURE FUND III, L.P. By: ------------------------------------------- Name: ------------------------------------------- (print) Title: ------------------------------------------- Address: 1000 Second Avenue, Suite 3700 Seattle, WA 98104-1053 Attn: Bob Nelsen SIGNATURE PAGE TO XCYTE THERAPIES, INC. SECOND ADDENDUM TO SERIES D STOCK PURCHASE AGREEMENT

16 INITIAL SERIES D INVESTORS: ALTA CALIFORNIA PARTNERS, L.P. By: ------------------------------------------- Name: ------------------------------------------- (print) Title: ------------------------------------------- Address: One Embarcadero Center, Suite 4050 San Francisco, CA 94111 Attn: Jean Deleage ALTA EMBARCADERO PARTNERS, LLC By: ------------------------------------------- Name: ------------------------------------------- (print) Title: ------------------------------------------- Address: One Embarcadero Center, Suite 4050 San Francisco, CA 94111 Attn: Jean Deleage SIGNATURE PAGE TO XCYTE THERAPIES, INC. SECOND ADDENDUM TO SERIES D STOCK PURCHASE AGREEMENT

17 INITIAL SERIES D INVESTORS: - ------------------------------------ TGI FUND II, LC Address: 6501 Columbia Center 701 5th Avenue Seattle, WA 98104 Attn: Michael Beblo & Dave Maki SIGNATURE PAGE TO XCYTE THERAPIES, INC. SECOND ADDENDUM TO SERIES D STOCK PURCHASE AGREEMENT

18 INITIAL SERIES D INVESTORS: - ------------------------------------ FALCON TECHNOLOGY PARTNERS, L.P. Address: 600 Dorset Road Devon, PA 19333 Attn: Jim Rathman SIGNATURE PAGE TO XCYTE THERAPIES, INC. SECOND ADDENDUM TO SERIES D STOCK PURCHASE AGREEMENT

19 INITIAL SERIES D INVESTORS: - ------------------------------------ VULCAN VENTURES, INC. Address: 110 110th Avenue NE, Suite 550 Bellevue, WA 98004 Attn: Ruth B. Kunath SIGNATURE PAGE TO XCYTE THERAPIES, INC. SECOND ADDENDUM TO SERIES D STOCK PURCHASE AGREEMENT

20 INITIAL SERIES D INVESTORS: - ------------------------------------ FLUKE CAPITAL MANAGEMENT, L.P. Address: 11400 SE 6th Street, Suite 230 Bellevue, WA 98004 Attn: Dennis Weston SIGNATURE PAGE TO XCYTE THERAPIES, INC. SECOND ADDENDUM TO SERIES D STOCK PURCHASE AGREEMENT

21 INITIAL SERIES D INVESTORS: - ------------------------------------ TOM ALBERG Address: c/o Madrona Investment Group 1000 2nd Avenue Seattle, WA 98104 SIGNATURE PAGE TO XCYTE THERAPIES, INC. SECOND ADDENDUM TO SERIES D STOCK PURCHASE AGREEMENT

22 INITIAL SERIES D INVESTORS: - ------------------------------------ MGN OPPORTUNITY GROUP LLC Address: The Norton Building 801 Second Avenue, Suite 1300 Seattle, WA 98104 Attn: Stephen Humphreys SIGNATURE PAGE TO XCYTE THERAPIES, INC. SECOND ADDENDUM TO SERIES D STOCK PURCHASE AGREEMENT

23 INITIAL SERIES D INVESTORS: - ------------------------------------ ARNOLD L. HOLM, JR. Address: Holm Construction Services 310 3rd Avenue NE, Suite 103 Issaquah, WA 98027 SIGNATURE PAGE TO XCYTE THERAPIES, INC. SECOND ADDENDUM TO SERIES D STOCK PURCHASE AGREEMENT

24 INITIAL SERIES D INVESTORS: - ------------------------------------ HENRY JAMES Address: 22420 North Dogwood Lane Woodway, WA 98020 SIGNATURE PAGE TO XCYTE THERAPIES, INC. SECOND ADDENDUM TO SERIES D STOCK PURCHASE AGREEMENT

25 INITIAL SERIES D INVESTORS: - ------------------------------------ OKI ENTERPRISES, LLC Address: c/o Scott Oki 10838 Main Street Bellevue, WA 98004 SIGNATURE PAGE TO XCYTE THERAPIES, INC. SECOND ADDENDUM TO SERIES D STOCK PURCHASE AGREEMENT

26 INITIAL SERIES D INVESTORS: - ------------------------------------ VLG INVESTMENTS LLC Address: c/o Elias J. Blawie 2800 Sand Hill Road Menlo Park, CA 94025 - ------------------------------------ VLG ASSOCIATES 2000 Address: c/o Elias J. Blawie 2800 Sand Hill Road Menlo Park, CA 94025 SIGNATURE PAGE TO XCYTE THERAPIES, INC. SECOND ADDENDUM TO SERIES D STOCK PURCHASE AGREEMENT

27 INITIAL SERIES D INVESTORS: - ------------------------------------ SONYA F. ERICKSON Address: 4750 Carillon Point Kirkland, WA 98033 SIGNATURE PAGE TO XCYTE THERAPIES, INC. SECOND ADDENDUM TO SERIES D STOCK PURCHASE AGREEMENT

28 EXHIBIT A SCHEDULE OF ADDITIONAL PURCHASERS NAME/ADDRESS AMOUNT INVESTED NUMBER OF SHARES NUMBER OF PURCHASE PRICE WARRANT SHARES OF WARRANTS VECTOR LATER-STAGE EQUITY FUND II, $500,000.38 179,856 20,144 $20.14 L.P. 1751 Lake Cook Road, Suite 350 Deerfield, IL 60015 Attn: Doug Reed, M.D. VECTOR LATER-STAGE EQUITY FUND II $1,500,001.12 539,569 60,431 $60.44 (QP), L.P. 1751 Lake Cook Road, Suite 350 Deerfield, IL 60015 Attn: Doug Reed, M.D. TOTAL $2,000,001.50 719,425 80,575 $80.58

29 EXHIBIT B INITIAL SERIES D INVESTORS INVESTOR NAME AND ADDRESS NUMBER OF SERIES D NUMBER OF WARRANT PREFERRED SHARES SHARES DLJ CAPITAL CORP. 6,475 725 3000 Sand Hill Road Building Three, Suite 170 Menlo Park, CA 94025 Attn: Bob Curry DLJ FIRST ESC L.P. 32,374 3,625 3000 Sand Hill Road Building Three, Suite 170 Menlo Park, CA 94025 Attn: Bob Curry SPROUT CAPITAL VII, L.P. 281,622 31,541 3000 Sand Hill Road Building Three, Suite 170 Menlo Park, CA 94025 Attn: Bob Curry THE SPROUT CEO FUND, L.P. 3,270 366 3000 Sand Hill Road Building Three, Suite 170 Menlo Park, CA 94025 Attn: Bob Curry ARCH VENTURE FUND III, L.P. 1,321,942 148,056 1000 Second Avenue, Suite 3700 Seattle, WA 98104-1053 Attn: Bob Nelsen ALTA CALIFORNIA PARTNERS, L.P. 571,491 64,006 One Embarcadero Center Suite 4050 San Francisco, CA 94111 Attn: Jean Deleage

30 INVESTOR NAME AND ADDRESS NUMBER OF SERIES D NUMBER OF WARRANT PREFERRED SHARES SHARES ALTA EMBARCADERO PARTNERS, LLC 13,056 1,462 One Embarcadero Center Suite 4050 San Francisco, CA 94111 Attn: Jean Deleage TGI FUND II, LC 286,022 32,034 6501 Columbia Center 701 - 5th Avenue Seattle, WA 98104 Attn: Michael Beblo and Dave Maki FALCON TECHNOLOGY PARTNERS, L.P. 95,341 10,678 600 Dorset Road Devon, PA 19333 Attn: Jim Rathman VULCAN VENTURES INC. 719,424 80,575 110 110th Avenue, NE, Suite 550 Bellevue, WA 98004 Attn: Ruth B. Kunath FLUKE CAPITAL MANAGEMENT, L.P. 89,928 10,071 11400 SE 6th Street, Suite 230 Bellevue, WA 98004 Attn: Dennis Weston and Kevin Gabelein TOM ALBERG 719,424 80,575 c/o Madrona Investment Group 1000 2nd Avenue Seattle, WA 98104

31 INVESTOR NAME AND ADDRESS NUMBER OF SERIES D NUMBER OF WARRANT PREFERRED SHARES SHARES MGN OPPORTUNITY GROUP LLC Matthew G. Norton Company The Norton Building 801 Second Avenue, Suite 1300 359,712 40,287 Seattle, WA 98104 Attn: Stephen Humphreys ARNOLD L. HOLM, JR. 36,000 4,032 Holm Construction Services 310 3rd Avenue NE, Suite 103 Issaquah, WA 98027 HENRY JAMES 89,928 10,071 22420 North Dogwood Lane Woodway, WA 98020 OKI ENTERPRISES, LLC 359,712 40,287 c/o Scott Oki 10838 Main Street Bellevue, WA 98004 VLG INVESTMENTS LLC 12,619 1,413 c/o Elias J. Blawie 2800 Sand Hill Road Menlo Park, CA 94025 VLG ASSOCIATES 2000 1,770 198 c/o Elias J. Blawie 2800 Sand Hill Road Menlo Park, CA 94025 SONYA F. ERICKSON 1,799 201 4750 Carillon Point Kirkland, WA 98033 MPM BIOVENTURES II, LP 320,719 35,921 One Cambridge Center Cambridge, MA 02142

32 INVESTOR NAME AND ADDRESS NUMBER OF SERIES D NUMBER OF WARRANT PREFERRED SHARES SHARES MPM BIOVENTURES II-QP, LP 2,905,900 325,460 One Cambridge Center Cambridge, MA 02142 MPM BIOVENTURES GMBH & CO. 1,023,022 114,578 PARALLEL-BETEILIGUNGS KG One Cambridge Center Cambridge, MA 02142 MPM ASSET MANAGEMENT INVESTORS 2000 66,906 7,494 B LLC One Cambridge Center Cambridge, MA 02142 JOHN E. PARKEY 17,986 2,014 Tredegar Investments 6501 Columbia Center 701 Fifth Avenue Seattle, WA 98104 NEIL RUZIC 17,986 2,014 Little Stirrup Cay Research Ltd. 345 Each Lake Front Drive Beverly Shores, IN 46301 JIM ROBERTS 17,986 2,014 2540 Shoreland Drive South Seattle, WA 98144 MARK GROUDINE 17,986 2,014 1142 20th Avenue East Seattle, WA 98112 TOTAL 9,390,400 1,051,712

33 EXHIBIT C AMENDED AND RESTATED CERTIFICATE OF INCORPORATION (SEE TAB NO. 31)

34 EXHIBIT D SCHEDULE OF EXCEPTIONS

35 EXHIBIT E FORM OF LEGAL OPINION (See Tab No. 11

1 EXHIBIT 10.5 XCYTE THERAPIES, INC. AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT This Amended and Restated Investor Rights Agreement (the "Agreement") is effective as of May 25, 2000, by and among Xcyte Therapies, Inc., a Delaware corporation (the "Company"), the investors listed on Schedule A attached hereto (the "Investors"), Phoenix Leasing Incorporated and Robert Kingsbook. RECITALS A. The Company sold and issued to certain Investors (the "Series A Holders") 6,334,212 shares of the Series A Preferred Stock of the Company on August 28, 1996. B. In connection with the Company's merger with CellGenEx, Inc., dated August 27, 1997, the Company issued 526,300 shares of Series A Preferred Stock to holders of CellGenEx Preferred Stock. C. The Company sold and issued to certain Investors (the "Series B Holders") 3,903,080 shares of the Series B Preferred Stock of the Company. D. The Company sold and issued to certain Investors (the "Series C Holders") 7,185,630 shares of the Series C Preferred Stock of the Company. E. Pursuant to that certain Restated Investor Rights Agreement, dated as of July 21, 1998, (the "Prior Rights Agreement") the Company granted to such Series A Holders, Series B Holders and Series C Holders certain rights and the Series A Holders, Series B Holders and Series C Holders entered into certain covenants between themselves. F. Pursuant to that certain Series D Preferred Stock Purchase Agreement of even date herewith (the "Series D Agreement"), the Company has agreed to sell to certain Investors (the "Series D Holders") a total of up to 7,194,245 shares of the Series D Preferred Stock of the Company and, as an inducement for the Series D Holders to purchase such shares, the Company, the Series A Holders, the Series B Holders and the Series C Holders have agreed to enter into this Agreement to supersede, amend and restate the rights granted to and covenants agreed by the Series A Holders, Series B Holders and Series C Holders in the Prior Rights Agreement. All shares of Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock are referred to herein as the "Preferred Shares." All terms not otherwise defined herein shall have the same meaning as set forth in the Series D Agreement. NOW THEREFORE, the parties hereby agree as follows:

2 1. Registration Rights. 1.1 Definitions. For purposes of this Section 1: (a) The term "Act" shall mean the Securities Act of 1933, as amended. (b) The term "Form S-3" means such form under the Act as in effect on the date hereof or any registration form under the Act subsequently adopted by the Securities and Exchange Commission (the "SEC") which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC; (c) The term "Holder" means any person owning or having the right to acquire Registrable Securities or any assignee thereof in accordance with Section 1.12 hereof; (d) The term "Qualified Public Offering" shall mean an underwritten public offering of shares of the Company's Common Stock at a public offering price per share of not less than $4.00 (as adjusted for stock splits, combinations or consolidations) with gross proceeds to the Company of not less than $20,000,000 at the public offering price; (e) The term "register", "registered," and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Act, and the declaration or ordering of effectiveness of such registration statement or document; (f) The term "registration expenses" shall mean all expenses, except as otherwise stated below, incurred by the Company in complying with Sections 1.2, 1.3 and 1.11 hereof, including, without limitation, all registration, qualification and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company, fees and disbursement of one counsel to the Holders, blue sky fees and expenses, the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company). (g) The term "Registrable Securities" means (1) the Common Stock issued upon conversion of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock or any Common Stock issued upon conversion of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock issuable upon the exercise of outstanding warrants to purchase such shares of Preferred Stock, (2) up to 6,158 shares of Common Stock of the Company issued or issuable upon conversion of the Series C Preferred Stock issued or issuable upon exercise of that certain warrant issued to Phoenix Leasing Incorporated, (3) up to 6,157 shares of Common Stock of the Company issued or issuable upon conversion of the Series C Preferred Stock issued or issuable upon exercise of that certain warrant issued to Robert Kingsbook and (4) any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange -2-

3 for or in replacement of, such Preferred Stock or Common Stock, excluding in all cases, however, (i) any Registrable Securities sold by a person in a transaction in which such person's rights under this Section 1 are not assigned, or (ii) any Registrable Securities sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction; and (h) The number of shares of "Registrable Securities then outstanding" shall be determined by the number of shares of Common Stock outstanding which are, and the number of shares of Common Stock issuable pursuant to then exercisable or convertible securities which are, Registrable Securities. 1.2 Request for Registration. (a) If the Company shall receive at any time after the earlier of (i) August 15, 2002 or (ii) six (6) months after the effective date of a Qualified Public Offering (other than a registration statement relating either to the sale of securities to employees of the Company pursuant to a stock option, stock purchase or similar plan or a SEC Rule 145 transaction), a written request from the Holders of at least fifty percent (50%) of the Registrable Securities then outstanding (including securities convertible into Registrable Securities) that the Company file a registration statement under the Act covering the registration of at least fifty percent (50%) of Registrable Securities, or any lesser number of shares if the anticipated aggregate offering price, net of underwriting discounts and commissions, would exceed $10,000,000, then the Company shall, within ten (10) days of the receipt thereof, give written notice of such request to all Holders and shall, subject to the limitations of Section 1.2(b), effect as soon as practicable, and in any event within ninety (90) days of the receipt of such request, the registration under the Act of all Registrable Securities which the Holders request to be registered within twenty (20) days of the mailing of such written notice by the Company; provided, however, that the Company shall not be obligated to take any action to effect any such registration, qualification or compliance pursuant to this Section 1.2(a): (i) During the period starting with the date thirty (30) days prior to the Company's estimated date of filing of, and ending on the date one hundred twenty (120) days immediately following the effective date of, any registration statement pertaining to securities of the Company (other than a registration of securities in a Rule 145 transaction or with respect to an employee benefit plan), provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective; (ii) After the Company has effected two such registrations pursuant to this Section 1.2(a), and such registrations have been declared or ordered effective; or (iii) If the Company shall furnish to such Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors it would be seriously detrimental to the Company or its stockholders for a registration statement to be filed at such time, then the Company's obligation to use its best efforts to register, qualify or comply under this Section 1.2(a) shall be deferred for a period not to exceed ninety (90) days from the date of receipt of -3-

4 written request from the Holders; provided, however, that the Company may not utilize this right more than once in any twelve-month period. (b) If the Holders initiating the registration request hereunder (the "Initiating Holders") intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to this Section 1.2 and the Company shall include such information in the written notice referred to in Section 1.2(a). In such event, the right of any Holder to include his Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in Section 1.4(e)) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by a majority in interest of the Initiating Holders and reasonably acceptable to the Company. Notwithstanding any other provision of this Section 1.2, if the underwriter advises the Initiating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then the Initiating Holders shall so advise all Holders of Registrable Securities which would otherwise be underwritten pursuant hereto, and the number of shares of Registrable Securities that may be included in the underwriting shall be allocated among all Holders thereof, including the Initiating Holders, in proportion (as nearly as practicable) to the amount of Registrable Securities of the Company owned by each Holder at the time of filing of such Registration Statement. To facilitate the allocation of shares in accordance with the above provisions, the Company or the underwriters may round the number of shares allocated to any Holder to the nearest one hundred (100) shares. If any Holder of Registrable Securities disapproves of the terms of the underwriting, such Holder may elect to withdraw therefrom by written notice to the Company, the managing underwriter and the Initiating Holders. The Registrable Securities and/or other securities so withdrawn shall also be withdrawn from registration, and such Registrable Securities shall not be transferred in a public distribution prior to one hundred eighty (180) days after the effective date of such registration, or such other shorter period of time as the underwriters may require. . 1.3 Company Registration. If (but without any obligation to do so) the Company proposes to register (including for this purpose a registration effected by the Company for stockholders other than the Holders) any of its stock or other securities under the Act in connection with the public offering of such securities solely for cash (other than a registration relating solely to the sale of securities to participants in a Company stock plan, or a registration on any form which does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities), the Company shall, at such time, give each Holder written notice of such registration thirty (30) days prior to such registration. Upon the written request of each Holder given within twenty (20) days after mailing of written notice by the Company, the Company shall, subject to -4-

5 the provisions of Section 1.8, cause to be registered under the Act all of the Registrable Securities that each such Holder has requested to be registered. 1.4 Obligations of the Company. Whenever required under this Section 1 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible: (a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for up to ninety (90) days. (b) Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement. (c) Furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. (d) Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. (e) In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement provided that such underwriting agreement shall not provide for indemnification or contribution obligations on the part of the holders greater than the obligations set forth in Section 1.9. (f) Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. (g) Furnish, at the request of any Holder requesting registration of Registrable Securities pursuant to this Section 1, on the date that such Registrable Securities are delivered to the underwriters for sale in connection with a registration pursuant to this Section 1, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the -5-

6 date that the registration statement with respect to such securities becomes effective, (i) an opinion, dated such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities and (ii) if such offering is being underwritten, a letter dated such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters. 1.5 Furnish Information. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 1 with respect to the Registrable Securities of any selling Holder that such holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be required to effect the registration of such Holder's Registrable Securities. 1.6 Expenses of Demand Registration. All expenses other than underwriting discounts and commissions incurred in connection with the registration, filing or qualification pursuant to Section 1.2, including all registration, filing and qualification fees, printers' and accounting fees, fees and disbursements of counsel for the Company, and the reasonable fees and disbursements of one counsel for the selling Holders shall be borne by the Company; provided, however, that the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 1.2 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (in which case all participating Holders shall bear such expenses), unless the Holders of a majority of the Registrable Securities agree to forfeit their right to a demand registration pursuant to Section 1.2; provided further, however, that if at the time of such withdrawal, the Holders have learned of a material adverse change in the condition, business, or prospects of the Company from that known to the Holders at the time of their request, of which the Company had or should have had knowledge at the time of the request, then the Holders shall not be required to pay any of such expenses and shall retain their rights pursuant to Section 1.2. 1.7 Expenses of Company Registration. The Company shall bear and pay all expenses incurred in connection with any registration, filing or qualification of Registrable Securities with respect to the registrations pursuant to Section 1.3 for each Holder (which right may be assigned as provided in Section 1.12), including all registration, filing, and qualification fees, printers and accounting fees relating or apportionable thereto and the fees and disbursements of one counsel for the selling Holders selected by them, but excluding underwriting discounts and commissions relating to Registrable Securities. 1.8 Underwriting Requirements. In connection with any offering involving an underwriting of shares being issued by the Company, the Company shall not be required under Section 1.3 to include any of the Holders' securities in such underwriting unless they accept the terms of the underwriting as agreed upon between the Company and the underwriters selected by it, and then only in such quantity as will not, in the opinion of the underwriters, jeopardize the success of the offering by the Company; provided that such underwriting agreement shall not provide for indemnification or -6-

7 contribution obligations on the part of the Holders greater than the obligations set forth in Section 1.9. If the total amount of securities, including Registrable Securities requested by stockholders to be included in such offering, exceeds the amount of securities sold (other than by the Company) that the underwriters reasonably believe compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, which the underwriters believe will not jeopardize the success of the offering (the securities so included to be apportioned pro rata among the selling stockholders according to the total amount of securities entitled to be included therein owned by each selling stockholder or in such other proportions as shall mutually be agreed to by such selling stockholders), but in no event shall any shares being sold by a stockholder exercising a demand registration right similar to that granted in Section 1.2 be excluded from such offering. For purposes of apportionment, any selling stockholder which is a Holder of Registrable Securities and which is a partnership or corporation, the partners, retired partners and stockholders of such Holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single "selling stockholder", and any pro rata reduction with respect to such "selling stockholder" shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such "selling stockholder", as defined in this sentence. In no event, shall the amount of securities of the selling Holders included in the registration be reduced below thirty percent (30%) of the total amount of the securities included in such registration unless such registration is the Company's initial public offering and such registration does not include the shares of any other selling stockholders, in which event any or all of the Registrable Securities may be excluded if the underwriter makes the determination described above. To facilitate the allocation of shares in accordance with the above provisions, the Company may round the number of shares allocated to any Holder to the nearest one hundred (100) shares. If any Holder or holder disapproves of the terms of any such underwriting, such Holder or holder may elect to withdraw therefrom by written notice to the Company and the managing underwriter. Any Registrable Securities and/or securities excluded or withdrawn from such underwriting shall be withdrawn from such registration, and shall not be transferred in a public distribution prior to one hundred eighty (180) days after the effective date of the registration statement relating thereto, or such other shorter period of time as the underwriters may require. 1.9 Indemnification. In the event any Registrable Securities are included in a registration statement under this Section 1: (a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, any underwriter (as defined in the Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Act or the Securities Exchange Act of 1934, amended (the "1934 Act"), against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation"): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements -7-

8 thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Act, the 1934 Act, any state securities law or any rule or regulation promulgated under the Act, the 1934 Act or any state securities law; and the Company will pay to each such Holder, underwriter or controlling person, as incurred, any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this Section 1.9(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such Holder, underwriter or controlling person. (b) To the extent permitted by law, each selling Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Company within the meaning of the Act, any underwriter, any other Holder selling securities in such registration statement and any controlling person of any such underwriter or other Holder, against any losses, claims, damages, or liabilities (joint or several) to which any of the foregoing persons may become subject, under the Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will pay, as incurred, any legal or other expenses reasonably incurred by any person intended to be indemnified pursuant to this Section 1.9(b), in connection with investigating or defending any such loss, claim, damage, liability, or action; provided, however, that the indemnity agreement contained in this Section 1.9(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; provided, that, in no event shall any indemnity under this Section 1.9(b) exceed the gross proceeds from the offering received by such Holder, unless such liability resulted from the willful misconduct of such Holder. (c) Promptly after receipt by an indemnified party under this Section 1.9 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 1.9, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a -8-

9 reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 1.9(c), but the omission to so deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 1.9. (d) If the indemnification provided for in this Section 1.9 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage, or expense referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage, or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage, or expense as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge and access to information. (e) The obligations of the Company and Holders under this Section 1.9 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 1, and otherwise. 1.10 Reports Under Securities Exchange Act of 1934. With a view to making available to the Holders the benefits of Rule 144 promulgated under the Act and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company agrees to: (a) make and keep public information available, as those terms are understood and defined in SEC Rule 144, at all times after ninety (90) days after the effective date of the first registration statement filed by the Company for the offering of its securities to the general public; (b) take such action, including the voluntary registration of its Common Stock under Section 12 of the 1934 Act, as is necessary to enable the Holders to utilize Form S-3 for the sale of their Registrable Securities, such action to be taken as soon as practicable after the end of the fiscal year in which the first registration statement filed by the Company for the offering of its securities to the general public is declared effective; (c) file with the SEC in a timely manner all reports and other documents required of the Company under the Act and the 1934 Act; and (d) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144 (at any time after ninety (90) days after the effective date of the -9-

10 first registration statement filed by the Company), the Act and the 1934 Act (at any time after it has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC which permits the selling of any such securities without registration or pursuant to such form. 1.11 Form S-3 Registration. (a) In case the Company shall receive from any Holder or Holders a written request or requests that the Company effect a registration on Form S-3 and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Company will: (i) promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders; and (ii) as soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder's or Holders' Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within 15 days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to this Section 1.11: (1) if Form S-3 is not available for such offering by the Holders; (2) if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public (net of any underwriters' discounts or commissions) of less than $500,000; (3) if the Company shall furnish to the Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such Form S-3 Registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 registration statement for a period of not more than 120 days after receipt of the request of the Holder or Holders under this Section 1.11; provided, however, that the Company shall not utilize this right more than once in any twelve (12) month period; (4) if the Company has already effected one registration on Form S-3 within the past twelve (12) months for the Holders pursuant to this Section 1.11; (5) in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance; (6) if the Company, within ten (10) days of the receipt of the request of the initiating Holders, gives notice of its bona fide intention to effect the filing of a registration statement with the Commission within ninety (90) days of receipt of such request (other than with respect to a registration statement relating to a Rule 145 transaction, or an offering solely to employees); or (7) during the period starting with the date ninety (90) days prior to the Company's estimated date of filing of, and ending on -10-

11 the date six (6) months immediately following, the effective date of any registration statement pertaining to securities of the Company (other than a registration of securities in a Rule 145 transaction or with respect to an employee benefit plan), provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective. (b) If the Initiating Holders requesting such registration hereunder intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as part of their request made pursuant to this Section 1.11 and the Company shall include such information in the written notice referred to in Section 1.11(a)(i). In such event, the right of any Holder to include his Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in Section 1.4(e)) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by a majority in interest of the Initiating Holders and reasonably acceptable to the Company. Notwithstanding any other provision of this Section 1.11, if the underwriter advises the Initiating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then the Initiating Holders shall so advise all Holders of Registrable Securities which would otherwise be underwritten pursuant hereto, and the number of shares of Registrable Securities that may be included in the underwriting shall be allocated among all Holders thereof, including the Initiating Holders, in proportion (as nearly as practicable) to the amount of Registrable Securities of the Company owned by each Holder. To facilitate the allocation of shares in accordance with the above provisions, the Company may round the number of shares allocated to any Holder to the nearest one hundred (100) shares. If any Holder or holder disapproves of the terms of any such underwriting, such Holder or holder may elect to withdraw therefrom by written notice to the Company and the managing underwriter. Any Registrable Securities and/or securities excluded or withdrawn from such underwriting shall be withdrawn from such registration, and shall not be transferred in a public distribution prior to one hundred eighty (180) days after the effective date of the registration statement relating thereto, or such other shorter period of time as the underwriters may require. (c) Subject to the foregoing, the Company shall file a registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the request or requests of the Holders. All expenses incurred in connection with a registration requested pursuant to Section 1.11, including all registration, filing, qualification, printer's and accounting fees and the reasonable fees and disbursements of one counsel for the selling Holders selected by them, but excluding any underwriters' discounts or commissions associated with Registrable Securities, shall be borne by the Company. Registrations effected pursuant to this Section 1.11 shall not be counted as demands for registration or registrations effected pursuant to Section 1.2 or 1.3, respectively. 1.12 Assignment of Registration Rights. The rights to cause the Company to -11-

12 register Registrable Securities pursuant to this Section 1 may be assigned by a Holder to a transferee or assignee who acquires at least the lesser of all of the shares owned by such Holder or 500,000 shares of Registrable Securities, provided the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned; and provided, further, that such assignment shall be effective only if immediately following such transfer the further disposition of such securities by the transferee or assignee is restricted under the Act. Notwithstanding the above, such rights may be assigned by a Holder to an Affiliate (as defined below) of such Holder (the "Transferee"), regardless of the number of shares acquired by such Transferee. For purposes of this Agreement, "Affiliate" includes, with respect to a party which is a partnership or limited liability company, its partners, members or an affiliated entity managed by the same manager or managing partner or management company, or managed or owned by an entity controlling, controlled by, or under common control with, such manager or managing partner or management company. 1.13 Limitations on Subsequent Registration Rights. From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders of at least two-thirds (66-2/3%) of the outstanding Registrable Securities, enter into any agreement with any holder or prospective holder of any securities of the Company which would allow such holder or prospective holder to include such securities in any registration filed under Section 1.3 hereof, unless (i) under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of its securities will not reduce the amount of the Registrable Securities of the Holders which is included or (ii) the Board of Directors approves the grant of registration right to such holder or prospective holder. 1.14 "Market Stand-Off" Agreement. Each holder of securities which are or at one time were Registrable Securities (or which are or were convertible into Registrable Securities) hereby agrees that, during a period not to exceed one hundred eighty (180) days, following the effective date of a registration statement of the Company filed under the Act, it shall not, to the extent requested by the Company and such underwriter, sell or otherwise transfer or dispose of (other than to a donee who agrees to be similarly bound), make a short sale, loan, or grant any option for the purchase of any Common Stock or other securities of the Company held by it at any time during such period except Common Stock included in such registration; provided, however, that: (a) such agreement shall be applicable only to the first such registration statement of the Company which covers Common Stock (or other securities) to be sold on its behalf to the public in an underwritten offering; and (b) all officers and directors of the Company enter into similar agreements. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Registrable Securities of each Investor (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period and, furthermore, each holder of -12-

13 securities agrees to execute all documents effectuating the above as may be requested by the underwriter at the time of the initial public offering. 1.15 Termination of Registration Rights. No stockholder shall be entitled to exercise any right provided for in this Section 1 after five (5) years following the Company's first Qualified Public Offering. 2. Preemptive Rights. 2.1 Grant of Right. Subject to the terms and conditions specified in this Section 2, the Company hereby grants to each Investor who, together with its Affiliates, holds more than 500,000 shares of Preferred Stock a preemptive right with respect to future sales by the Company of its Future Shares (as hereinafter defined). 2.2 Future Shares. "Future Shares" shall mean shares of any capital stock of the Company, whether now authorized or not, and any rights, options or warrants to purchase such capital stock, and securities of any type that are, or may become, convertible into such capital stock; provided however, that "Future Shares" do not include (i) the Shares purchased under the Series D Stock Purchase Agreement (ii) the shares of Common Stock issued or issuable upon the conversion of the Preferred Stock, (iii) securities offered pursuant to a registration statement filed under the Act, (iv) securities issued pursuant to the acquisition of another corporation by the Company by merger or, purchase of substantially all of the assets or other reorganization, (v) securities issued in connection with or as consideration for a collaborative partnership arrangement, as approved by a majority of the Board of Directors of the Company, or the acquisition, leasing or licensing of technology or other significant assets to be used in the Company's business, as approved by a majority of the Board of Directors of the Company and (vi) securities issued or issuable to officers, directors, employees or consultants of the Company pursuant to any employee or consultant stock offering, plan or arrangement approved by a majority of the Board of Directors of the Company. 2.3 Notice. In the event the Company proposes to offer any of its Future Shares, the Company shall first make an offering of such Future Shares to each Investor in accordance with the following provisions: (a) The Company shall deliver a notice by certified mail (the "Notice") to the Investors stating (i) its bona fide intention to offer such Future Shares, (ii) the number of such Future Shares to be offered, (iii) the price, if any, for which it proposes to offer such Future Shares, and (iv) a statement as to the number of days from receipt of such Notice within which the Investor must respond to such Notice. (b) Within twenty (20) calendar days after receipt of the Notice, the Investor may elect to purchase or obtain, at the price and on the terms specified in the Notice, up to that portion of such Future Shares which equals the proportion that the number of shares of Common Stock issued and held, or issuable upon conversion of the Shares then held, by such Investor bears to the total -13-

14 number of shares of Common Stock issued and outstanding, including shares issuable upon conversion of convertible securities issued and outstanding. If an Investor elects not to purchase such shares up to its pro rata allocation, any affiliate of such Investor which is also an Investor may increase its allocation to add the pro rata shares not purchased by its affiliate. The Company shall promptly, in writing, inform each Investor which purchases all of the Future Shares available to it (the "Fully-Exercising Investor") of any other Investor's failure to do likewise. During the ten (10) day period commencing after receipt of such information, each Fully-Exercising Investor shall be entitled to obtain that portion of the Future Shares offered to the Investors which was not subscribed for, which is equal to the proportion that the number of shares of Common Stock issued and held, or issuable upon conversion of the Shares then held, by such Fully-Exercising Investor bears to the total number of shares of Common Stock issued and outstanding, including shares issuable upon conversion of convertible securities issued and outstanding then held, by all Fully-Exercising Investors who wish to purchase some of the unsubscribed shares. 2.4 Sale after Notice. If all such Future Shares referred to in the Notice are not elected to be obtained as provided in Section 2.3 hereof, the Company may, during the 90-day period following the expiration of the period provided in Section 2.3 hereof, offer the remaining unsubscribed Future Shares to any person or persons at a price not less than, and upon terms no more favorable to the offeree than those specified in the Notice. If the Company does not enter into an agreement for the sale of the Future Shares within such period, or if such agreement is not consummated within 90 days of the execution thereof, the right provided hereunder shall be deemed to be revived and such Future Shares shall not be offered unless first reoffered to the Investors in accordance herewith. 2.5 Assignment. The right of first offer granted under this Section 2 is assignable by the Investors to any transferee who acquires at least the lesser of all of the shares owned by such Investor or a minimum of 500,000 shares of Common Stock (including any shares of Common Stock into which shares of Preferred Stock are convertible). 2.6 Termination of Rights. No stockholder shall be entitled to exercise any right provided for in this Section 2 (i) upon the consummation of the sale of securities pursuant to a registration statement filed by the Company under the Act in connection with the initial firm commitment underwritten offering of its securities to the general public or (ii) when the Company first becomes subject to the periodic reporting requirements of Section 12(g) or 15(d) of the Securities Exchange Act of 1934, whichever event shall first occur. 3. Voting Provisions. The undersigned hereby agree that in all elections of directors of the Company the Investors will vote their shares such that one nominee designated by Alta Venture Partners, one nominee designated by the Sprout Group, one nominee designated by ARCH Venture Fund III, L.P., and one nominee designated by TGI Fund II will be elected to the Company's Board of Directors. This Section 3 shall automatically terminate upon the earlier to occur of: (i) a Qualified Public Offering or (ii) when the Company first becomes subject to the periodic reporting requirements of Sections 12(g) or 15(d) of the Securities Exchange Act of 1934, as amended. -14-

15 4. Prior Rights Agreements. Effective upon the execution of this Agreement by the Company and at least the holders of two-thirds (66 2/3%) of the Registrable Securities under the Prior Rights Agreement, the Prior Rights Agreement is null and void and superseded in its entirety by this Agreement. 5. Waiver of Preemptive Rights. To the extent that an Investor under the Prior Rights Agreement is not purchasing its pro rata share of Series D Preferred Stock pursuant to the Series D Agreement, all rights under the Preemptive Rights set forth in Section 2 of the Prior Rights Agreement to purchase such securities and to receive notice is hereby waived. This waiver is effective upon the execution of this Agreement by the holders of a majority of the Registrable Securities under the Prior Rights Agreement. 6. Transferability. 6.1 Restrictions on Transferability. The Shares and the Registrable Securities shall not be sold, assigned, transferred or pledged except upon the conditions specified in this Section 6, which conditions are intended to ensure compliance with the provisions of the Securities Act. The Investors will cause any proposed purchaser, assignee, transferee, or pledgee of the Shares or the Registrable Securities held by the Investors to agree to take and hold such securities subject to the provisions and upon the conditions specified in this Section 6. 6.2 Restrictive Legend. Each certificate representing (i) the Shares, (ii) the Registrable Securities and (iii) any other securities issued in respect of the Shares or the Registrable Securities upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall (unless otherwise permitted by the provisions of Section 6.3 below) be stamped or otherwise imprinted with a legend in the following form (in addition to any legend required under applicable state securities laws): "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT. THESE SECURITIES ARE SUBJECT TO A CERTAIN VOTING PROVISION ENTERED INTO BY AND AMONG THE INVESTORS." The Investors and Holders consent to the Company making a notation on its records and giving instructions to any transfer agent of the Shares or the Registrable Securities in order to implement the restrictions on transfer established in this Section 6. -15-

16 6.3 Notice of Proposed Transfers. The holder of each certificate representing Restricted Securities by acceptance thereof agrees to comply in all respects with the provisions of this Section 6.3. Prior to any proposed sale, assignment, transfer or pledge of any Restricted Securities (other than (i) a transfer not involving a change in beneficial ownership, or (ii) in transactions involving the distribution without consideration of Restricted Securities by the Investors to any of its partners, or retired partners, or to the estate of any of its partners or retired partners, (iii) a transfer to an affiliated fund, partnership or company, which is not a competitor of the Company, or a transfer to an Affiliate of the holder, subject to compliance with applicable securities laws, or (iv) transfers in compliance with Rule 144, so long as the Company is furnished with satisfactory evidence of compliance with such Rule), unless there is in effect a registration statement under the Securities Act covering the proposed transfer, the holder thereof shall give written notice to the Company of such holder's intention to effect such transfer, sale, assignment or pledge. Each such notice shall describe the manner and circumstances of the proposed transfer, sale, assignment or pledge in sufficient detail, and shall be accompanied, at such holder's expense by either (a) a written opinion of legal counsel who shall, and whose legal opinion shall, be reasonably satisfactory to the Company addressed to the Company, to the effect that the proposed transfer of the Restricted Securities may be effected without registration under the Securities Act, or (b) a "no action" letter from the Commission to the effect that the transfer of such securities without registration will not result in a recommendation by the staff of the Commission that action be taken with respect thereto, whereupon the holder of such Restricted Securities shall be entitled to transfer such Restricted Securities in accordance with the terms of the notice delivered by the holder to the Company. Each certificate evidencing the Restricted Securities transferred as above provided shall bear, except if such transfer is made pursuant to Rule 144, the appropriate restrictive legend set forth in Section 6.2 above, except that such certificate shall not bear such restrictive legend if in the opinion of counsel for such holder and in the reasonable opinion of the Company such legend is not required in order to establish compliance with any provision of the Securities Act. 6.4 Removal of Restrictions on Transfer of Securities. Any legend referred to in Section 6.2 hereof stamped on a certificate evidencing (i) the Shares, (ii) the Registrable Securities or (iii) any other securities issued in respect of the Shares or the Registrable Securities upon any stock split, stock dividend, recapitalization, merger, consolidation or similar event and the stock transfer instructions and record notations with respect to such security shall be removed and the Company shall issue a certificate without such legend to the holder of such security if such security is registered under the Securities Act, or if such holder provides the Company with an opinion of counsel (which may be counsel for the Company) reasonably acceptable to the Company to the effect that a public sale or transfer of such security may be made without registration under the Securities Act or such holder provides the Company with reasonable assurances, which may, at the option of the Company, include an opinion of counsel satisfactory to the Company, that such security can be sold pursuant to Section (k) of Rule 144 under the Securities Act. 7. Covenants of the Company. 7.1 Delivery of Financial Statements. The Company shall deliver to each Investor who holds, together with its Affiliates, an aggregate of 500,000 shares of Series C Preferred Stock or -16-

17 Series D Preferred Stock (or Conversion Shares) (a "Major Investor") and upon such Major Investors timely request for each such report: (a) as soon as practicable, but in any event within one hundred eighty (180) days after the end of each fiscal year of the Company, statements of operations and cash flow for such fiscal year, a balance sheet of the Company as of the end of such year, and a schedule as to the sources and applications of funds for such year, such year-end financial reports to be in reasonable detail, prepared in accordance with generally accepted accounting principles ("GAAP"), and audited and certified by independent public accountants of nationally recognized standing selected by the Company; (b) as soon as practicable, but in any event prior to the end of each fiscal year of the Company, an annual budget and plan of operations for the upcoming fiscal year approved by the Board of Directors; (c) within twenty (20) days of the end of each month, and until a public offering of Common Stock of the Company, an unaudited statement of operations and balance sheet for and as of the end of such month, in reasonable detail and prepared in accordance with GAAP, subject to year end audit adjustments and the absence of footnotes; (d) with respect to the financial statements called for in subsection (c) of this Section 7.1, an instrument executed by the Chief Financial Officer or President of the Company and certifying that such financials were prepared in accordance with GAAP consistently applied with prior practice for earlier periods and fairly present the financial condition of the Company and its results of operation for the period specified, subject to year-end audit adjustments and the absence of footnotes; (e) all accounting letters or reports from independent auditors and such other information relating to the financial condition, business, prospects or corporate affairs of the Company as the Major Investor or any assignee of the Major Investor may from time to time request, provided, however, that the Company shall not be obligated to provide information which the Board of Directors deems in good faith to be proprietary; and 7.2 Confidential Information. Each Major Investor agrees that it will keep confidential and will not disclose any confidential, proprietary or secret information which such Major Investor may obtain from the Company, and which the Company has prominently marked "confidential", "proprietary" or "secret" or has otherwise identified as being such, orally or in writing, pursuant to financial statements, reports and other materials submitted by the Company as required hereunder, unless such information is or becomes known to the Major Investor from a source other than the Company without violation of any rights of the Company, or is or becomes publicly known, or unless the Company gives its written consent to the Major Investor's release of such information, except that no such written consent shall be required (and the Major Investor shall be free to release such information to such recipient) if such information is to be provided to a Major Investor's counsel, in response to a subpoena or regulatory inquiry, or to an officer, director or partner of a Major Investor, provided that the Major -17-

18 Investor shall inform the recipient of the confidential nature of such information, and such recipient must agree in advance of disclosure to treat the information as confidential. 7.3 Inspection. The Company shall permit each Major Investor, at such Major Investor's expense, to visit and inspect the Company's properties, to examine its books of account and records and to discuss the Company's affairs, finances and accounts with its officers, all at such reasonable times as may be requested by the Major Investor; provided, however, that the Company shall not be obligated pursuant to this Section 7.3 to provide access to any information which the Board of Directors reasonably considers to be a trade secret or similar confidential information. 7.4 Board Visitation Rights. Each Major Investor or its designated representative, unless already represented on the Company's Board of Directors (the "Observer"), shall have the right to attend the Company's Board of Directors meetings and to receive, at the same time such information as is provided to its directors and notice and copies of all information furnished to directors in connection with all meetings of the Board of Directors; provided, however, that the Company shall not be obligated pursuant to this Section 7.4 to provide access to any information which the Company's Board of Directors reasonably considers to be a trade secret or similar confidential information unless the Observer executes a form of nondisclosure agreement acceptable to the Company, which acceptance shall not be unreasonably withheld. The rights of the Major Investor under this Section 7.4 shall not be transferable. 7.5 Termination of Covenants. The covenants set forth in Sections 7.1, and 7.2 shall terminate as to Investors and be of no further force or effect upon the earlier to occur of: (i) a Qualified Public Offering or (ii) when the Company first becomes subject to the periodic reporting requirements of Sections 12(g) or 15(d) of the Securities Exchange Act of 1934, as amended. 8. Miscellaneous Provisions. 8.1 Waivers and Amendments. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the holders of at least a majority of the shares of Registrable Securities except that any such amendment of Sections 1.13, 3 or 8.1 shall require the written consent of the Company and the holders of at least two-thirds (66 2/3%) of the shares of Registrable Securities. Any amendment or waiver effected in accordance with this Section 8.1 shall be binding upon each person or entity which are granted certain rights under this Agreement and the Company. Notwithstanding the foregoing, the Company may, without obtaining any further consent of the holders of Registrable Securities, amend this Agreement to the extent necessary to grant rights and obligations on a pari passu basis with the rights and obligations of the Series D Investors hereunder to investors in any subsequent round of financing prior to the Subsequent Closing Date (as such term is defined in the Series D Stock Purchase Agreement), and such investors shall become parties to this Agreement by executing a counterpart hereof. -18-

19 8.2 Notices. All notices and other communications required or permitted hereunder shall be in writing and, except as otherwise noted herein, shall be deemed effectively given upon personal delivery, refusal of delivery, delivery by nationally recognized courier or five business days after deposit with the United States Post Office (by first class mail, postage prepaid), addressed: (a) if to the Company, at 1124 Columbia Street, Suite 130, Seattle, WA 98104 (or at such other address as the Company shall have furnished to the Investors in writing) attention of President and (b) if to an Investor, at the latest address of such person shown on the Company's records. 8.3 Descriptive Headings. The descriptive headings herein have been inserted for convenience only and shall not be deemed to limit or otherwise affect the construction of any provisions hereof. 8.4 Governing Law. This Agreement shall be governed by and interpreted under the laws of the State of Washington as applied to agreements among Washington residents, made and to be performed entirely within the State of Washington. 8.5 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original and all of which shall constitute the same instrument, but only one of which need be produced. 8.6 Expenses. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorney's fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled. 8.7 Successors and Assigns. Except as otherwise expressly provided in this Agreement, this Agreement shall benefit and bind the successors, assigns, heirs, executors and administrators of the parties to this Agreement. 8.8 Entire Agreement. This Agreement constitutes the entire agreement among the parties hereto with respect to the specific subject matter hereof. 8.9 Separability; Severability. Unless expressly provided in this Agreement, the rights of each Investor under this Agreement are several rights, not rights jointly held with any other Investors. Any invalidity, illegality or limitation on the enforceability of this Agreement with respect to any Investor shall not affect the validity, legality or enforceability of this Agreement with respect to the other Investors. If any provision of this Agreement is judicially determined to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not be affected or impaired. 8.10 Stock Splits. All references to numbers of shares in this Agreement shall be appropriately adjusted to reflect any stock dividend, split, combination or other recapitalization of shares by the Company occurring after the date of this Agreement. -19-

20 IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first set forth above. COMPANY: INVESTORS: XCYTE THERAPIES, INC. -------------------------------- (Investor) By: ---------------------------- By: Name: ---------------------------- -------------------------- (print) Title: Title: --------------------------- ------------------------- FOUNDERS: - --------------------------------- Ronald J. Berenson - --------------------------------- Jeffrey Bluestone - --------------------------------- Carl June - --------------------------------- Jeffrey Ledbetter - --------------------------------- Craig Thompson [SIGNATURE PAGE FOR XCYTE THERAPIES, INC. AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]

21 SCHEDULE A SCHEDULE OF INVESTORS INVESTOR NAME AND ADDRESS SERIES A SERIES B SERIES C SERIES D Alta California Partners, L.P. 1,840,086 787,294 949,635 571,491 One Embarcadero Center Suite 4050 San Francisco, CA 94111 Attn: Elaine Walker and Jean Deleage Tel: (415) 362-4022 Fax: (415) 362-6178 Alta Embarcadero Partners, LLC 54,651 17,987 21,696 13,056 One Embarcadero Center Suite 4050 San Francisco, CA 94111 Attn: Elaine Walker and Jean Deleage Tel: (415) 362-4022 Fax: (415) 362-6178 ARCH Venture Fund II, L.P. 631,579 363,636 0 0 8735 West Higgins Road Suite 235 Chicago, IL 60631 Attn: Melanie Davis Tel: (773) 380-6600 Fax: (773) 380-6606 1000 Second Avenue, Suite 3700 Seattle, WA 98104-1053 Attn: Bob Nelsen Ron Berenson, M.D. 57,895 0 0 0 PO Box 1598 Mercer Island, WA 98040 Tel: (206) 232-1433 Fax: (206) 236-1876

22 INVESTOR NAME AND ADDRESS SERIES A SERIES B SERIES C SERIES D 26,316 0 0 0 GC&H Investments 1 Maritime Plaza, 20th Fl. San Francisco, CA 94111 Attn: John L. Cordoza Tel: (415) 693-2600 CV Sofinnova Venture Partners III 140 Geary Street, 10th Floor 947,368 338,289 59,880 0 San Francisco, CA 94108 Attn.: Michael F. Powell Tel: (415) 228-3387 Fax: (415) 228-3390 DLJ Capital Corp. 52,632 10,909 22,859 6,475 3000 Sand Hill Road Bldg. 3, Ste. 170 Menlo Park, CA 94025 Tel: (650) 234-2700 Fax: (650) 234-2779 Attn: Bob Curry DLJ First ESC L.P. 263,158 54,545 114,294 32,374 3000 Sand Hill Road Bldg. 3, Ste. 170 Menlo Park, CA 94025 Tel: (650) 234-2700 Fax: (650) 234-2779 Attn: Bob Curry Sprout Capital VII, L.P. 2,289,197 474,488 994,235 281,622 3000 Sand Hill Road Bldg. 3, Ste. 170 Menlo Park, CA 94025 Tel: (650) 234-2700 Fax: (650) 234-2779 Attn: Bob Curry The Sprout CEO Fund, L.P. 26,592 5,512 11,549 3,270 3000 Sand Hill Road Bldg. 3, Ste. 170 Menlo Park, CA 94025 Tel: (650) 234-2700 Fax: (650) 234-2779 Attn: Bob Curry

23 INVESTOR NAME AND ADDRESS SERIES A SERIES B SERIES C SERIES D WS Investment Company 26,316 0 0 0 650 Page Mill Road Palo Alto, CA 94304 Tel: (650) 443-9300 Fax: (650) 845-5000 Attn: J. Casey McGlynn Paul Etsekson 26,316 0 0 0 Fleet Pride P.O. Box 80986 Seattle, WA 98108 Tel: (206) 654-8089 Fax: (206) 343-1499 Gary P. Farber IRA Rollover 26,316 0 0 0 Summit Partners 16102 S.E. Cougar Mountain Way Bellevue, WA 98006 Tel: (206) 447-9020 Mrs. Thomas Georges, Jr. 26,316 0 0 0 1814 S.W. Jackson Street Portland, OR 97201 Tel: (503) 227-3898 Thomas Georges, Jr. 10,526 0 0 0 1814 S.W. Jackson Street Portland, OR 97201 Tel: (503) 227-3898 Michael S. Rabson 2,632 0 0 0 c/o Maxygen, Inc. 515 Galveston Drive Redwood City, CA 94063 SMS 0 22,727 0 0 Bader Martin Ross & Smith, P.S. 1000 Second Avenue, 34th Floor Seattle, WA 98104 Tel: (206) 667-0310 Fax: (206) 682-1874 Attn: Walter R. Smith, CPA

24 INVESTOR NAME AND ADDRESS SERIES A SERIES B SERIES C SERIES D Benjamin Stern 528 Laidlaw Blvd Winnipeg, Canada 26,316 0 0 0 R3POK9 ARCH Development Corporation 157,890 0 0 0 Walker 213 1101 East 58th Street Chicago, IL 60637 Attn: Terry Willey ARCH Venture Fund III, L.P. 157,890 1,681,818 1,119,265 962,230 8735 West Higgins Road Suite 235 Chicago, IL 60631 Attn: Melanie Davis Tel: (773) 380-6600 Fax: (773) 380-6606 1000 Second Avenue, Suite 3700 Seattle, WA 98104-1053 Attn: Bob Nelsen Jeffrey Ledbetter 157,890 0 0 0 18798 Ridgefield Road NW Shoreline, WA 98177 TGI Fund II, LC 0 0 1,796,410 286,022 6501 Columbia Center 701-5th Avenue Seattle, WA 98104 Attn: Michael Beblo and Dave Maki Vengott LC 0 0 179,641 0 6501 Columbia Center 701-5th Avenue Seattle, WA 98104 Attn: Michael Beblo and Dave Maki Steven M. Johnson 0 0 32,934 0 6501 Columbia Center 701-5th Avenue Seattle, WA 98104

25 INVESTOR NAME AND ADDRESS SERIES A SERIES B SERIES C SERIES D John E. Parkey 0 0 29,940 0 6501 Columbia Center 701-5th Avenue Seattle, WA 98104 Charles A. Blanchard 0 0 14,970 0 6501 Columbia Center 701-5th Avenue Seattle, WA 98104 Anthony P. Russo, Trustee 0 0 14,970 0 Anthony P. Russo Separate Property Trust U/A 9/11/90 6501 Columbia Center 701-5th Avenue Seattle, WA 98104 David J. Maki 0 0 14,970 0 Tredegar Investments 6300 Columbia Center 701 Fifth Avenue Seattle, WA 98104-7092 R. Ray Cummings 0 0 11,976 0 Cummings Consulting 8695 NE Grizdale Lane Bainbridge Island, WA 98110 Falcon Technology Partners, L.P. 0 0 598,802 95,341 600 Dorset Road Devon, PA 19333 Attn: Jim Rathman Vulcan Ventures Inc. 0 0 598,802 719,424 110 110th Avenue NE, Suite 550 Bellevue, WA 98004 Attn: Ruth B. Kunath Fluke Capital Management, L.P. 0 0 598,802 89,928 11400 SE 6th Street, Suite 230 Bellevue, WA 98004 Attn: Dennis P. Weston & Kevin C. Gabelein

26 INVESTOR NAME AND ADDRESS SERIES A SERIES B SERIES C SERIES D Tom Alberg 0 0 0 719,424 Madrona Investment Group 1000 Second Avenue Seattle, WA 98104 MGN Opportunity Group LLC 0 0 0 359,712 Matthew G. Norton Company The Norton Building 801 Second Avenue, Suite 1300 Seattle, WA 98104 Attn: Stephen Humphreys Arnold L. Holm, Jr. 0 0 0 36,000 Holm Construction Services 310 Third Avenue NE, Suite 103 Issaquah, WA 98027 Henry James 0 0 0 89,928 22420 North Dogwood Lane Woodway, WA 98020 Scott Oki 0 0 0 359,712 Oki Enterprises, LLC 10838 Main Street Bellevue, WA 98004 VLG Investments LLC 0 0 0 12,619 2800 Sand Hill Road Menlo Park, CA 94025 Attn: Elias J. Blawie VLG Associates 2000 0 0 0 1,770 2800 Sand Hill Road Menlo Park, CA 94025 Attn: Elias J. Blawie Sonya F. Erickson 0 0 0 1,799 4750 Carillon Point Kirkland, WA 98033 Marilyn Parsons 52,630 0 0 0 306 NW 113th Place Seattle, WA 98177

27 INVESTOR NAME AND ADDRESS SERIES A SERIES B SERIES C SERIES D Genetics Institute 0 145,875 0 0 c/o American Home Products Corp. S Giralda Farms Madison, NJ 07940 Attn: Senior V.P. & General Counsel

1 EXHIBIT 10.6 AMENDMENT TO AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT OF XCYTE THERAPIES, INC. This Amendment to the Amended and Restated Investor Rights Agreement dated as of May 25, 2000 of Xcyte Therapies, Inc. (the "Amendment") is entered into as of October 18, 2000 by and between Xcyte Therapies, Inc., a Delaware corporation (the "Company"), the holders of the Company's capital stock listed on Schedule A attached to the Amended and Restated Investor Rights Agreement (collectively, the "Investors"), Phoenix Leasing Incorporated and Robert Kingsbook (each of whom is referred to as a "Warrantholder"). RECITAL The Company, the Investors and the Warrantholders are parties to an Amended and Restated Investor Rights Agreement dated as of May 25, 2000 and amended by the Addendum to the Series D Preferred Stock Purchase Agreement and Omnibus Amendment to Series D Financing Documents dated as of August 8, 2000 (the "Rights Agreement"). Capitalized terms used herein without definition shall have the meaning ascribed to them in the Rights Agreement. The Company and Landlord are entering into a Lease Agreement dated September 20, 2000 (the "Lease Agreement") pursuant to which the Company will issue Landlord a warrant to purchase shares of the Company's Series D Preferred Stock (the "Warrant"). AGREEMENT 1. Amendment to Section 2.2. Section 2.2 is hereby amended and restated to read in its entirety as follows: 2.2 Future Shares. "Future Shares" shall mean shares of any capital stock of the Company, whether now authorized or not, and any rights, options or warrants to purchase such capital stock, and securities of any type that are, or may become, convertible into such capital stock; provided however, that "Future Shares" do not include (i) the Shares purchased under the Series D Stock Purchase Agreement (ii) the shares of Common Stock issued or issuable upon the conversion of the Preferred Stock, (iii) securities offered pursuant to a registration statement filed under the Act, (iv) securities issued pursuant to the acquisition of another corporation by the Company by merger or, purchase of substantially all of the assets or other reorganization, (v) securities issued in connection with or as consideration for a collaborative partnership arrangement, as approved by a majority of the Board of Directors of the Company, or the acquisition, leasing or licensing of technology or other significant assets to be used in the Company's business, as approved by a majority of the Board of Directors of the Company, (vi) securities issued or issuable to officers, directors, employees or consultants of the Company pursuant to any employee or consultant stock offering, plan or arrangement approved by a majority of the Board of Directors of the Company and (vii) all shares of Common Stock or other securities, or options or warrants to purchase Common Stock or any such other securities, issuable to landlords, financial institutions or lessors in connection with office leases, commercial credit arrangements, equipment financings or similar transactions."

2 2. No Other Amendments. Except as expressly amended as set forth above, the Rights Agreement shall remain in full force and effect in accordance with its terms. 3. Counterparts. This Amendment may be executed in counterparts, each of which shall be deemed an original and all of which together shall constitute one document. (signature page follows) -2-

3 The parties have executed this Amendment to Amended and Restated Investor Rights Agreement of Xcyte Therapies, Inc. as of the date first written above. COMPANY: XCYTE THERAPIES, INC. --------------------------------- By: ---------------------------- Name: --------------------------- Its: ---------------------------- WARRANTHOLDERS: PHOENIX LEASING INCORPORATED --------------------------------- By: ---------------------------- Name: --------------------------- Its: ---------------------------- --------------------------------- Robert Kingsbook INVESTORS: --------------------------------- By: ---------------------------- Name: --------------------------- Its: ---------------------------- [SIGNATURE PAGE TO XCYTE THERAPIES, INC. AMENDMENT TO AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]

4 INVESTORS: ALTA CALIFORNIA PARTNERS, L.P. By: ---------------------------- Name: --------------------------- Its: ---------------------------- Address: One Embarcadero Center Suite 4050 San Francisco, CA 94111 [SIGNATURE PAGE TO XCYTE THERAPIES, INC. AMENDMENT TO AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]

5 INVESTORS: ARCH DEVELOPMENT CORPORATION By: ---------------------------- Name: --------------------------- Its: ---------------------------- Address: 1000 Second Avenue Suite 3700 Seattle, WA 98104-1053 ARCH VENTURE FUND III, L.P. By: ---------------------------- Name: --------------------------- Its: ---------------------------- Address: 1000 Second Avenue Suite 3700 Seattle, WA 98104-1053 ARCH VENTURE PARTNERS II, L.P. By: ---------------------------- Name: --------------------------- Its: ---------------------------- Address: 1000 Second Avenue Suite 3700 Seattle, WA 98104-1053 [SIGNATURE PAGE TO XCYTE THERAPIES, INC. AMENDMENT TO AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]

6 INVESTORS: RONALD J. BERENSON, M.D. By: ---------------------------- Name: --------------------------- Its: ---------------------------- Address: 8836 S.E. 74th Place Mercer Island, WA 98040 [SIGNATURE PAGE TO XCYTE THERAPIES, INC. AMENDMENT TO AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]

7 INVESTORS: DLJ CAPITAL CORP. By: ---------------------------- Name: --------------------------- Its: ---------------------------- Address: 3000 Sand Hill Road Building 3, Suite 170 Menlo Park, CA 94025 DLJ FIRST ESC L.L.C. By: ---------------------------- Name: --------------------------- Its: ---------------------------- Address: 3000 Sand Hill Road Building 3, Suite 170 Menlo Park, CA 94025 DLJ FIRST ESC. L.P. By: ---------------------------- Name: --------------------------- Its: ---------------------------- Address: 3000 Sand Hill Road Building 3, Suite 170 Menlo Park, CA 94025 [SIGNATURE PAGE TO XCYTE THERAPIES, INC. AMENDMENT TO AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]

8 INVESTORS: MPM ASSET MANAGEMENT INVESTORS By: ---------------------------- Name: --------------------------- Its: ---------------------------- Address: One Cambridge Center Cambridge, MA 02142 MPM BIOVENTURES GMBH & CO. By: ---------------------------- Name: --------------------------- Its: ---------------------------- Address: One Cambridge Center Cambridge, MA 02142 MPM BIOVENTURES II, LP By: ---------------------------- Name: --------------------------- Its: ---------------------------- Address: One Cambridge Center Cambridge, MA 02142 MPM BIOVENTURES QP, LP By: ---------------------------- Name: --------------------------- Its: ---------------------------- Address: One Cambridge Center Cambridge, MA 02142 [SIGNATURE PAGE TO XCYTE THERAPIES, INC. AMENDMENT TO AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]

9 INVESTORS: SPROUT CAPITAL VII, L.P. By: ---------------------------- Name: --------------------------- Its: ---------------------------- Address: 3000 Sand Hill Road Building 3, Suite 170 Menlo Park, CA 94025 SPROUT CEO FUND, L.P. By: ---------------------------- Name: --------------------------- Its: ---------------------------- Address: 3000 Sand Hill Road Building 3, Suite 170 Menlo Park, CA 94025 [SIGNATURE PAGE TO XCYTE THERAPIES, INC. AMENDMENT TO AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]

10 INVESTORS: TGI FUND II, LC By: ---------------------------- Name: --------------------------- Its: ---------------------------- Address: 6501 Columbia Center 701 Fifth Ave. Seattle, WA 98104 VENGOTT LC C/O TREDEGAR INVESTMENTS By: ---------------------------- Name: --------------------------- Its: ---------------------------- Address: 6501 Columbia Center 701 Fifth Ave. Seattle, WA 98104 [SIGNATURE PAGE TO XCYTE THERAPIES, INC. AMENDMENT TO AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]

1 EXHIBIT 10.7 THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933. - ------------------------------------------------------------------------------- Warrant No. <> Number of Shares: <> ate of Issuance: <> (subject to adjustment) XCYTE THERAPIES, INC. COMMON STOCK PURCHASE WARRANT Xcyte Therapies, Inc., a Delaware corporation (the "Company"), for value received, hereby certifies that <>, or its registered assigns (the "Registered Holder"), is entitled, subject to the terms set forth below, to purchase from the Company, at any time after the date hereof and on or before the Expiration Date (as defined in Section 5 below), up to <> shares of Common Stock of the Company, at a purchase price of $0.30 per share. The shares purchasable upon exercise of this Warrant and the purchase price per share, as adjusted from time to time pursuant to the provisions of this Warrant, are hereinafter referred to as the "Warrant Stock" and the "Purchase Price," respectively. This Warrant is issued pursuant to, and is subject to the terms and conditions of, an Addendum to Series D Preferred Stock Purchase Agreement and Omnibus Amendment to Series D Financing Agreements dated August 14, 2000 among the Company and certain Investors (the "Purchase Agreement"). 1. EXERCISE. (a) MANNER OF EXERCISE. This Warrant may be exercised by the Registered Holder, in whole or in part, by surrendering this Warrant, with the purchase/exercise form appended hereto as Exhibit A duly executed by such Registered Holder or by such Registered Holder's duly authorized attorney, at the principal office of the Company, or at such other office or agency as the Company may designate, accompanied by payment in full of the Purchase Price payable in respect of the number of shares of Warrant Stock purchased upon such exercise. The Purchase Price may be paid by cash, check, wire transfer or by the surrender of promissory notes or other instruments representing indebtedness of the Company to the Registered Holder. (b) EFFECTIVE TIME OF EXERCISE. Each exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the day on which this Warrant shall have been surrendered to the Company as provided in Section 1(a) above. At such

2 time, the person or persons in whose name or names any certificates for Warrant Stock shall be issuable upon such exercise as provided in Section 1(d) below shall be deemed to have become the holder or holders of record of the Warrant Stock represented by such certificates. (c) NET ISSUE EXERCISE. (i) In lieu of exercising this Warrant in the manner provided above in Section 1(a), the Registered Holder may elect to receive shares equal to the value of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of the Company together with notice of such election on the purchase/exercise form appended hereto as Exhibit A duly executed by such Registered Holder or such Registered Holder's duly authorized attorney, in which event the Company shall issue to such Holder a number of shares of Warrant Stock computed using the following formula: X = Y (A - B) --------- A Where X = The number of shares of Warrant Stock to be issued to the Registered Holder. Y = The number of shares of Warrant Stock purchasable under this Warrant (at the date of such calculation). A = The fair market value of one share of Warrant Stock (at the date of such calculation). B = The Purchase Price (as adjusted to the date of such calculation). (ii) For purposes of this Section 1(c), the fair market value of Warrant Stock on the date of calculation shall mean with respect to each share of Warrant Stock: (A) if the exercise is in connection with an initial public offering of the Company's Common Stock, and if the Company's Registration Statement relating to such public offering has been declared effective by the Securities and Exchange Commission, then the fair market value per share shall be the product of (x) the initial "Price to Public" specified in the final prospectus with respect to the offering and (y) the number of shares of Common Stock into which each share of Warrant Stock is convertible at the date of calculation; (B) if (A) is not applicable, the fair market value of Warrant Stock shall be at the highest price per share which the Company could obtain on the date of calculation from a willing buyer (not a current employee or director) for shares of Warrant Stock sold by the Company, from authorized but unissued shares, as determined in good faith by the Board of Directors, unless the Company is at such time subject to an acquisition as described in Section 5(b) below, in which case the fair market value of Warrant Stock shall be deemed to be the value received by the holders of such stock pursuant to such acquisition. (d) DELIVERY TO HOLDER. As soon as practicable after the exercise of this Warrant in whole or in part, and in any event within ten (10) days thereafter, the Company at its -2-

3 expense will cause to be issued in the name of, and delivered to, the Registered Holder, or as such Holder (upon payment by such Holder of any applicable transfer taxes) may direct: (i) a certificate or certificates for the number of shares of Warrant Stock to which such Registered Holder shall be entitled, and (ii) in case such exercise is in part only, a new warrant or warrants (dated the date hereof) of like tenor, calling in the aggregate on the face or faces thereof for the number of shares of Warrant Stock equal (without giving effect to any adjustment therein) to the number of such shares called for on the face of this Warrant minus the number of such shares purchased by the Registered Holder upon such exercise as provided in Section 1(a) or 1(c) above. 2. ADJUSTMENTS. (a) STOCK SPLITS AND DIVIDENDS. If outstanding shares of the Company's Common Stock shall be subdivided into a greater number of shares or a dividend in Common Stock shall be paid in respect of Common Stock, the Purchase Price in effect immediately prior to such subdivision or at the record date of such dividend shall simultaneously with the effectiveness of such subdivision or immediately after the record date of such dividend be proportionately reduced. If outstanding shares of Common Stock shall be combined into a smaller number of shares, the Purchase Price in effect immediately prior to such combination shall, simultaneously with the effectiveness of such combination, be proportionately increased. When any adjustment is required to be made in the Purchase Price, the number of shares of Warrant Stock purchasable upon the exercise of this Warrant shall be changed to the number determined by dividing (i) an amount equal to the number of shares issuable upon the exercise of this Warrant immediately prior to such adjustment, multiplied by the Purchase Price in effect immediately prior to such adjustment, by (ii) the Purchase Price in effect immediately after such adjustment. (b) RECLASSIFICATION, ETC. In case there occurs any reclassification or change of the outstanding securities of the Company or of any reorganization of the Company (or any other corporation the stock or securities of which are at the time receivable upon the exercise of this Warrant) or any similar corporate reorganization on or after the date hereof, then and in each such case the Registered Holder, upon the exercise hereof at any time after the consummation of such reclassification, change, or reorganization shall be entitled to receive, in lieu of the stock or other securities and property receivable upon the exercise hereof prior to such consummation, the stock or other securities or property to which such Holder would have been entitled upon such consummation if such Holder had exercised this Warrant immediately prior thereto, all subject to further adjustment pursuant to the provisions of this Section 2. (c) ADJUSTMENT CERTIFICATE. When any adjustment is required to be made in the Warrant Stock or the Purchase Price pursuant to this Section 2, the Company shall promptly mail to the Registered Holder a certificate setting forth (i) a brief statement of the facts requiring such adjustment, (ii) the Purchase Price after such adjustment and (iii) the kind and amount of stock or other securities or property into which this Warrant shall be exercisable after such adjustment. -3-

4 (d) ACKNOWLEDGEMENT. In order to avoid doubt, it is acknowledged that the holder of this Warrant shall be entitled to the benefit of all adjustments in the number of shares of Common Stock of the Company. 3. TRANSFERS. (a) UNREGISTERED SECURITY. Each holder of this Warrant acknowledges that this Warrant, the Warrant Stock and the Common Stock of the Company have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), and agrees not to sell, pledge, distribute, offer for sale, transfer or otherwise dispose of this Warrant, any Warrant Stock issued upon its exercise in the absence of (i) an effective registration statement under the Act as to this Warrant or such Warrant Stock and registration or qualification of this Warrant or such Warrant Stock under any applicable U.S. federal or state securities law then in effect, or (ii) an opinion of counsel, satisfactory to the Company, that such registration and qualification are not required. Each certificate or other instrument for Warrant Stock issued upon the exercise of this Warrant shall bear a legend substantially to the foregoing effect. (b) TRANSFERABILITY. Subject to the provisions of Section 3(a) hereof and of Section 1.12 of the Investors' Rights Agreement dated May 25, 2000 among the Company and certain holders of the Company's securities, this Warrant and all rights hereunder are transferable, in whole or in part, upon surrender of the Warrant with a properly executed assignment (in the form of Exhibit B hereto) at the principal office of the Company. (c) WARRANT REGISTER. The Company will maintain a register containing the names and addresses of the Registered Holders of this Warrant. Until any transfer of this Warrant is made in the warrant register, the Company may treat the Registered Holder of this Warrant as the absolute owner hereof for all purposes; provided, however, that if this Warrant is properly assigned in blank, the Company may (but shall not be required to) treat the bearer hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. Any Registered Holder may change such Registered Holder's address as shown on the warrant register by written notice to the Company requesting such change. 4. NO IMPAIRMENT. The Company will not, by amendment of its charter or through reorganization, consolidation, merger, dissolution, sale of assets or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will (subject to Section 13 below) at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment. 5. TERMINATION. This Warrant (and the right to purchase securities upon exercise hereof) shall terminate upon the earliest to occur of the following (the "Expiration Date"): (a) August 8, 2005, (b) the sale, conveyance or disposal of all or substantially all of the Company's property or business or the Company's merger into or consolidation with any other corporation (other than a wholly-owned subsidiary of the Company) or any other transaction or series of related transactions in which more than fifty percent (50%) of the voting power of the Company is disposed of, provided that this Section 5(b) shall not apply to a merger effected -4-

5 exclusively for the purpose of changing the domicile of the Company, or (c) the closing of a firm commitment underwritten public offering pursuant to a registration statement on Form S-1 under the Securities Act, the public offering price of which is not less than $4.00 per share (appropriately adjusted for any stock split, dividend, combination or other recapitalization)] and which results in aggregate cash proceeds to the Company of $20,000,000 (net of underwriting discounts and commissions). 6. NOTICES OF CERTAIN TRANSACTIONS. In case: (a) the Company shall take a record of the holders of its Common Stock (or other stock or securities at the time deliverable upon the exercise of this Warrant) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of stock of any class or any other securities, or to receive any other right, to subscribe for or purchase any shares of stock of any class or any other securities, or to receive any other right, or (b) of any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation or merger of the Company, any consolidation or merger of the Company with or into another corporation (other than a consolidation or merger in which the Company is the surviving entity), or any transfer of all or substantially all of the assets of the Company, or (c) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company, then, and in each such case, the Company will mail or cause to be mailed to the Registered Holder of this Warrant a notice specifying, as the case may be, (i) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation, winding-up or redemption is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such other stock or securities at the time deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation, winding-up or redemption) are to be determined. Such notice shall be mailed at least ten (10) days prior to the record date or effective date for the event specified in such notice. 7. RESERVATION OF STOCK. The Company will at all times reserve and keep available, solely for the issuance and delivery upon the exercise of this Warrant, such shares of Warrant Stock and other stock, securities and property, as from time to time shall be issuable upon the exercise of this Warrant. 8. EXCHANGE OF WARRANTS. Upon the surrender by the Registered Holder of any Warrant or Warrants, properly endorsed, to the Company at the principal office of the Company, the Company will, subject to the provisions of Section 3 hereof, issue and deliver to or upon the order of such Holder, at the Company's expense, a new Warrant or Warrants of like tenor, in the name of such Registered -5-

6 Holder or as such Registered Holder (upon payment by such Registered Holder of any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face or faces of the Warrant or Warrants so surrendered. 9. REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and (in the case of loss, theft or destruction) upon delivery of an indemnity agreement (with surety if reasonably required) in an amount reasonably satisfactory to the Company, or (in the case of mutilation) upon surrender and cancellation of this Warrant, the Company will issue, in lieu thereof, a new Warrant of like tenor. 10. MAILING OF NOTICES. Any notice required or permitted pursuant to this Warrant shall be in writing and shall be deemed sufficient upon receipt, when delivered personally or sent by courier, overnight delivery service or confirmed facsimile, or forty-eight (48) hours after being deposited in the regular mail, as certified or registered mail (airmail if sent internationally), with postage prepaid, addressed (a) if to the Registered Holder, to the address of the Registered Holder most recently furnished in writing to the Company and (b) if to the Company, to the address set forth below or subsequently modified by written notice to the Registered Holder. 11. NO RIGHTS AS STOCKHOLDER. Until the exercise of this Warrant, the Registered Holder of this Warrant shall not have or exercise any rights by virtue hereof as a stockholder of the Company. 12. NO FRACTIONAL SHARES. No fractional shares of Common Stock will be issued in connection with any exercise hereunder. In lieu of any fractional shares which would otherwise be issuable, the Company shall pay cash equal to the product of such fraction multiplied by the fair market value of one share of Common Stock on the date of exercise, as determined in good faith by the Company's Board of Directors. 13. AMENDMENT OR WAIVER. Any term of this Warrant may be amended or waived upon written consent of the Company and the holders of at least a majority of the Common Stock issuable upon exercise of outstanding warrants purchased pursuant to the Purchase Agreement. By acceptance hereof, the Registered Holder acknowledges that in the event the required consent is obtained, any term of this Warrant may be amended or waived with or without the consent of the Registered Holder; provided, however, that any amendment hereof that would materially adversely affect the Registered Holder in a manner different from the holders of the remaining warrants issued pursuant to the Purchase Agreement shall also require the consent of Registered Holder. 14. HEADINGS. The headings in this Warrant are for purposes of reference only and shall not limit or otherwise affect the meaning of any provision of this Warrant. 15. GOVERNING LAW. This Warrant shall be governed, construed and interpreted in accordance with the laws of the State of Washington, without giving effect to principles of conflicts of law. -6-

7 XCYTE THERAPIES, INC. By ------------------------------------ Address: 1124 Columbia Street Suite 130 Seattle, Washington 98104 Fax Number: (206) 262-0900 -7-

8 EXHIBIT A PURCHASE/EXERCISE FORM To: XCYTE THERAPIES, INC. Dated: The undersigned, pursuant to the provisions set forth in the attached Warrant No. <>, hereby irrevocably elects to (a) purchase _____ shares of the Common Stock covered by such Warrant and herewith makes payment of $ _________, representing the full purchase price for such shares at the price per share provided for in such Warrant, or (b) exercise such Warrant for _______ shares purchasable under the Warrant pursuant to the Net Issue Exercise provisions of Section 1(c) of such Warrant. The undersigned acknowledges that it has reviewed the representations and warranties contained in Section 3 of the Purchase Agreement (as defined in the Warrant) and by its signature below hereby makes such representations and warranties to the Company. Defined terms contained in such representations and warranties shall have the meanings assigned to them in the Purchase Agreement, provided that the term "Purchaser" shall refer to the undersigned and the term "Securities" shall refer to the Warrant Stock. The undersigned further acknowledges that it has reviewed the market standoff provisions set forth in Section 1.14 of the Investors' Rights Agreement dated May 25, 2000, as amended, among the Company and certain holders of the Company's securities and agrees to be bound by such provisions. Signature: ------------------------------------- Name (print): ----------------------------------- Title (if applic.) ------------------------------ Company (if applic.): ---------------------------

9 EXHIBIT B ASSIGNMENT FORM FOR VALUE RECEIVED, _________________________________________ hereby sells, assigns and transfers all of the rights of the undersigned under the attached Warrant with respect to the number of shares of Common Stock covered thereby set forth below, unto: NAME OF ASSIGNEE ADDRESS/FAX NUMBER NO. OF SHARES Dated: Signature: ------------------ ----------------------------------- ----------------------------------- Witness: -----------------------------------

1 EXHIBIT 10.8 THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO SALE OR DISPOSITION OF SUCH SECURITIES MAY BE EFFECTED WITHOUT (i) AN EFFECTIVE REGISTRATION STATEMENT RELATING THERETO, (ii) AN OPINION OF COUNSEL FOR HOLDER, REASONABLY SATISFACTORY TO COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED, (iii) RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION, OR (iv) OTHERWISE COMPLYING WITH THE PROVISIONS OF ARTICLE III OF THIS WARRANT. WARRANT TO PURCHASE SHARES OF SERIES C PREFERRED STOCK Dated August 25, 2000 This certifies that for value received, ________________________________, or registered assigns, is entitled as of August 25, 2000 (the "Closing Date"), subject to the terms set forth herein, to purchase from XCYTE THERAPIES, INC., a Delaware corporation (the "Company"), up to ________________________________ fully paid and non-assessable shares of Company's Series C Preferred Stock, at the price of One Dollar and Sixty-Seven Cents ($1.67) per share. The initial exercise price of One Dollar and Sixty-Seven Cents ($1.67) per share, and the number of shares purchasable hereunder, are subject to adjustment in certain events, all as more fully set forth under Article IV herein. This Warrant is the result of the partial assignment of a Warrant dated July 1, 1999. ARTICLE I DEFINITIONS "Certificate of Incorporation" means the Restated Certificate of Incorporation of Company, as filed with the Delaware Secretary of State on July 21, 1998. "Commission" means the Securities and Exchange Commission, or any other federal agency then administering the Exchange Act or the Securities Act, as defined herein. "Common Stock" means Company's Common Stock, any stock into which such stock shall have been changed or any stock resulting from any reclassification of such stock, and any other capital stock of Company of any class or series now or hereafter authorized having the right to share in distributions either of earnings or assets of Company without limit as to amount or percentage. "Company" means XCYTE THERAPIES, INC., a Delaware corporation, and any successor corporation. "Conversion Price" means the Conversion Price for Series C Preferred Stock, as determined in accordance with the Certificate of Incorporation. "Convertible Securities" means evidences of indebtedness, shares of stock or other securities which are convertible into or exchangeable for, with or without payment of additional consideration,

2 shares of Common Stock, either immediately or upon the arrival of a specified date or the happening of a specified event or both. "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any successor federal statute, and the rules and regulations of the Commission promulgated thereunder, all as the same shall be in effect from time to time. "Exercise Period" means the period commencing on the Closing Date and terminating at the earlier to occur of: (i) 5:00 p.m., Pacific Time on the seventh (7th) anniversary of the Closing Date, or (ii) the closing of Company's initial sale and issuance of shares of Common Stock in an underwritten public offering, pursuant to a registration statement on Form S-i under the Securities Act, the public offering price of which is not less than $4.00 per share (appropriately adjusted for any stock split, dividend, combination or other recapitalization) and which results in aggregate cash proceeds to the Company of $20,000,000 (net of underwriting documents and commissions). "Exercise Price" means the price per share of Series C Preferred Stock set forth in the Preamble to this Warrant, as such price may be adjusted pursuant to Article IV hereof. "Fair Market Value" means (i) If shares of Series C Preferred Stock or Common Stock, as the case may be, are being sold pursuant to a Registration and Fair Market Value is being determined as of the closing of the public offering, the "price to public" specified for such shares in the final prospectus for such public offering; (ii) If shares of Series C Preferred Stock or Common Stock, as the case may be, are then listed or admitted to trading on any national securities exchange or traded on any national market system and Fair Market Value is not being determined as of the date described in clause (i) of this definition, the average of the daily closing prices for the thirty (30) trading days before such date, excluding any trades which are not bona fide, arm's length transactions. The closing price for each day shall be the last sale price on such date or, if no such sale takes place on such date, the average of the closing bid and asked prices on such date, in each case as officially reported on the principal national securities exchange or national market system on which such shares are then listed, admitted to trading or traded; (iii) If no shares of Series C Preferred Stock or Common Stock, as the case may be, are then listed or admitted to trading on any national securities exchange or traded on any national market system or being offered to the public pursuant to a Registration, the average of the reported closing bid and asked prices thereof on such date in the over-the-counter market as shown by the National Association of Securities Dealers automated quotation system or, if such shares are not then quoted in such system, as published by the National Quotation Bureau, Incorporated or any similar successor organization, and in either case as reported by any member firm of the New York Stock Exchange selected by Holder; (iv) If no shares of Series C Preferred Stock or Common Stock, as the case may be, are then listed or admitted to trading on any national exchange or traded on any national market system, if no closing bid and asked prices thereof are then so quoted or published in the over-the-counter market and if no such shares are being offered to the public pursuant to a Registration, the Fair Market Value of a -2-

3 share of Series C Preferred Stock or Common Stock, as the case may be, shall be as determined in good faith by Company's Board of Directors. "Fiscal Year" means the fiscal year of Company. "Holder" means the person in whose name this Warrant is registered on the books of Company maintained for such purpose. "Option" means any right, warrant or option to subscribe for or purchase shares of Common Stock or Convertible Securities. "Person" means and includes natural persons, corporations, limited partnerships, general partnerships, joint stock companies, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts, government entities and authorities and other organizations, whether or not legal entities. "Preferred Stock" means the Preferred Stock of Company, as defined in the Certificate of Incorporation. "Principal Executive Office" means Company's office at 1124 Columbia Street, Suite 130, Seattle, Washington 98104, or such other office as designated in writing to Holder by Company. "Register," "Registered" and "Registration" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration statement. "Rights Agreement" means the Amended and Restated Registration Rights Agreement, dated as of July 21, 1998, by and among Company and the shareholders of Company named therein, attached hereto as Exhibit "D". "Rule 144" means Rule 144 as promulgated by the Commission under the Securities Act, as such Rule may be amended from time to time, or any similar successor rule that the Commission may promulgate. "Securities Act" means the Securities Act of 1933, as amended, or any successor federal statute, and the rules and regulations of the Commission promulgated thereunder, all as the same shall be in effect from time to time. "Series C Preferred Stock" means the Series C Preferred Stock of Company, as defined in the Certificate of Incorporation. "Shareholder" means a holder of one or more Warrant Shares or shares of Common Stock acquired upon conversion of Warrant Shares. "Warrant" means the warrant dated as of Closing Date issued to Holder and all warrants issued upon the partial exercise, transfer or division of or in substitution for any Warrant. "Warrant Shares" means the shares of Series C Preferred Stock issuable upon the exercise of this Warrant provided that if under the terms hereof there shall be a change such that the securities purchasable hereunder shall be issued by an entity other than Company or there shall be a change in the -3-

4 type or class of securities purchasable hereunder, then the term shall mean the securities issuable upon the exercise of the rights granted hereunder. ARTICLE II EXERCISE 2.1. Exercise Right; Manner of Exercise. Holder may exercise this Warrant, in whole or in part, at any time and from time to time during the Exercise Period upon (i) surrender of this Warrant, together with an executed Notice of Exercise, substantially in the form of Exhibit "A" attached hereto, at the Principal Executive Office, and (ii) payment to Company of the aggregate Exercise Price for the number of Warrant Shares specified in the Notice of Exercise (such aggregate Exercise Price the "Total Exercise Price"). The Total Exercise Price shall be paid by check. Certificates for the Warrant Shares so purchased shall be delivered to Holder within a reasonable time, not exceeding fifteen (15) days after this Warrant is exercised. The issuance of Warrant Shares upon exercise of this Warrant shall be made without charge to Holder for any issuance tax with respect thereto or any other cost incurred by Company in connection with the exercise of this Warrant and the related issuance of Warrant Shares. 2.2. Conversion Right. In lieu of exercising this Warrant as specified in Section 2.1, Holder may from time to time convert this Warrant, in whole or in part, into that number of shares of Series C Preferred Stock equal to the product of: (a) the quotient obtained by dividing (i) the Fair Market Value of one share of Series C Preferred Stock at the time of such net exercise election less the Exercise Price of one such share by (ii) the Fair Market Value of such share; and (b) the aggregate number of shares of Series C Preferred Stock to be purchased pursuant to this Section 2.2. If, as of the last day of the Exercise Period, this Warrant has not been fully exercised, then as of such date this Warrant shall be automatically converted, in full, in accordance with this Section 2.2, without any action or notice by Holder. 2.3. Delivery of Certificate and New Warrant. Promptly after Holder exercises or converts this Warrant, Company shall deliver to Holder certificates for the Shares acquired and, if this Warrant has not been fully exercised or converted and has not expired, a new Warrant representing the Shares not so acquired. 2.4. Fractional Shares. Company shall not issue fractional shares of Series C Preferred Stock or Common Stock or scrip representing fractional shares of Series C Preferred Stock or Common Stock upon any exercise or conversion of this Warrant. As to any fractional share of Series C Preferred Stock or Common Stock which Holder would otherwise be entitled to purchase from Company upon such exercise or conversion, Company shall purchase from Holder such fractional share at a price equal to an amount calculated by multiplying such fractional share (calculated to the nearest 1/100th of a share) by the fair market value of a share of Series C Preferred Stock or Common Stock, as applicable, on the date of the Notice of Exercise or the Conversion Date, as applicable, as determined in good faith by Company's Board of Directors. Payment of such amount shall be made in cash or by check payable to the order of Holder at the time of delivery of any certificate or certificates arising upon such exercise or conversion. ARTICLE III REGISTRATION, TRANSFER, EXCHANGE AND REPLACEMENT 3.1. Maintenance of Registration Books. Company shall keep at the Principal Executive Office a register in which, subject to such reasonable regulations as it may prescribe, it shall provide for -4-

5 the registration, transfer and exchange of this Warrant. Company and any Company agent may treat the Person in whose name this Warrant is registered as the owner of this Warrant for all purposes whatsoever and neither Company nor any Company agent shall be affected by any notice to the contrary. 3.2 Restrictions on Transfers. (a) Compliance with Securities Act. Holder, by acceptance hereof, agrees that this Warrant, the Series C Preferred Stock to be issued upon exercise hereof and the shares of Common Stock to be issued upon conversion of such shares of Series C Preferred Stock are being acquired for investment, solely for Holder's own account and not as a nominee for any other Person, and that Holder will not offer, sell or otherwise dispose of this Warrant, any such shares of Series C Preferred Stock or any such shares of Common Stock except under circumstances which will not result in a violation of the Securities Act. Upon exercise of this Warrant, Holder shall confirm in writing, by executing the form attached as Exhibit "B" hereto, that the shares of Series C Preferred Stock or Common Stock purchased thereby are being acquired for investment, solely for Holder's own account and not as a nominee for any other Person, and not with a view toward distribution or resale. (b) Certificate Legends. This Warrant, all shares of Series C Preferred Stock issued upon exercise of this Warrant (unless Registered under the Securities Act), and all shares of Common Stock issued upon conversion of such shares of Series C Preferred Stock (unless Registered under the Securities Act) shall be stamped or imprinted with a legend in substantially the following form (in addition to any legends required by applicable state securities laws): THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO SALE OR DISPOSITION OF SUCH SECURITIES MAY BE EFFECTED WITHOUT (1) AN EFFECTIVE REGISTRATION STATEMENT RELATING THERETO, (ii) AN OPINION OF COUNSEL FOR HOLDER, REASONABLY SATISFACTORY TO COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED, (iii) RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION, OR (iv) OTHERWISE COMPLYING WITH THE PROVISIONS OF ARTICLE III OF THE WARRANT UNDER WHICH THIS SECURITY WAS ISSUED. (c) Disposition of Warrant or Shares. With respect to any offer, sale or other disposition of this Warrant, any shares of Series C Preferred Stock issued upon exercise of this Warrant or shares of Common Stock acquired pursuant to conversion of such shares of Series C Preferred Stock prior to Registration of such shares, Holder or the Shareholder, as the case may be, agrees to give written notice to Company prior thereto, describing briefly the manner thereof, together with a written opinion of Holder's or Shareholder's counsel, if reasonably requested by Company, to the effect that such offer, sale or other disposition may be effected without Registration under the Securities Act or qualification under any applicable state securities laws of this Warrant or such shares, as the case may be, and indicating whether or not under the Securities Act certificates for this Warrant or such shares, as the case may be, to be sold or otherwise disposed of require any restrictive legend as to applicable restrictions on transferability in order to insure compliance with the Securities Act. Promptly upon receiving such written notice and reasonably satisfactory opinion, if so requested, Company, as promptly as practicable, shall notify Holder or the Shareholder, as the case may be, that it may sell or otherwise dispose of this Warrant or such shares, as the case may be, all in accordance with the terms of the notice delivered to Company. If a determination has been made pursuant to this subsection (c) that the opinion of counsel for Holder or the Shareholder, as the case may be, is not reasonably satisfactory to Company, Company shall -5-

6 so notify Holder or the Shareholder, as the case may be, promptly after such determination has been made and shall specify the legal analysis supporting any such conclusion. Notwithstanding the foregoing, this Warrant or such shares, as the case may be, may be offered, sold or otherwise disposed of in accordance with Rule 144, provided that Company shall have been furnished with such information as Company may reasonably request to provide reasonable assurance that the provisions of Rule 144 have been satisfied. Each certificate representing this Warrant or the shares thus transferred (except a transfer pursuant to Rule 144) shall bear a legend as to the applicable restrictions on transferability in order to insure compliance with the Securities Act, unless in the aforesaid reasonably satisfactory opinion of counsel for Holder or the Shareholder, as the case may be, such legend is not necessary in order to insure compliance with the Securities Act. Company may issue stop transfer instructions to its transfer agent in connection with such restrictions. (d) Warrant Transfer Procedure. Transfer of this Warrant to a third party, following compliance with the preceding subsections of this Section 3.2, shall be effected by execution of the Assignment Form attached hereto as Exhibit "C", and surrender for registration of transfer of this Warrant at the Principal Executive Office, together with funds sufficient to pay any applicable transfer tax. Upon receipt of the duly executed Assignment Form and the necessary transfer tax funds, if any, Company, at its expense, shall execute and deliver, in the name of the designated transferee or transferees, one or more new Warrants representing the right to purchase a like aggregate number of shares of Series C Preferred Stock. (e) Termination of Restrictions. The restrictions imposed under this Section 3.2 upon the transferability of the Warrant, the shares of Series C Preferred Stock acquired upon the exercise of this Warrant and the shares of Common Stock issuable upon conversion of such shares of Series C Preferred Stock shall cease when (i) a registration statement covering all shares of Common Stock issued or issuable upon conversion of the Series C Preferred Stock becomes effective under the Securities Act, (ii) Company is presented with an opinion of counsel reasonably satisfactory to Company that such restrictions are no longer required in order to insure compliance with the Securities Act or with a Commission "no-action" letter stating that future transfers of such securities by the transferor or the contemplated transferee would be exempt from registration under the Securities Act, or (iii) such securities may be transferred in accordance with Rule 144(k). When such restrictions terminate, Company shall, or shall instruct its transfer agent to, promptly, and without expense to Holder or the Shareholder, as the case may be, issue new securities in the name of Holder and/or the Shareholder, as the case may be, not bearing the legends required under subsection (b) of this Section 3.2. In addition, new securities shall be issued without such legends if such legends may be properly removed under the terms of Rule 144(k). 3.3. Exchange. At Holder's option, this Warrant may be exchanged for other Warrants representing the right to purchase a like aggregate number of shares of Series C Preferred Stock upon surrender of this Warrant at the Principal Executive Office. Whenever this Warrant is so surrendered to Company at the Principal Executive Office for exchange, Company shall execute and deliver the Warrants which Holder is entitled to receive. All Warrants issued upon any registration of transfer or exchange of Warrants shall be the valid obligations of Company, evidencing the same rights, and entitled to the same benefits, as the Warrants surrendered upon such registration of transfer or exchange. No service charge shall be made for any exchange of this Warrant. 3.4. Replacement. Upon receipt of evidence reasonably satisfactory to Company of the loss, theft, destruction or mutilation of this Warrant and (i) in the case of any such loss theft or destruction, upon delivery of indemnity reasonably satisfactory to Company in form and amount, or (ii) in the case of -6-

7 any such mutilation, upon surrender of such Warrant for cancellation at the Principal Executive Office, Company, at its expense, shall execute and deliver, in lieu thereof, a new Warrant. ARTICLE IV ANTIDILUTION PROVISIONS 4.1. Conversion of Series C Preferred Stock. If all of the Series C Preferred Stock is converted into shares of Common Stock in connection with a Registration, then this Warrant shall automatically become exercisable for that number of shares of Common Stock equal to the number of shares of Common Stock that would have been received if this Warrant had been exercised in full and the shares of Series C Preferred Stock received thereupon had been simultaneously converted into shares of Common Stock immediately prior to such event, and the Exercise Price shall be automatically adjusted to equal the amount obtained by dividing (i) the aggregate Exercise Price of the shares of Series C Preferred Stock for which this Warrant was exercisable immediately prior to such conversion, by (ii) the number of shares of Common Stock for which this Warrant is exercisable immediately after such conversion. 4.2. Reorganization, Reclassification or Recapitalization of Company. In case of (1) a capital reorganization, reclassification or recapitalization of Company's capital stock (other than in the cases referred to in of Section 4.4 hereof), (2) Company's consolidation or merger with or into another corporation in which Company is not the surviving entity, or a reverse triangular merger in which Company is the surviving entity but the shares of Company's capital stock outstanding immediately prior to the merger are converted, by virtue of the merger, into other property, whether in the form of securities, cash or otherwise, or (3) the sale or transfer of Company's property as an entirety or substantially as an entirety, then, as part of such reorganization, reclassification, recapitalization, merger, consolidation, sale or transfer, lawful provision shall be made so that there shall thereafter be deliverable upon the exercise of this Warrant or any portion thereof (in lieu of or in addition to the number of shares of Series C Preferred Stock theretofore deliverable, as appropriate), and without payment of any additional consideration, the number of shares of stock or other securities or property to which the holder of the number of shares of Series C Preferred Stock which would otherwise have been deliverable upon the exercise of this Warrant or any portion thereof at the time of such reorganization, reclassification, recapitalization, consolidation, merger, sale or transfer would have been entitled to receive in such reorganization, reclassification, recapitalization, consolidation, merger, sale or transfer. This Section 4.2 shall apply to successive reorganizations, reclassifications, recapitalizations, consolidations, mergers, sales and transfers and to the stock or securities of any other corporation that are at the time receivable upon the exercise of this Warrant. If the per-share consideration payable to Holder for shares of Series C Preferred Stock in connection with any transaction described in this Section 4.2 is in a form other than cash or marketable securities, then the value of such consideration shall be determined in good faith by Company's Board of Directors. 4.3. Splits and Combinations. If Company at any time subdivides any of its outstanding shares of Series C Preferred Stock into a greater number of shares, the Exercise Price in effect immediately prior to such subdivision shall be proportionately reduced, and, conversely if the outstanding shares of Series C Preferred Stock are combined into a smaller number of shares, the Exercise Price in effect immediately prior to such combination shall be proportionately increased. Upon any adjustment of the Exercise Price under this Section 4.3, the number of shares of Series C Preferred Stock issuable upon exercise of this Warrant shall equal the number of shares determined by dividing (i) the aggregate Exercise Price payable for the purchase of all shares issuable upon exercise of this Warrant immediately -7-

8 prior to such adjustment by (ii) the Exercise Price per share in effect immediately after such adjustment. 4.4. Reclassifications. If Company changes any, of the securities as to which purchase rights under this Warrant exist into the same or a different number of securities of any other class or classes, this Warrant shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities that were subject to the purchase rights under this Warrant immediately prior to such reclassification or other change and the Exercise Price therefor shall be appropriately adjusted. No adjustment shall be made pursuant to this Section 4.4 upon any conversion described in Section 4.1 hereof. 4.5. Dividends and Distributions. If Company declares a dividend or other distribution on the Series C Preferred Stock or if a dividend or other distribution on the Series C Preferred Stock occurs pursuant to the Certificate of Incorporation (other than a cash dividend or distribution), then, as part of such dividend or distribution, lawful provision shall be made so that there shall thereafter be deliverable upon the exercise of this Warrant or any portion thereof, in addition to the number of shares of Series C Preferred Stock receivable thereupon and without payment of any additional consideration, the amount of the dividend or other distribution to which the holder of the number of shares of Series C Preferred Stock obtained upon exercise hereof would have been entitled to receive had the exercise occurred as of the record date for such dividend or distribution. 4.6. Liquidation Dissolution. If Company shall dissolve, liquidate or wind up its affairs, Holder shall have the right, but not the obligation, to exercise this Warrant effective as of the date of such dissolution, liquidation or winding up. If any such dissolution, liquidation or winding up results in any cash distribution to Holder in excess of the aggregate Exercise Price for the shares of Series C Preferred Stock for which this Warrant is exercised, then Holder may, at its option, exercise this Warrant without making payment of such aggregate Exercise Price and, in such case, Company shall, upon distribution to Holder, consider such aggregate Exercise Price to have been paid in full, and in making such settlement to Holder, shall deduct an amount equal to such aggregate Exercise Price from the amount payable to Holder. 4.7. Other Dilutive Events. If any event occurs as to which the other provisions of this Article IV are not strictly applicable but the failure to make any adjustment would not fairly protect the purchase rights represented by this Warrant in accordance with the essential intent and principles hereof, then, in each such case, Company shall appoint a firm of independent public accountants of recognized national standing (which may be Company's regular auditors) which shall give their opinion upon the adjustment, if any, on a basis, consistent with the essential intent and principles established in this Article IV, necessary to preserve, without dilution, the purchase rights represented by this Warrant. Upon receipt of such opinion, Company shall promptly mail a copy thereof to Holder and shall make the adjustments described therein. 4.8. Certificates and Notices. (a) Adjustment Certificates. Upon any adjustment of the Exercise Price and/or the number of shares of Series C Preferred Stock purchasable upon exercise of this Warrant, a certificate, signed by (i) Company's President and Chief Financial Officer, or (ii) any independent firm of certified public accountants of recognized national standing Company selects at its own expense, setting forth in reasonable detail the events requiring the adjustment and the method by which such adjustment was calculated, shall be mailed to Holder and shall specify the adjusted Exercise Price and the number of -8-

9 shares of Series C Preferred Stock purchasable upon exercise of the Warrant after giving effect to the adjustment. (b) Extraordinary Corporate Events. If Company, after the date hereof, proposes to effect (i) any transaction described in Sections 4.2 or 4.4 hereof, (ii) a liquidation, dissolution or winding up of Company described in Section 4.6 hereof, or (iii) any payment of a dividend or distribution with respect to Series C Preferred Stock or Common Stock, then, in each such case, Company shall mail to Holder a notice describing such proposed action and specifying the date on which Company's books shall close, or a record shall be taken, for determining the holders of Series C Preferred Stock or Common Stock, as appropriate, entitled to participate in such action, or the date on which such reorganization, reclassification, consolidation, merger, sale, transfer, liquidation, dissolution or winding up shall take place or commence, as the case may be, and the date as of which it is expected that holders of Series C Preferred Stock and Common Stock of record shall be entitled to receive securities and/or other property deliverable upon such action, if any such date is to be fixed. Such notice shall be mailed to Holder at least thirty (30) days prior to the record date for such action in the case of any action described in clause (i) or clause (iii) above, and in the case of any action described in clause (ii) above, at least thirty (30) days prior to the date on which the action described is to take place and at least thirty (30) days prior to the record date for determining holders of Series C Preferred Stock or Common Stock, as appropriate, entitled to receive securities and/or other property in connection with such action. 4.9. No Impairment. Company shall not, by amendment of the Certificate of Incorporation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by Company, but shall at all times in good faith assist in the carrying out of all the provisions of this Article IV and in the taking of all such action as may be necessary or appropriate in order to protect the rights of Holder against impairment. 4.10. Application. Except as otherwise provided herein, all sections of this Article IV are intended to operate independently of one another. If an event occurs that requires the application of more than one section, all applicable sections shall be given independent effect. ARTICLE V REGISTRATION RIGHTS At the earlier to occur of: (i) Company's next equity financing, (ii) sixty (60) days prior to the filing of any registration, as defined in the Rights Agreement, or (iii) sixty (60) days prior to the sale conveyance, disposal, or encumbrance of all or substantially all of the Company's property or business or the Company's merger into or consolidation with any other corporation (other than a wholly-owned subsidiary corporation) or any other transaction or series of related transactions in which more than fifty percent (50%) of the voting power of the Company is disposed of, provided that this section (iii) shall not apply to a merger effected exclusively for the purpose of changing the domicile of the Company, Company shall cause Holder to become a party to the Rights Agreement and Holder shall be deemed a "Holder", as defined in the Rights Agreement, for purposes of the Rights Agreement and shall be entitled to all the rights, and be subject to all the obligations, of a Holder under the Rights Agreement, the Warrant Shares shall be deemed "Series C Preferred Stock", as defined in the Rights Agreement, and the Common Stock issuable upon conversion of the Warrant Shares shall be deemed "Registrable Securities", as defined in the Rights Agreement, for purposes of the Rights Agreement (collectively, the "Rights"). Such actions shall be effected by Company executing and delivering to Holder a fully- -9-

10 executed at the time Company Amendment to Rights Agreement substantially in the form of Exhibit "E" hereto. Failure by Company to cause Holder to become a party to an Investor Rights Agreement as provided herein shall, in addition to being a default under this Warrant, be deemed an Event of Default under that certain Senior Loan and Security Agreement No. 6261 dated as of July 1, 1999. ARTICLE VI COVENANTS 6.1. Financial Information. Company shall deliver to Holder, concurrent with delivery to any of the Investors, as defined in the Rights Agreement, all information delivered to any of the Investors pursuant to Section 7.1 of the Rights Agreement and all other information delivered to any of the Investors from time to time pursuant to the Rights Agreement as in effect from time to time during the term hereof. If the Rights Agreement is terminated for any reason, and for so long as Company is not subject to the periodic reporting requirements of Sections 12(g) or 15(d) of the Exchange Act, Company shall deliver to Holder all information that was required to be delivered to any of the Investors, as defined in the Rights Agreement, pursuant to the Section 7.1 of the Rights Agreement, as in effect on the date hereof. 6.2 Non-Financial Covenants. Company covenants that: (a) Authorized Shares. Company will at all times have authorized, and reserved for the purpose of issue or transfer upon exercise of the rights evidenced by this Warrant, a sufficient number of shares of Series C Preferred Stock to provide for the exercise of the rights represented by this Warrant (for purposes of determining compliance with this covenant, the shares of Series C Preferred Stock issuable upon exercise of all other options and warrants shall be deemed issued and outstanding), and a sufficient number of shares of Common Stock to provide for the conversion into Common Stock of all the shares of Series C Preferred Stock issued and issuable upon the exercise of this Warrant but theretofore unconverted (for purposes of determining compliance with this covenant, the shares of Common Stock issuable upon exercise of all options and warrants to acquire Common Stock and upon conversion of all instruments convertible into Common Stock shall be deemed issued and outstanding); (b) Proper Issuance. Company, at its expense, will take all such action as may be necessary to assure that the Series C Preferred Stock issuable upon the exercise of this Warrant, and the Common Stock issuable upon the conversion of such Series C Preferred Stock, may be so issued without violation of any applicable law or regulation, or of any requirements of any domestic securities exchange upon which any capital stock of Company may be listed. Such action may include, but not be limited to, causing such shares to be duly registered or approved or listed on relevant domestic securities exchanges; and (c) Fully Paid Shares. Company will take all actions necessary or appropriate to validly and legally issue (i) fully paid and non-assessable shares of Series C Preferred Stock upon exercise of this Warrant and (ii) fully paid and non-assessable shares of Common Stock upon conversion of such shares of Series C Preferred Stock. All such shares will be free from all taxes, liens and charges with respect to the issuance thereof, other than any stock transfer taxes in respect to any transfer occurring contemporaneously with such issuance. ARTICLE VII -10-

11 MISCELLANEOUS 7.1. Certain Expenses. Company shall pay all expenses in connection with, and all taxes (other than stock transfer taxes) and other governmental charges that may be imposed in respect of, the issuance, sale and delivery of the Warrant, the Warrant Shares and the shares of Common Stock issuable upon conversion of the Warrant Shares. 7.2. Remedies. Company stipulates that the remedies at law of Holder in the event of any default or threatened default by Company in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate to the fullest extent permitted by law, and that such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise. 7.3. Enforcement Costs. If any party to, or beneficiary of, this Warrant seeks to enforce its rights hereunder by legal proceedings or otherwise, then the non-prevailing party shall pay all reasonable costs and expenses incurred by the prevailing party, including, without limitation, all reasonable attorneys' fees (including the allocable costs of in-house counsel). 7.4. Notices. Any notice, demand or delivery to be made pursuant to this Warrant will be sufficiently given or made if sent by first class mail, postage prepaid, addressed to (a) Holder and the Shareholders at their last known addresses appearing on the books of Company maintained for such purpose or (b) Company at its Principal Executive Office. Holder, the Shareholders and Company may each designate a different address by notice to the other pursuant to this section. A notice shall be deemed effective upon the earlier of (i) receipt or (ii) the third day after mailing in accordance with the terms of this Section 7.4. 7.5. Successors and Assigns. This Warrant shall be binding upon Company and any Person succeeding Company by merger, consolidation or acquisition of all or substantially all of Company's assets, and all of the obligations of Company with respect to the shares of Series C Preferred Stock issuable upon exercise of this Warrant and the shares of Common Stock issuable upon the conversion of such shares of Series C Preferred Stock, shall survive the exercise, expiration or termination of this Warrant and all of the covenants and agreements of Company shall inure to the benefit of Holder, each Shareholder and their respective successors and assigns. 7.6. Modification: Severability. If, in any action before any court or agency legally empowered to enforce any term, any term is found to be unenforceable, then such term shall be deemed modified to the extent necessary to make it enforceable by such court or agency. If any term is not curable as set forth in this section, the unenforceability of such term shall not affect the other provisions of this Warrant but this Warrant shall be construed as if such unenforceable term had never been contained herein. 7.7. Amendment. This Warrant may not be modified or amended except by written agreement of Company and Holder. 7.8. Headings. The headings of the Articles and Sections of this Warrant are for the convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant. 7.9. Governing Law. This Warrant shall be governed by, and construed in accordance with, the California law, without giving effect to conflicts of law principles. -11-

12 IN WITNESS WHEREOF, Company has caused this Warrant to be executed by its duly authorized officer as of _____________________, 19__. XCYTE THERAPIES, INC. By: /s/ Ron Berenson -------------------------------------- Name: Ron Berenson ------------------------------------ Title: President & CEO ----------------------------------- -12-

13 SCHEDULE OF EXHIBITS EXHIBIT "A" - Notice of Exercise (Section 2.1) EXHIBIT "B" - Investment Representation Certificate (Section 3.2(a)) EXHIBIT "C" - Assignment Form (Section 3.2(d)) EXHIBIT "D" - Rights Agreement (Article I) a. EXHIBIT "E" - Amendment to Rights Agreement (Article V) -13-

14 EXHIBIT "A" NOTICE OF EXERCISE FORM (To be executed only upon partial or full exercise of the within Warrant) The undersigned registered Holder of the within Warrant hereby irrevocably exercises the within Warrant for and purchases shares of Series C Preferred Stock of * [COMPANY] and herewith makes payment therefor in the amount of $______, all at the price and on the terms and conditions specified in the within Warrant and requests that a certificate (or ______ certificates in denominations of shares) for the shares of Series C Preferred Stock of *[COMPANY] hereby purchased be issued in the name of and delivered to (choose one) (a) the undersigned, or (b) *[NAME], whose address is _______________and, if such shares of Series C Preferred Stock shall not include all the shares of Series C Preferred Stock issuable as provided in the within Warrant, that a new Warrant of like tenor for the number of shares of Series C Preferred Stock of *[COMPANY] not being purchased hereunder be issued in the name of and delivered to (choose one) (a) the undersigned, or (b) *[NAME], whose address is ________________. Dated: _____________________, 199__ Signature Guaranteed _______________________________________ _______________________________________ By:____________________________________ (Signature of Registered Holder) Title:_________________________________ NOTICE: The signature to this Notice of Exercise must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatever. The signature to this Notice of Exercise must be guaranteed by a commercial bank or trust company in the United States or a member firm of the New York Stock Exchange. -14-

15 SCHEDULE OF EXHIBITS EXHIBIT "A" - Notice of Exercise (Section 2.1) EXHIBIT "B" - Investment Representation Certificate (Section 3.2(a)) EXHIBIT "C" - Assignment Form (Section 3.2(d)) EXHIBIT "D" - Rights Agreement (Article I) a. EXHIBIT "E" - Amendment to Rights Agreement (Article V) -15-

16 EXHIBIT "A" NOTICE OF EXERCISE FORM (To be executed only upon partial or full exercise of the within Warrant) The undersigned registered Holder of the within Warrant hereby irrevocably exercises the within Warrant for and purchases shares of Series C Preferred Stock of * [COMPANY] and herewith makes payment therefor in the amount of $______, all at the price and on the terms and conditions specified in the within Warrant and requests that a certificate (or ______ certificates in denominations of shares) for the shares of Series C Preferred Stock of *[COMPANY] hereby purchased be issued in the name of and delivered to (choose one) (a) the undersigned, or (b) *[NAME], whose address is _______________and, if such shares of Series C Preferred Stock shall not include all the shares of Series C Preferred Stock issuable as provided in the within Warrant, that a new Warrant of like tenor for the number of shares of Series C Preferred Stock of *E[COMPANY] not being purchased hereunder be issued in the name of and delivered to (choose one) (a) the undersigned, or (b) *[NAME], whose address is ________________. Dated: _____________________, 199__ Signature Guaranteed _______________________________________ _______________________________________ By:____________________________________ (Signature of Registered Holder) Title:_________________________________ NOTICE: The signature to this Notice of Exercise must correspond with the name as written upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatever. The signature to this Notice of Exercise must be guaranteed by a commercial bank or trust company in the United States or a member firm of the New York Stock Exchange. -16-

17 EXHIBIT "B" INVESTMENT REPRESENTATION CERTIFICATE Purchaser: Company: XCYTE THERAPIES, INC. Security: Series C Preferred Stock Amount: Date: In connection with the purchase of the above-listed securities (the "Securities"), the undersigned (the "Purchaser") represents to Company as follows: The Purchaser is aware of Company's business affairs and financial condition, and has acquired sufficient information about Company to reach an informed and knowledgeable decision to acquire the Securities. The Purchaser is purchasing the Securities for its own account for investment purposes only and not with a view to, or for the resale in connection with, any "distribution" thereof for purposes of the Securities Act of 1933, as amended (the "Securities Act") The Purchaser understands that the Securities have not been registered under the Securities Act in reliance upon a specific exemption therefor, which exemption depends upon, among other things, the bona fide nature of the Purchaser's investment intent as expressed herein. In this connection, the Purchaser understands that, in the view of the Securities and Exchange Commission ("SEC"), the statutory basis for such exemption may be unavailable if the Purchaser's representation was predicated solely upon a present intention to hold these Securities for the minimum capital gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the Securities, or for a period of one year or any other fixed period in the future; The Purchaser further understands that the Securities must be held indefinitely unless subsequently registered under the Securities Act or unless an exemption from registration is otherwise available. Moreover, the Purchaser understands that Company is under no obligation to register the Securities. In addition, the Purchaser understands that the certificate evidencing the Securities will be imprinted with the legend referred to in the Warrant under which the Securities are being purchased; The Purchaser is aware of the provisions of Rule 144, promulgated under the Securities Act, which, in substance, permit limited public resale of "restricted securities" acquired, directly or indirectly, from the issuer thereof (or from an affiliate of such issuer), in a non-public offering subject to the satisfaction of certain conditions, if applicable, including, among other things: (i) the availability of certain public information about Company; (ii) the resale occurring not less than one (1) year after the party has purchased and paid for the securities to be sold; (iii) the sale being made through a broker in an unsolicited "broker's transaction" or in transactions directly with a market maker (as said term is defined under the Securities Exchange Act of 1934) and the amount of securities being sold during any three-month period not exceeding the specified limitations stated therein; The Purchaser further understands that at the time it wishes to sell the Securities there may be no public market upon which to make such a sale, and that, even if such a public market upon which to make such -17-

18 a sale then exists, Company may not be satisfying the current public information requirements of Rule 144, and that, in such event, the Purchaser may be precluded from selling the Securities under Rule 144 even if the one (1) year minimum holding period had been satisfied; and The Purchaser further understands that in the event all of the requirements of Rule 144 are not satisfied, registration under the Securities Act, compliance with Regulation A, or some other registration exemption will be required; and that, notwithstanding the fact that Rule 144 is not exclusive, the staff of the SEC has expressed its opinion that persons proposing to sell private placement securities other than in a registered offering and otherwise than pursuant to Rule 144 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales, and that such persons and their respective brokers who participate in such transactions do so at their own risk. Date: _____________________, 199___ PURCHASER: _______________________________________ -18-

19 EXHIBIT "C" ASSIGNMENT FORM (To be executed only upon the assignment of the within Warrant) FOR VALUE RECEIVED, the undersigned registered Holder of the within Warrant hereby sells, assigns and transfers unto _____________________________________________, whose address is _________________________________________________ all of the rights of the undersigned under the within Warrant, with respect to shares of Series C Preferred Stock of XCYTE THERAPIES, INC. and, if such shares of Series C Preferred Stock shall not include all the shares of Series C Preferred Stock issuable as provided in the within Warrant, that a new Warrant of like tenor for the number of shares of Series C Preferred Stock of XCYTE THERAPIES, INC. not being transferred hereunder be issued in the name of and delivered to the undersigned, and does hereby irrevocably constitute and appoint ______________________________________ attorney to register such transfer on the books of XCYTE THERAPIES, INC. maintained for the purpose, with full power of substitution in the premises. Dated: ____________ , 199___ Signature Guaranteed _______________________________________ _______________________________________ By:____________________________________ (Signature of Registered Holder) Title:_________________________________ NOTICE: The signature to this Assignment must correspond with the name upon the face of the within Warrant in every particular, without alteration or enlargement or any change whatever. The signature to this Notice of Assignment must be guaranteed by a commercial bank or trust company in the United States or a member firm of the New York Stock Exchange. -19-

20 EXHIBIT "D" RIGHTS AGREEMENT (Article I) -20-

21 EXHIBIT "E" AMENDMENT TO RIGHTS AGREEMENT (Article V) -21-

22 Series C Preferred Stock Warrantholder -------------------------------------- Holder Number of Shares - ------ ---------------- Phoenix Leasing Incorporated 1,530 Robert Kingsbrook 6,157 Gus and Mary Jane Constantin Living Trust 3,934 CIT Venture Leasing Fund, LLC 694

1 EXHIBIT 10.9 NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO SALE OR DISPOSITION MAY BE EFFECTED EXCEPT IN COMPLIANCE WITH RULE 144 UNDER SAID ACT OR WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR THE HOLDER, SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT OR RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION. WARRANT TO PURCHASE SHARES OF SERIES C PREFERRED STOCK ________________________ 2000 THIS CERTIFIES THAT, for value received, GENERAL ELECTRIC CAPITAL CORPORATION, ("Holder") is entitled to subscribe for and purchase shares of the fully paid and nonassessable Series C Preferred Stock (the "Shares" or the "Preferred Stock") of Xcyte Therapies, Inc., a Delaware corporation (the "Company"), at the Warrant Price (as hereinafter defined), subject to the provisions and upon the terms and conditions hereinafter set forth. As used herein, the term "Series C Preferred Stock" shall mean the Company's presently authorized Series C Preferred Stock and any stock into which such Series C Preferred Stock may hereafter be converted or exchanged. 1. Warrant Price. The Warrant Price shall initially be One and 67/100 dollars ($1.67) per share, subject to adjustment as provided in Section 7 below. The number of shares for which this Warrant shall be exercisable shall be the greater of Fourteen Thousand Three Hundred Seventy One (14,371) Shares or the number of shares calculated by multiplying the amount of the credit facility utilized during the funding period, and any extension thereof, by 4% and then dividing by the Warrant Price. 2. Conditions to Exercise. The purchase right represented by this Warrant may be exercised at any time, or from time to time, in whole or in part during the term commencing on the date hereof and ending on the earlier of: (a) 5:00 P.M. Pacific time on the seventh anniversary of the date of this Warrant, or (b) the effective date of the merger of the Company with or into, the consolidation of the Company with, or the sale by the Company of all or substantially all of its assets or all or substantially all of its shares to another corporation or other entity (other than such a transaction wherein the shareholders of the Company retain or obtain a majority of the voting capital stock of the surviving, resulting, or purchasing corporation); provided that the Company shall notify the registered Holder of this Warrant of the proposed effective date of the merger, consolidation, or sale at least 20 days prior to the effectiveness thereof, and the Holder shall be entitled to give notice of exercise of this Warrant contingent upon the closing of such transaction.

2 In the event that, although the Company shall have given notice of a transaction pursuant to subparagraph (b) of this Section 2, the transaction does not close within 90 days of the day specified by the Company, unless otherwise elected by the Holder any exercise of the Warrant subsequent to the giving of such notice shall be rescinded and the Warrant shall again be exercisable until terminated in accordance with this Paragraph 2. 3. Method of Exercise: Payment; Issuance of Shares; Issuance of New Warrant. (a) Cash Exercise. Subject to Section 2 hereof, the purchase right represented by this Warrant may be exercised by the Holder hereof, in whole or in part, by the surrender of this Warrant (with a duly executed Notice of Exercise in the form attached hereto) at the principal office of the Company (as set forth in Section 18 below) and by payment to the Company, by check, of an amount equal to the then applicable Warrant Price per share multiplied by the number of shares then being purchased. In the event of any exercise of the rights represented by this Warrant, certificates for the shares of stock so purchased shall be in the name of, and delivered to, the Holder hereof, or as such Holder may direct (subject to the terms of transfer contained herein and upon payment by such Holder hereof of any applicable transfer taxes). Such delivery shall be made within 30 days after exercise of the Warrant and at the Company's expense and, unless this Warrant has been fully exercised or expired, a new Warrant having terms and conditions substantially identical to this Warrant and representing the portion of the Shares, if any, with respect to which this Warrant shall not have been exercised, shall also be issued to the Holder hereof within 30 days after exercise of the Warrant. (b) Net Issue Exercise. In lieu of exercising this Warrant pursuant to Section 3(a), Holder may elect to receive shares equal to the value of this Warrant (or of any portion thereof remaining unexercised) by surrender of this Warrant at the principal office of the Company together with notice of such election, in which event the Company shall issue to Holder the number of shares of the Company's Preferred Stock computed using the following formula: X=Y(A-B) ------ A Where X = the number of shares of Preferred Stock to be issued to Holder. Y = the number of shares of Preferred Stock purchasable under this Warrant (at the date of such calculation). A = the Fair Market Value of one share of the Company's Preferred Stock (at the date of such calculation). B = Warrant Price (as adjusted to the date of such calculation). (c) Fair Market Value. For purposes of this Section 3, Fair Market Value of one share of the Company's Preferred Stock shall mean: -2-

3 (i) In the event of an exercise in connection with an Initial Public Offering, the per share Fair Market Value for the Preferred Stock shall be the Offering Price at which the underwriters initially sell Common Stock to the public multiplied by the number of shares of Common Stock into which each share of Preferred Stock is then convertible; or (ii) The average of the closing bid and asked prices of Common Stock quoted in the Over-The-Counter Market Summary, the last reported sale price quoted on the Nasdaq National Market ("NNM") or on any exchange on which the Common Stock is listed, whichever is applicable, as published in the Western Edition of the Wall Street Journal for the twenty (20) trading days prior to the date of determination of Fair Market Value, multiplied by the number of shares of Common Stock into which each share of Preferred Stock is then convertible; or (iii) In the event of an exercise in connection with a merger, acquisition or other consolidation in which the Company is not the surviving entity, the per share Fair Market Value for the Preferred Stock shall be the value to be received per share of Preferred Stock by all holders of the Preferred Stock in such transaction as determined by the Board of Directors; or (iv) In any other instance, the per share Fair Market Value for the Preferred Stock shall be as determined in good faith by the Company's Board of Directors. In the event of 3(c)(iii) or 3(c)(iv), above, the Company's Board of Directors shall prepare a certificate, to be signed by an authorized officer of the Company, setting forth in reasonable detail the basis for and method of determination of the per share Fair Market Value of the Preferred Stock. The Board will also certify to the Holder that this per share Fair Market Value will be applicable to all holders of the Company's Preferred Stock. Such certification must be made to Holder at least thirty (30) business days prior to the proposed effective date of the merger, consolidation, sale, or other triggering event as defined in 3(c)(iii) or 3(c)(iv). (d) Automatic Exercise. To the extent this Warrant is not previously exercised, it shall be automatically exercised in accordance with Sections 3(b) and 3(c) hereof (even if not surrendered) immediately before: (i) its expiration or (ii) the consummation of any consolidation or merger of the Company, or any sale or transfer of a majority of the Company's assets or shares pursuant to Section 2(b). 4. Representations and Warranties of Holder and Restrictions on Transfer Imposed by the Securities Act of 1933. (a) Representations and Warranties by Holder. The Holder represents and warrants to the Company with respect to this purchase as follows: (i) The Holder has substantial experience in evaluating and investing in private placement transactions of securities of companies similar to the Company -3-

4 so that the Holder is capable of evaluating the merits and risks of its investment in the Company and has the capacity to protect its interests. (ii) The Holder is acquiring the Warrant and the Shares of Preferred Stock issuable upon exercise of the Warrant (collectively the "Securities") for investment for its own account and not with a view to, or for resale in connection with, any distribution thereof. The Holder understands that the Securities have not been registered under the Securities Act of 1933, as amended (the "Act") by reason of a specific exemption from the registration provisions of the Act which depends upon, among other things, the bona fide nature of the investment intent as expressed herein. In this connection, the Holder understands that, in the view of the Securities and Exchange Commission (the "SEC"), the statutory basis for such exemption may be unavailable if this representation was predicated solely upon a present intention to hold the Securities for the minimum capital gains period specified under tax statutes, for a deferred sale, for or until an increase or decrease in the market price of the Securities or for a period of one year or any other fixed period in the future. (iii) The Holder acknowledges that the Securities must be held indefinitely unless subsequently registered under the Act or an exemption from such registration is available. The Holder is aware of the provisions of Rule 144 promulgated under the Act ("Rule 144") which permits limited resale of securities purchased in a private placement subject to the satisfaction of certain conditions, including, in case the securities have been held for more than one but less than two years, the existence of a public market for the shares, the availability of certain public information about the Company, the resale occurring not less than one year after a party has purchased and paid for the security to be sold, the sale being through a "broker's transaction" or in a transaction directly with a "market maker" (as provided by Rule 144(f)) and the number of shares or other securities being sold during any three-month period not exceeding specified limitations. (iv) The Holder further understands that at the time the Holder wishes to sell the Securities there may be no public market upon which such a sale may be effected, and that even if such a public market exists, the Company may not be satisfying the current public information requirements of Rule 144, and that in such event, the Holder may be precluded from selling the Securities under Rule 144 unless (a) a one-year minimum holding period has been satisfied and (b) the Holder was not at the time of the sale nor at any time during the three-month period prior to such sale an affiliate of the Company. (v) The Holder has had an opportunity to discuss the Company's business, management and financial affairs with its management and an opportunity to review the Company's facilities. The Holder understands that such discussions, as well as the written information issued by the Company, were intended to describe -4-

5 the aspects of the Company's business and prospects which it believes to be material but were not necessarily a thorough or exhaustive description. (b) Legends. Each certificate representing the Securities shall be endorsed with the following legend: THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE TRANSFERRED UNLESS COVERED BY AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT, A "NO ACTION" LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION WITH RESPECT TO SUCH TRANSFER, A TRANSFER MEETING THE REQUIREMENTS OF RULE 144 OF THE SECURITIES AND EXCHANGE COMMISSION, OR (IF REASONABLY REQUIRED BY THE COMPANY) AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY SUCH TRANSFER IS EXEMPT FROM SUCH REGISTRATION. The Company need not enter into its stock records a transfer of Securities unless the conditions specified in the foregoing legend are satisfied. The Company may also instruct its transfer agent not to allow the transfer of any of the Shares unless the conditions specified in the foregoing legend are satisfied. (c) Removal of Legend and Transfer Restrictions. The legend relating to the Act endorsed on a certificate pursuant to paragraph 4(b) of this Warrant shall be removed and the Company shall issue a certificate without such legend to the Holder of the Securities if (i) the Securities are registered under the Act and a prospectus meeting the requirements of Section 10 of the Act is available or (ii) the Holder provides to the Company an opinion of counsel for the Holder reasonably satisfactory to the Company, a no-action letter or interpretive opinion of the staff of the SEC reasonably satisfactory to the Company, or other evidence reasonably satisfactory to the Company, to the effect that public sale, transfer or assignment of the Securities may be made without registration and without compliance with any restriction such as Rule 144. 5. Condition of Transfer or Exercise of Warrant. It shall be a condition to any transfer or exercise of this Warrant that at the time of such transfer or exercise, the Holder shall provide the Company with a representation in writing that the Holder or transferee is acquiring this Warrant and the shares of Preferred Stock to be issued upon exercise for investment purposes only and not with a view to any sale or distribution, or will provide the Company with a statement of pertinent facts covering any proposed distribution. As a further condition to any transfer of this Warrant or any or all of the shares of Preferred Stock issuable upon exercise of this Warrant, other than a transfer registered under the Act, the Company may request a legal opinion, in form and substance satisfactory to the Company and its counsel, reciting the pertinent circumstances surrounding the proposed transfer and stating that such transfer is exempt from the registration and prospectus delivery requirements of the Act. Each certificate evidencing the shares issued upon exercise of the Warrant or upon any transfer of the shares (other than a transfer registered under the Act or any subsequent transfer of shares so registered) shall, at the Company's option, -5-

6 if the Shares are not freely saleable under Rule 144(k) under the Act, contain a legend in form and substance satisfactory to the Company and its counsel, restricting the transfer of the shares to sales or other dispositions exempt from the requirements of the Act. As further condition to each transfer, at the request of the Company, the Holder shall surrender this Warrant to the Company and the transferee shall receive and accept a Warrant, of like tenor and date, executed by the Company. 6. Stock Fully Paid; Reservation of Shares. All Shares which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be fully paid and nonassessable, and free from all taxes, liens, and charges with respect to the issue thereof. During the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized, and reserved for issuance upon exercise of the purchase rights evidenced by this Warrant, a sufficient number of shares of its Preferred Stock to provide for the exercise of the rights represented by this Warrant. 7. Adjustment for Certain Events. The number and kind of securities purchasable upon the exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time upon the occurrence of certain events, as follows: (a) Reclassification or Merger. In case of any reclassification or change of securities of the class issuable upon exercise of this Warrant (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination), or in case of any merger of the Company with or into another corporation (other than a merger with another corporation in which the Company is the acquiring and the surviving corporation and which does not result in any reclassification or change of outstanding securities issuable upon exercise of this Warrant), or in case of any sale of all or substantially all of the assets of the Company, then, unless this Warrant shall have expired pursuant to Section 2(b), the Company, or such successor or purchasing corporation, as the case may be, shall duly execute and deliver to the Holder a new Warrant (in form and substance satisfactory to the Holder of this Warrant), or the Company shall make appropriate provision without the issuance of a new Warrant, so that the Holder shall have the right to receive, at a total purchase price not to exceed that payable upon the exercise of the unexercised portion of this Warrant, and in lieu of the shares of Preferred Stock theretofore issuable upon exercise of this Warrant, the kind and amount of shares of stock, other securities, money and property receivable upon such reclassification, change, merger or sale by a Holder of the number of shares of Preferred Stock then purchasable under this Warrant, or in the case of such a merger or sale in which the consideration paid consists all or in part of assets other than securities of the successor or purchasing corporation, at the option of the Holder, the securities of the successor or purchasing corporation having a value at the time of the transaction equivalent to the value of the Preferred Stock purchasable upon exercise of this Warrant at the time of the transaction. Any new Warrant shall provide for adjustments that shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 4. The provisions of this subparagraph (a) shall similarly apply to successive reclassifications, changes, mergers and transfers. -6-

7 (b) Subdivision or Combination of Shares. If the Company at any time while this Warrant remains outstanding and unexpired shall subdivide or combine its outstanding shares of Preferred Stock, the Warrant Price shall be proportionately decreased and the number of Shares issuable hereunder shall be proportionately increased in the case of a subdivision and the Warrant Price shall be proportionately increased and the number of Shares issuable hereunder shall be proportionately decreased in the case of a combination. (c) Stock Dividends and Other Distributions. If the Company at any time while this Warrant is outstanding and unexpired shall (i) pay a dividend with respect to Preferred Stock payable in Preferred Stock, then the Warrant Price shall be adjusted, from and after the date of determination of shareholders entitled to receive such dividend or distribution, to that price determined by multiplying the Warrant Price in effect immediately prior to such date of determination by a fraction (A) the numerator of which shall be the total number of shares of Preferred Stock outstanding immediately prior to such dividend or distribution, and (B) the denominator of which shall be the total number of shares of Preferred Stock outstanding immediately after such dividend or distribution; or (ii) make any other distribution with respect to Preferred Stock (except any distribution specifically provided for in Sections 6(a) and 6(b)), then, in each such case, provision shall be made by the Company such that the Holder of this Warrant shall receive upon exercise of this Warrant a proportionate share of any such dividend or distribution as though it were the Holder of the Preferred Stock (or Common Stock issuable upon conversion thereof) as of the record date fixed for the determination of the shareholders of the Company entitled to receive such dividend or distribution. (d) Adjustment of Number of Shares. Upon each adjustment in the Warrant Price, the number of Shares purchasable hereunder shall be adjusted, to the nearest whole share, to the product obtained by multiplying the number of Shares purchasable immediately prior to such adjustment in the Warrant Price by a fraction, the numerator of which shall be the Warrant Price immediately prior to such adjustment and the denominator of which shall be the Warrant Price immediately thereafter. 8. Notice of Adjustments. Whenever any Warrant Price or the kind or number of securities issuable under this Warrant shall be adjusted pursuant to Section 7 hereof, the Company shall prepare a certificate signed by an officer of the Company setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the Warrant Price and number or kind of shares issuable upon exercise of the Warrant after giving effect to such adjustment, and shall cause copies of such certificate to be mailed (by certified or registered mail, return receipt required, postage prepaid) within thirty (30) days of such adjustment to the Holder of this Warrant as set forth in Section 18 hereof. 9. Transferability of Warrant. This Warrant is transferable on the books of the Company at its principal office by the registered Holder hereof upon surrender of this Warrant properly endorsed, subject to compliance with Section 5 and applicable federal and state securities laws. The Company shall issue and deliver to the transferee a new Warrant representing the Warrant so transferred. Upon any partial transfer, the Company will issue and deliver to Holder a new -7-

8 Warrant with respect to the Warrant not so transferred. Holder shall not have any right to transfer any portion of this Warrant to any direct competitor of the Company. 10. No Fractional Shares. No fractional share of Preferred Stock will be issued in connection with any exercise hereunder, but in lieu of such fractional share the Company shall make a cash payment therefor upon the basis of the Warrant Price then in effect. 11. Charges, Taxes and Expenses. Issuance of certificates for shares of Preferred Stock upon the exercise of this Warrant shall be made without charge to the Holder for any United States or state of the United States documentary stamp tax or other incidental expense with respect to the issuance of such certificate, all of which taxes and expenses shall be paid by the Company, and such certificates shall be issued in the name of the Holder. 12. No Shareholder Rights Until Exercise. This Warrant does not entitle the Holder hereof to any voting rights or other rights as a shareholder of the Company prior to the exercise hereof. 13. Registry of Warrant. The Company shall maintain a registry showing the name and address of the registered Holder of this Warrant. This Warrant may be surrendered for exchange or exercise, in accordance with its terms, at such office or agency of the Company, and the Company and Holder shall be entitled to rely in all respects, prior to written notice to the contrary, upon such registry. 14. Loss, Theft, Destruction or Mutilation of Warrant. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Warrant, and, in the case of loss, theft, or destruction, of indemnity reasonably satisfactory to it, and, if mutilated, upon surrender and cancellation of this Warrant, the Company will execute and deliver a new Warrant, having terms and conditions substantially identical to this Warrant, in lieu hereof. 15. Miscellaneous. (a) Issue Date. The provisions of this Warrant shall be construed and shall be given effect in all respect as if it had been issued and delivered by the Company on the date hereof. (b) Successors. This Warrant shall be binding upon any successors or assigns of the Company. (c) Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the State of California. (d) Headings. The headings used in this Warrant are used for convenience only and are not to be considered in construing or interpreting this Warrant. (e) Saturdays, Sundays, Holidays. If the last or appointed day for the taking of any action or the expiration of any right required or granted herein shall be a Saturday or a Sunday or -8-

9 shall be a legal holiday in the State of California, then such action may be taken or such right may be exercised on the next succeeding day not a legal holiday. 16. No Impairment. The Company will not, by amendment of its Certificate of Incorporation or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holder hereof against impairment. 17. Addresses. Any notice required or permitted hereunder shall be in writing and shall be mailed by overnight courier, registered or certified mail, return receipt required, and postage prepaid, or otherwise delivered by hand or by messenger, addressed as set forth below, or at such other address as the Company or the Holder hereof shall have furnished to the other party. 18. "Market Stand-Off" Agreement. Holder hereby agrees that for a period of up to 180 days following the effective date of the first registration statement of the Company covering common stock (or other securities) to be sold on behalf of the Company in an underwritten public offering, it will not, to the extent requested by the Company and any underwriter, sell or otherwise transfer or dispose of (other than to donees or transferees who agree to be similarly bound) any of the Shares at any time during such period except common stock included in such registration; provided, however, that all officers and directors of the Company who hold securities of the Company or options to acquire securities of the Company and all other persons with registration rights enter into similar agreements. If to the Company: Xcyte Therapies, Inc. 1124 Columbia Street Suite 130 Seattle, WA 98104 Attn: Director of Finance If to the Holder: General Electric Capital Corporation 5150 El Camino Real Suite B-21 Los Altos, CA 94022 Attn: Barbara B. Kaiser, EVP/GM IN WITNESS WHEREOF, XCYTE THERAPIES, INC. has caused this Warrant to be executed by its officers thereunto duly authorized. Dated as of 1/10, 2000. By: /s/ Ronald Jay Berenson ------------------------- Name: Ronald Jay Berenson ---------------------- -9-

10 Title: President & CEO ---------------------- -10-

11 NOTICE OF EXERCISE TO: 1. The undersigned Warrantholder ("Holder") elects to acquire shares of the Series C Preferred Stock (the "Preferred Stock") of _________________________________, (the "Company"), pursuant to the terms of the Stock Purchase Warrant dated _____________ ____ 1999, (the "Warrant"). 2. The Holder exercises its rights under the Warrant as set forth below: ( ) The Holder elects to purchase _______________ shares of Preferred Stock as provided in Section 3(a) and tenders herewith a check in the amount of $_____ as payment of the purchase price. ( ) The Holder elects to convert the purchase rights into shares of Preferred Stock as provided in Section 3(b)'of the Warrant. 3. The Holder surrenders the Warrant with this Notice of Exercise. 4. The Holder represents that it is acquiring the aforesaid shares of Preferred Stock for investment and not with a view to or for resale in connection with distribution and that the Holder has no present intention of distributing or reselling the shares. 5. Please issue a certificate representing the shares of the Preferred Stock in the name of the Holder or in such other name as is specified below: Name: Address: Taxpayer I.D.: ---------------------------------------- (Holder) By: ------------------------------------ Title: --------------------------------- Date: --------------------------------- -11-

1 EXHIBIT 10.10 THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933. - ------------------------------------------------------------------------------- Warrant No. PD-1 Date of Issuance: December 7, 2000 80,000 shares XCYTE THERAPIES, INC. SERIES D PREFERRED STOCK PURCHASE WARRANT Xcyte Therapies, Inc. (the "Company"), for value received, hereby certifies that Hibbs/Woodinville Associates LLC, or its registered assigns (the "Registered Holder"), is entitled, subject to the terms set forth below, to purchase from the Company, at any time after the date hereof and on or before the Expiration Date (as defined in Section 5 below), up to 80,000 shares of Series D Preferred Stock of the Company ("Preferred Stock"), at a purchase price of $2.78 per share. The shares purchasable upon exercise of this Warrant and the purchase price per share, as adjusted from time to time pursuant to the provisions of this Warrant, are hereinafter referred to as the "Warrant Stock" and the "Purchase Price," respectively. 1. EXERCISE. (a) MANNER OF EXERCISE. This Warrant may be exercised by the Registered Holder, in whole or in part, by surrendering this Warrant, with the purchase/exercise form appended hereto as Exhibit A duly executed by such Registered Holder or by such Registered Holder's duly authorized attorney, at the principal office of the Company, or at such other office or agency as the Company may designate, accompanied by payment in full of the Purchase Price payable in respect of the number of shares of Warrant Stock purchased upon such exercise. The Purchase Price may be paid by cash, check, wire transfer or by the surrender of promissory notes or other instruments representing indebtedness of the Company to the Registered Holder. (b) EFFECTIVE TIME OF EXERCISE. Each exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the day on which this Warrant shall have been surrendered to the Company as provided in Section 1(a) above. At such time, the person or persons in whose name or names any certificates for Warrant Stock shall be issuable upon such exercise as provided in Section 1(d) below shall be deemed to have become the holder or holders of record of the Warrant Stock represented by such certificates. (c) NET ISSUE EXERCISE.

2 (i) In lieu of exercising this Warrant in the manner provided above in Section 1(a), the Registered Holder may elect to receive shares equal to the value of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of the Company together with notice of such election on the purchase/exercise form appended hereto as Exhibit A duly executed by such Registered Holder or such Registered Holder's duly authorized attorney, in which event the Company shall issue to such Holder a number of shares of Warrant Stock computed using the following formula: X = Y (A - B) --------- A Where X = The number of shares of Warrant Stock to be issued to the Registered Holder. Y = The number of shares of Warrant Stock purchasable under this Warrant (at the date of such calculation). A = The fair market value of one share of Warrant Stock (at the date of such calculation). B = The Purchase Price (as adjusted to the date of such calculation). (ii) For purposes of this Section 1(c), the fair market value of Warrant Stock on the date of calculation shall mean with respect to each share of Warrant Stock: (A) if the exercise is in connection with an initial public offering of the Company's Common Stock, and if the Company's Registration Statement relating to such public offering has been declared effective by the Securities and Exchange Commission, then the fair market value per share shall be the product of (x) the initial "Price to Public" specified in the final prospectus with respect to the offering and (y) the number of shares of Common Stock into which each share of Warrant Stock is convertible at the date of calculation; (B) if (A) is not applicable, the fair market value of Warrant Stock shall be at the highest price per share which the Company could obtain on the date of calculation from a willing buyer (not a current employee or director) for shares of Warrant Stock sold by the Company, from authorized but unissued shares, as determined in good faith by the Board of Directors, unless the Company is at such time subject to an acquisition as described in Section 6(b) below, in which case the fair market value of Warrant Stock shall be deemed to be the value received by the holders of such stock pursuant to such acquisition. (d) DELIVERY TO HOLDER. As soon as practicable after the exercise of this Warrant in whole or in part, and in any event within ten (10) days thereafter, the Company at its expense will cause to be issued in the name of, and delivered to, the Registered Holder, or as such Holder (upon payment by such Holder of any applicable transfer taxes) may direct: (i) a certificate or certificates for the number of shares of Warrant Stock to which such Registered Holder shall be entitled, and -2-

3 (ii) in case such exercise is in part only, a new warrant or warrants (dated the date hereof) of like tenor, calling in the aggregate on the face or faces thereof for the number of shares of Warrant Stock equal (without giving effect to any adjustment therein) to the number of such shares called for on the face of this Warrant minus the number of such shares purchased by the Registered Holder upon such exercise as provided in Section 1(a) or 1(c) above. 2. ADJUSTMENTS. (a) REDEMPTION OR CONVERSION OF PREFERRED STOCK. If all of the Preferred Stock is redeemed or converted into shares of Common Stock, then this Warrant shall automatically become exercisable for that number of shares of Common Stock equal to the number of shares of Common Stock that would have been received if this Warrant had been exercised in full and the shares of Preferred Stock received thereupon had been simultaneously converted into shares of Common Stock immediately prior to such event, and the Exercise Price shall be automatically adjusted to equal the number obtained by dividing (i) the aggregate Purchase Price of the shares of Preferred Stock for which this Warrant was exercisable immediately prior to such redemption or conversion, by (ii) the number of shares of Common Stock for which this Warrant is exercisable immediately after such redemption or conversion. (b) STOCK SPLITS AND DIVIDENDS. If outstanding shares of the Company's Preferred Stock shall be subdivided into a greater number of shares or a dividend in Preferred Stock shall be paid in respect of Preferred Stock, the Purchase Price in effect immediately prior to such subdivision or at the record date of such dividend shall simultaneously with the effectiveness of such subdivision or immediately after the record date of such dividend be proportionately reduced. If outstanding shares of Preferred Stock shall be combined into a smaller number of shares, the Purchase Price in effect immediately prior to such combination shall, simultaneously with the effectiveness of such combination, be proportionately increased. When any adjustment is required to be made in the Purchase Price, the number of shares of Warrant Stock purchasable upon the exercise of this Warrant shall be changed to the number determined by dividing (i) an amount equal to the number of shares issuable upon the exercise of this Warrant immediately prior to such adjustment, multiplied by the Purchase Price in effect immediately prior to such adjustment, by (ii) the Purchase Price in effect immediately after such adjustment. (c) RECLASSIFICATION, ETC. In case there occurs any reclassification or change of the outstanding securities of the Company or of any reorganization of the Company (or any other corporation the stock or securities of which are at the time receivable upon the exercise of this Warrant) or any similar corporate reorganization on or after the date hereof, then and in each such case the Registered Holder, upon the exercise hereof at any time after the consummation of such reclassification, change, or reorganization shall be entitled to receive, in lieu of the stock or other securities and property receivable upon the exercise hereof prior to such consummation, the stock or other securities or property to which such Holder would have been entitled upon such consummation if such Holder had exercised this Warrant immediately prior thereto, all subject to further adjustment pursuant to the provisions of this Section 2. -3-

4 (d) ADJUSTMENT CERTIFICATE. When any adjustment is required to be made in the Warrant Stock or the Purchase Price pursuant to this Section 2, the Company shall promptly mail to the Registered Holder a certificate setting forth (i) a brief statement of the facts requiring such adjustment, (ii) the Purchase Price after such adjustment and (iii) the kind and amount of stock or other securities or property into which this Warrant shall be exercisable after such adjustment. (e) ACKNOWLEDGEMENT. In order to avoid doubt, it is acknowledged that the holder of this Warrant shall be entitled to the benefit of all adjustments in the number of shares of Common Stock of the Company issuable upon conversion of the Preferred Stock of the Company which occur prior to the exercise of this Warrant, including without limitation, any increase in the number of shares of Common Stock issuable upon conversion as a result of a dilutive issuance of capital stock. 3. TRANSFERS. (a) UNREGISTERED SECURITY. Each holder of this Warrant acknowledges that this Warrant, the Warrant Stock and the Common Stock of the Company have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), and agrees not to sell, pledge, distribute, offer for sale, transfer or otherwise dispose of this Warrant, any Warrant Stock issued upon its exercise or any Common Stock issued upon conversion of the Warrant Stock in the absence of (i) an effective registration statement under the Act as to this Warrant, such Warrant Stock or such Common Stock and registration or qualification of this Warrant, such Warrant Stock or such Common Stock under any applicable U.S. federal or state securities law then in effect, or (ii) an opinion of counsel, satisfactory to the Company, that such registration and qualification are not required. Each certificate or other instrument for Warrant Stock issued upon the exercise of this Warrant shall bear a legend substantially to the foregoing effect. (b) TRANSFERABILITY. Subject to the provisions of Section 3(a) hereof, this Warrant and all rights hereunder are transferable to any individual or entity with the consent of the Company, which consent shall not be unreasonably withheld; provided that any assignee shall be bound by the terms hereof. Notwithstanding the foregoing, this Warrant may not be transferred to any individual or entity engaged in any business that competes with any business of the Company, and any purported transfer to a such an individual or entity shall be void. A permitted transfer of this Warrant shall be effected by surrendering the Warrant with a properly executed assignment (in the form of Exhibit B hereto) at the principal office of the Company. This Warrant may not be transferred in part unless the transferee acquires the right to purchase all of the shares of Warrant Stock hereunder. (c) WARRANT REGISTER. The Company will maintain a register containing the names and addresses of the Registered Holders of this Warrant. Until any transfer of this Warrant is made in the warrant register, the Company may treat the Registered Holder of this Warrant as the absolute owner hereof for all purposes; provided, however, that if this Warrant is properly assigned in blank, the Company may (but shall not be required to) treat the bearer -4-

5 hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. Any Registered Holder may change such Registered Holder's address as shown on the warrant register by written notice to the Company requesting such change. 4. REPRESENTATIONS AND WARRANTIES OF HOLDER. The Registered Holder hereby represents and warrants to the Company as follows: (a) PURCHASE ENTIRELY FOR OWN ACCOUNT. The Registered Holder acknowledges that this Warrant is given to the Registered Holder in reliance upon the Registered Holder's representation to the Company, which by its acceptance of this Warrant the Registered Holder hereby confirms, that the Warrant, the Warrant Shares, and the Common Stock issuable upon conversion of the Warrant Shares (collectively, the "Securities") being acquired by the Registered Holder are being acquired for investment for the Registered Holder's own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that the Registered Holder has no present intention of selling, granting any participation in, or otherwise distributing the same. By executing this Agreement, the Registered Holder further represents that the Registered Holder does not presently have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to any of the Securities. The Registered Holder represents that it has full power and authority to enter into this Agreement. The Registered Holder has not been formed for the specific purpose of acquiring any of the Securities. (b) DISCLOSURE OF INFORMATION. The Registered Holder has had an opportunity to discuss the Company's business, management, financial affairs and the terms and conditions of the offering of the Securities with the Company's management and has had an opportunity to review the Company's facilities. The Registered Holder understands that such discussions, as well as the written information issued by the Company, were intended to describe the aspects of the Company's business which it believes to be material. (c) RESTRICTED SECURITIES. The Registered Holder understands that the Securities have not been, and will not be, registered under the Securities Act, by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Registered Holder's representations as expressed herein. The Registered Holder understands that the Securities are "restricted securities" under applicable U.S. federal and state securities laws and that, pursuant to these laws, the Registered Holder must hold the Securities indefinitely unless they are registered with the Securities and Exchange Commission and qualified by state authorities, or an exemption from such registration and qualification requirements is available. The Registered Holder further acknowledges that if an exemption from registration or qualification is available, it may be conditioned on various requirements including, but not limited to, the time and manner of sale, the holding period for the Securities, and on requirements relating to the Company which are outside of the Registered Holder's control, and which the Company is under no obligation and may not be able to satisfy. -5-

6 (d) NO PUBLIC MARKET. The Registered Holder understands that no public market now exists for any of the securities issued by the Company, that the Company has made no assurances that a public market will ever exist for the Securities. (e) LEGENDS. The Registered Holder understands that the Securities, and any securities issued in respect of or exchange for the Securities, may bear one or all of the following legends: (i) "THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933." (ii) Any legend required by the Blue Sky laws of any state to the extent such laws are applicable to the shares represented by the certificate so legended. (f) ACCREDITED INVESTOR. The Registered Holder is an accredited investor as defined in Rule 501(a) of Regulation D promulgated under the Act. 5. NO IMPAIRMENT. The Company will not, by amendment of its charter or through reorganization, consolidation, merger, dissolution, sale of assets or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment. 6. TERMINATION. This Warrant (and the right to purchase securities upon exercise hereof) shall terminate upon the earliest to occur of the following (the "Expiration Date"): (a) January 20, 2006, (b) within 20 business days of the sale, conveyance or disposal of all or substantially all of the Company's property or business or the Company's merger into or consolidation with any other corporation (other than a wholly-owned subsidiary of the Company) or within 20 business days of any other transaction or series of related transactions in which more than fifty percent (50%) of the voting power of the Company is disposed of, provided that this Section 6(b) shall not apply to a merger effected exclusively for the purpose of changing the domicile of the Company, or (c) the closing of a firm commitment underwritten public offering pursuant to a registration statement on FORM S-1 under the Securities Act, the public offering price of which is not less than $4.00 per share (appropriately adjusted for any stock split, dividend, combination or other recapitalization) and which results in aggregate cash proceeds to the Company of $20,000,000 (net of underwriting discounts and commissions). -6-

7 7. NOTICES OF CERTAIN TRANSACTIONS. In case: (a) the Company shall take a record of the holders of its Preferred Stock (or other stock or securities at the time deliverable upon the exercise of this Warrant) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of stock of any class or any other securities, or to receive any other right, to subscribe for or purchase any shares of stock of any class or any other securities, or to receive any other right, or (b) of any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation or merger of the Company, any consolidation or merger of the Company with or into another corporation (other than a consolidation or merger in which the Company is the surviving entity), or any transfer of all or substantially all of the assets of the Company, or (c) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company, (d) of any redemption of the Preferred Stock or mandatory conversion of the Preferred Stock into Common Stock of the Company, or (e) of a public offering described in Section 6(c). then, and in each such case, the Company will mail or cause to be mailed to the Registered Holder of this Warrant a notice specifying, as the case may be, (i) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation, winding-up, redemption or conversion is to take place, and the time, if any is to be fixed, as of which the holders of record of Preferred Stock (or such other stock or securities at the time deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation, winding-up, redemption or conversion) are to be determined, or (iii) the expected date on which the closing of a firm commitment underwritten public offering described in Section 6(c) shall occur. Such notice shall be mailed at least ten (10) days prior to the record date or effective date for the event specified in such notice. 8. RESERVATION OF STOCK. The Company will at all times reserve and keep available, solely for the issuance and delivery upon the exercise of this Warrant, such shares of Warrant Stock and other stock, securities and property, as from time to time shall be issuable upon the exercise of this Warrant. 9. EXCHANGE OF WARRANTS. Upon the surrender by the Registered Holder of any Warrant or Warrants, properly endorsed, to the Company at the principal office of the Company, the Company will, subject to the provisions of Section 3 hereof, issue and deliver to or upon the order of such Holder, at the Company's expense, a new Warrant or Warrants of like tenor, in the name of such Registered Holder or as such Registered Holder (upon payment by such Registered -7-

8 Holder of any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for the number of shares of Preferred Stock called for on the face or faces of the Warrant or Warrants so surrendered. 10. REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and (in the case of loss, theft or destruction) upon delivery of an indemnity agreement (with surety if reasonably required) in an amount reasonably satisfactory to the Company, or (in the case of mutilation) upon surrender and cancellation of this Warrant, the Company will issue, in lieu thereof, a new Warrant of like tenor. 11. MAILING OF NOTICES. Any notice required or permitted pursuant to this Warrant shall be in writing and shall be deemed sufficient upon receipt, when delivered personally or sent by courier, overnight delivery service or confirmed facsimile, or forty-eight (48) hours after being deposited in the regular mail, as certified or registered mail (airmail if sent internationally), with postage prepaid, addressed (a) if to the Registered Holder, to the address of the Registered Holder most recently furnished in writing to the Company and (b) if to the Company, to the address set forth below or subsequently modified by written notice to the Registered Holder. 12. NO RIGHTS AS STOCKHOLDER. Until the exercise of this Warrant, the Registered Holder of this Warrant shall not have or exercise any rights by virtue hereof as a stockholder of the Company. 13. NO FRACTIONAL SHARES. No fractional shares of Preferred Stock will be issued in connection with any exercise hereunder. In lieu of any fractional shares which would otherwise be issuable, the Company shall pay cash equal to the product of such fraction multiplied by the fair market value of one share of Preferred Stock on the date of exercise, as determined in good faith by the Company's Board of Directors. 14. AMENDMENT OR WAIVER. Any term of this Warrant may be amended or waived only by an instrument in writing signed by the party against which enforcement of the amendment or waiver is sought. 15. HEADINGS. The headings in this Warrant are for purposes of reference only and shall not limit or otherwise affect the meaning of any provision of this Warrant. 16. GOVERNING LAW. This Warrant shall be governed, construed and interpreted in accordance with the laws of the State of Washington, without giving effect to principles of conflicts of law. 17. INVESTOR RIGHTS AGREEMENT. The Warrant Stock and any Common Stock issued upon conversion of the Warrant Stock shall be deemed "Registrable Securities" under the Amended and Restated Investor Rights Agreement dated as of May 25, 2000, as amended, between the Company, the Investors identified therein to the fullest extent possible, and the Registered Holder shall be deemed, and become to the fullest extent possible by virtue of the issuance of this Warrant, a "Holder" under said Agreement, entitled to all of the registration and -8-

9 other rights, benefits and privileges accorded "Holders" thereunder to the fullest extent possible, and subject to all obligations, duties and conditions imposed on "Holders" thereunder to the fullest extent possible. The Registered Holder, the Warrant, the Warrant Stock and any common stock issued upon conversion of the Warrant Stock shall be subject to the "market standoff" obligations pursuant to Section 1.14 of said Agreement. The Company's Board of Directors acting pursuant to Section 1.13(ii) of said Agreement shall grant to Registered Holder to the fullest extent possible all registration rights accorded Holders thereunder. -9-

10 XCYTE THERAPIES, INC. By ------------------------------------ Address: 1124 Columbia Street Suite 130 Seattle, WA 98104 Fax Number: (206) 262-0900 SIGNATURE PAGE TO XCYTE THERAPIES WARRANT TO PURCHASE SERIES D TO HIBBS/WOODINVILLE ASSOCIATES LLC

11 EXHIBIT A PURCHASE/EXERCISE FORM To: XCYTE THERAPIES, INC. Dated: The undersigned, pursuant to the provisions set forth in the attached Warrant No. PD-1, hereby irrevocably elects to (a) purchase _____ shares of the Preferred Stock covered by such Warrant and herewith makes payment of $________, representing the full purchase price for such shares at the price per share provided for in such Warrant, or (b) exercise such Warrant for _______ shares purchasable under the Warrant pursuant to the Net Issue Exercise provisions of Section 1(c) of such Warrant. The undersigned further acknowledges that it has reviewed the representations and warranties of the Registered Holder contained in Section 4 of the Warrant and the covenants of the Registered Holder contained in Section 17 of the Warrant, and by its signature below the undersigned hereby makes such representations, warranties and covenants to the Company as of the date hereof. Signature: ----------------------------- Name (print): -------------------------- Title (if applic.) --------------------- Company (if applic.): ------------------

12 EXHIBIT B ASSIGNMENT FORM FOR VALUE RECEIVED, _________________________________________ hereby sells, assigns and transfers all of the rights of the undersigned under the attached Warrant with respect to the number of shares of Series D Preferred Stock covered thereby set forth below, unto: NAME OF ASSIGNEE ADDRESS/FAX NUMBER NO. OF SHARES Dated: Signature: ------------------ ------------------------------ ------------------------------ Witness: ------------------------------

1 EXHIBIT 10.11 SENIOR LOAN AND SECURITY AGREEMENT NO. 6261 THIS SENIOR LOAN AND SECURITY AGREEMENT NO. 6261 (this "Security Agreement") is dated as of July 1, 1999 between XCYTE THERAPIES, NC., a Delaware corporation ("Borrower") and PHOENIX LEASING INCORPORATED, a California corporation ("Lender"). RECITALS A. Borrower desires to borrow from Lender in one or more borrowings the Commitment amount as defined in Section 3(a)(ii) below, and Lender desires to loan, subject to the terms and conditions herein set forth, such amount to Borrower (each, a "Loan" and collectively, the "Loans"). Such borrowings shall be evidenced by one or more Senior Secured Promissory Notes (each, a "Note" and collectively, the "Notes"), in the form attached hereto. B. As security for Borrower's obligations to Lender under this Security Agreement, the Notes and any other agreement between Borrower and Lender, Borrower will grant to Lender hereunder a first priority security interest in certain of its equipment, machinery, fixtures, other items and intangibles, and also certain custom use equipment, installation and delivery costs, purchase tax, toolings, software and other items generally considered fungible or expendable ("Soft Costs") whether now owned by Borrower or hereafter acquired, and all substitutions and replacements of and additions, improvements, accessions and accumulations to said equipment, machinery and fixtures and other items, together with all rents, issues, income, profits and proceeds therefrom which is described on the Note attached hereto or any subsequently-executed Note entered into by Lender and Borrower and which incorporates this Security Agreement by reference (collectively, the "Collateral"). NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS: SECTION 1. TERM OF AGREEMENT. The term of this Security Agreement begins on the date set forth above and shall continue thereafter and be in effect so long as and at any time any Note entered into pursuant to this Security Agreement is in effect. The Term and monthly payment amount payable with respect to each item of Collateral shall be as set forth in and as stated in the respective Note(s). The terms of each Note hereto are subject to all conditions and provisions of this Security Agreement as it may at any time be amended. Each Note shall constitute a separate and independent Loan and contractual obligation of Borrower and shall incorporate the terms and conditions of this Security Agreement and any additional provisions contained in such Note. In the event of a conflict between the terms and conditions of this Security Agreement and any provisions of such Note, the provisions of such Note shall prevail with respect to such Note only.

2 SECTION 2. NON-CANCELABLE LOAN. This Security Agreement and each Note cannot be canceled or terminated except as expressly provided herein. Borrower agrees that its obligations to pay all monthly payment amounts and other sums payable hereunder (and under any Note) and the rights of Lender and any assignee in and to such monthly payment amounts and other sums, are absolute and unconditional and are not subject to any abatement, reduction, setoff, defense, counterclaim or recoupment due or alleged to be due to, or by reason of, any past, present or future claims which Borrower may have against Lender, any assignee, the manufacturer or seller of the Collateral, or against any person for any reason whatsoever. SECTION 3. LENDER COMMITMENT. (a) General Terms. Subject to the terms and conditions of this Security Agreement, Lender hereby agrees to make one or more senior secured Loans to Borrower, subject to the following conditions: (i) each Loan shall be evidenced by a Note; (ii) the total principal amount of the Loans shall not exceed $1,000,000 in the aggregate (the "Commitment") provided that no more than 20% of the amount of the utilized Commitment may be used to finance Soft Costs; (iii) the amount of each Loan shall be at least $25,000 except for a final Loan which may be less than $25,000; (iv) Lender shall not be obligated to make any Loan after August 31, 2000; (v) at the time of each Loan, no Event of Default or event which with the giving of notice or passage of time, or both, could become an Event of Default shall have occurred, as reasonably determined by Lender, and certified by Borrower; (vi) at the time of each Loan, Borrower has reimbursed Lender for all UCC filing and search costs, inspection and labeling costs, and appraisal fees, if any; (vii) for each Loan, Borrower shall present to Lender a list of proposed Collateral for approval by Lender in its sole discretion; (viii) for each Loan, Borrower shall have provided Lender with each of the closing documents described in Exhibit A hereto (which documents shall be in form and substance reasonably acceptable to Lender); (ix) Borrower is performing substantially in accordance with its business plan referred to as "Xcyte Therapies Cash Position" labeled Budget 99 to 00 Revised .xls and "Xctye Therapies Cash Flow Statement" labeled Revised for 3.16.99 Board Meeting" (the "Business Plan") (all quarterly figures will be prorated to monthly), as may be amended from time to time in form and substance acceptable to Lender; (x) there shall be no material adverse change in Borrower's condition, financial or otherwise, that would materially impair the ability of Borrower to meet its payment and other obligations under this Loan (a "Material Adverse Effect") as reasonably determined by Lender, and Borrower so certifies, from (yy) the date of the most recent financial statements delivered by Borrower to Lender to (zz) the date of the proposed Loan; (xi) prior to payment in full of all Notes, Borrower shall not offer any loan secured by any equipment, furniture or fixtures to any other person or entity other than Lender, unless Lender declines to finance such transaction or Borrower and Lender are unable to agree on the terms of such financing; (xii) Borrower shall use the proceeds of all Loans hereunder to purchase or reimburse the purchase of Collateral; (xiii) all Collateral has been marked and labeled by Lender or Lender's agent; and (xiv) Lender has received in form and substance acceptable to Lender: (a) Borrower's interim financial statements signed by a financial officer of Borrower; and (b) complete copies of the Borrower's audit reports for its most recent fiscal year when completed, which shall include at least Borrower's balance sheet as of the close of such year, and Borrower's statement of income and retained earnings and of changes in financial position for such year, prepared on a consolidated basis and certified by independent public accountants. Such certificate shall not be qualified or limited because of restricted or limited -2-

3 examination by such accountant of any material portion of the company's records. Such reports shall be prepared in accordance with generally accepted accounting principles and practices consistently applied. (b) The Notes. Each Loan shall be evidenced by a Note which may not be prepaid in whole or in part. Each Note shall bear interest and be payable at the times and in the manner provided therein. Following payment of the Indebtedness related to each Note, Lender shall promptly return such Note, marked "canceled," to Borrower. SECTION 4. SECURITY INTERESTS. (a) Borrower hereby grants to Lender a first security interest in all Collateral; (b) This Security Agreement secures (i) the payment of the principal of and interest on the Notes and all other sums due thereunder and under this Security Agreement (the "Indebtedness") and (ii) the performance by Borrower of all of its other covenants now or hereafter existing under the Notes, this Security Agreement and any other obligation owed by Borrower to Lender (the "Obligations"). SECTION 5. BORROWER'S REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants that (a) it is in good standing under the laws of the state of its formation, duly qualified to do business and will remain duly qualified during the term of each Loan in each state where necessary to carry on its present business and operations, including the jurisdiction(s) where the Collateral will be located as specified on each Exhibit A to each Note, except where failure to be so qualified would not have a Material Adverse Effect; (b) it has full authority to execute and deliver this Security Agreement and the Notes and perform the terms hereof and thereof, and this Security Agreement and the Notes have been duly authorized, executed and delivered and constitute valid and binding obligations of Borrower enforceable in accordance with their terms; (c) the execution and delivery of this Security Agreement and the Notes will not contravene any law, regulation or judgment affecting Borrower or result in any breach of any material agreement or other instrument binding on Borrower; (d) no consent of Borrower's shareholders or holder of any indebtedness, or filing with, or approval of, any governmental agency or commission, which has not already been obtained or performed, as appropriate, is a condition to the performance of the terms of this Security Agreement or the Notes; (e) there is no action or proceeding pending or threatened against Borrower before any court or administrative agency which might have a Material Adverse Effect on the business, financial condition or operations of Borrower; (f) at the time any Loan is made hereunder, Borrower owns and will keep all of the Collateral free and clear of all liens, claims and encumbrances, and, except for this Security Agreement, there is no deed of trust, mortgage, security agreement or other third party interest against any of the Collateral other than Permitted Liens (as defined below); (g) at the time any Loan is made hereunder, Borrower has good and marketable title to the Collateral; (h) at the time any Loan is made hereunder, all Collateral has been received, installed and is ready for use and is satisfactory in all respects for the purposes of this Security Agreement; (i) the Collateral is, and will remain at all times under applicable law, removable personal property, which is free and clear of any lien or encumbrance except in favor of Lender other than Permitted Liens (as defined below), notwithstanding the manner in which the Collateral may be attached to any real property; (j) all credit and financial information submitted to Lender herewith or at any other time is and will at the time given be true and correct -3-

4 in all material respects; and (k) the security interest granted to Lender hereunder is a first priority security interest, and (I) on or before January 1, 2000, Borrower's computer system shall be Year 2000 performance compliant and will thus be able to accurately process date data from, into and between the twentieth and twenty-first centuries including leap year calculations. "Permitted Liens" shall mean and include: (i) liens for taxes or other governmental charges not at the time delinquent or thereafter payable without penalty or being contested in good faith; and (ii) liens of carriers, warehousemen, mechanics, materialmen, vendors, landlords and other liens arising by operation of law incurred in the ordinary course of business. SECTION 6. METHOD AND PLACE OF PAYMENT. Borrower shall pay to Lender, at such address as Lender specifies in writing, all amounts payable to it under this Security Agreement and the Notes. SECTION 7. LOCATION; INSPECTION; LABELS. All of the Collateral shall be located at the address (the "Collateral Location") shown on Exhibit A to each Note and shall not be moved unless Borrower has provided Lender with written notice of the change in location and Lender has acknowledged receipt of the notice. All of the records regarding the Collateral shall be located at 2203 Airport Way South, Suite 300, Seattle, WA 98134, or such other location of which Borrower has given notice to Lender in accordance with this Security Agreement. Lender shall have the right to inspect Collateral, including records relating thereto, and Borrower's books and records at any time (upon reasonable notification) during regular business hours, such books and records to be maintained in accordance with generally accepted accounting principles. Borrower shall be responsible for all labor, material and freight charges incurred in connection with any removal or relocation of Collateral which is requested by Borrower and consented to by Lender, as well as for any charges due to the installation or moving of the Collateral. Payments under the Notes and under this Security Agreement shall continue during any period in which the Collateral is in transit during a relocation. During Borrower's regular business hours and upon at least two days' notice to Borrower, Lender or its agent shall mark and label Collateral, which labels (to be provided by Lender) shall state that such Collateral is subject to a security interest of Lender, and Borrower shall keep such labels on the Collateral as so labeled. SECTION 8. COLLATERAL MAINTENANCE. (a) General. Upon reasonable notice, Borrower will permit Lender to inspect each item of Collateral and its maintenance records during Borrower's regular business hours. Borrower will at its sole expense comply with all applicable laws, rules, regulations, requirements and orders with respect to the use, maintenance, repair, condition, storage and operation of each item of Collateral. Any addition or improvement that is so required or cannot be so removed will immediately become Collateral of Lender. (b) Service and Repair. Borrower will at its sole expense maintain and service and repair any damage to each item of Collateral in a manner consistent with prudent industry practice and Borrower's own practice so that such item of Collateral is at all times (i) in the same condition as when delivered to Borrower, except for ordinary wear and tear, and (ii) in good operating order for the function intended by its manufacturer's warranties and recommendations. SECTION 9. LOSS OR DAMAGE. Borrower assumes the entire risk of loss to the Collateral through use, operation or otherwise. Borrower hereby indemnifies and holds harmless -4-

5 Lender from and against all claims, loss of Loan payments, costs, damages, and expenses relating to or resulting from any loss, damage or destruction of the Collateral, any such occurrence being hereinafter called a "Casualty Occurrence." Notwithstanding any Casualty Occurrence, the Loan to which such casualtied item of Collateral is subject shall continue in full force and effect without any abatement in the monthly payment due. Borrower shall, at its election, (a) no later than thirty (30) days after such Casualty Occurrence repair the Collateral returning it to good operating condition, (b) no later than thirty (30) days after such Casualty Occurrence replace the Collateral with Collateral acceptable to Lender in its reasonable discretion, in good condition and repair taking all steps required by Lender to perfect Lender's first priority security interest therein, which replacement Collateral shall be subject to the terms of this Security Agreement, or (c) on the next regular monthly payment date which falls after such thirty (30) days, or if there is no such payment date, thirty (30) days after such Casualty Occurrence pay to Lender an amount equal to the Balance Due (as defined below) for each lost or damaged item of Collateral. The Balance Due for each such item is the sum of: (i) all amounts for each item which may be then due or accrued to the payment date, plus (ii) as of such payment date, an amount equal to the product of the fraction specified below times the sum of all remaining payments under the respective Note, including the amount of any mandatory or optional payment required or permitted to be paid by Borrower to Lender at the maturity of the Note discounting to present value the amounts in (ii) at a rate of 6% per annum compounded monthly on the basis of a 360 day year ("Discount Rate"). The numerator of the fraction shall be the collateral value (as set forth on the applicable Note) of the item and the denominator shall be the aggregate collateral value of all items under the Note. Upon the making of such payments, Lender shall release such item of Collateral from its lien hereunder. SECTION 10. INSURANCE. Borrower at its expense shall keep the Collateral insured against all risks of physical loss for at least the replacement value of the Collateral and in no event for less than the amount payable following a Casualty Occurrence (as provided in Section 9). Such insurance shall provide for a loss payable endorsement to Lender and/or any assignee of Lender. If there is no event of default by Borrower, any insurance proceeds received by Lender shall be released by Lender for application to the costs incurred by Borrower to repair the Collateral. Borrower shall maintain commercial general liability insurance, including products liability and completed operations coverage, with respect to loss or damage for personal injury, death or property damage in an amount not less than $2,000,000 in the aggregate, naming Lender and/or Lender's assignee as additional insured. Such insurance shall contain insurer's agreement to give thirty (30) days' advance written notice to Lender before cancellation or material change of any policy of insurance. Borrower will provide Lender and any assignee of Lender with a certificate of insurance from the insurer evidencing Lender's or such assignee's interest in the policy of insurance. Such insurance shall cover any Casualty Occurrence to any unit of Collateral. Notwithstanding anything in Section 9 or this Section 10 to the contrary, this Security Agreement and Borrower's obligations hereunder shall remain in full force and effect with respect to any unit of Collateral which is not subject to a Casualty Occurrence. If Borrower fails to provide or maintain insurance as required herein, Lender shall have the right, but shall not be obligated, to obtain such insurance. In that event, Borrower shall pay to Lender the cost thereof. -5-

6 SECTION 11. MISCELLANEOUS AFFIRMATIVE COVENANTS. So long as any portion of the Indebtedness is unpaid and as long as any of the Obligations are outstanding Borrower will: (a) duly pay all governmental taxes and assessments at the time they become due and payable; provided, however, Borrower may contest the same in good faith so long as no payment default by Borrower has occurred and is continuing; (b) comply with all applicable material governmental laws, rules and regulations relating to its business and the Collateral where a failure to comply would have a Material Adverse Effect; (c) take no action to adversely affect Lender's security interest in the Collateral as a first and prior perfected security interest; (d) furnish Lender with its annual audited financial statements within ninety (90) days following the end of Borrower's fiscal year, unaudited quarterly financial statements within forty-five (45) days after the end of each fiscal quarter, and within thirty (30) days of the end of each month a financial statement for that month prepared by Borrower, and including an income statement and balance sheet, all of which shall be certified by an officer of Borrower as true and correct and shall be prepared in accordance with generally accepted accounting principles consistently applied, and such other information as Lender may reasonably request; and (e) promptly (but in no event more than five (5) days after the occurrence of such event) notify Lender of any change in Borrower's condition during the commitment period which constitutes a Material Adverse Effect, and of the occurrence of any Event of Default. SECTION 12. INDEMNITIES. Borrower will protect, indemnify and save harmless Lender and any assignees from and against all liabilities, obligations, claims, damages, penalties, causes of action, costs and expenses (including reasonable attorneys' fees and expenses), imposed upon or incurred by or asserted against Lender or any assignee of Lender by Borrower or any third party by reason of the occurrence or existence (or alleged occurrence or existence) of any act or event relating to or caused by any portion of the Collateral, or its purchase, acceptance, possession, use, maintenance or transportation, including without limitation, consequential or special damages of any kind, any failure on the part of Borrower to perform or comply with any of the terms of this Security Agreement or any Note, claims for latent or other defects, claims for patent, trademark or copyright infringement and claims for personal injury, death or property damage, including those based on Lender's negligence or strict liability in tort and excluding only those based on Lender's gross negligence or willful misconduct. In the event that any action, suit or proceeding is brought against Lender by reason of any such occurrence, Borrower, upon Lender's request, will, at Borrower's expense, resist and defend such action, suit or proceeding or cause the same to be resisted and defended by counsel designated and approved by Lender. Borrower's obligations under this Section 12 shall survive the payment in full of all the Indebtedness and the performance of all Obligations with respect to acts or events occurring or alleged to have occurred prior to the payment in full of all the Indebtedness and the performance of all Obligations. SECTION 13. TAXES. Borrower does not indemnify Lender for any loss of Lender's anticipated tax benefits unless the loss arises from an act or omission by the Borrower or from any misrepresentation under the Security Agreement by the Borrower. Borrower agrees to reimburse Lender (or pay directly if instructed by Lender) and any assignee of Lender for, and to indemnify and hold Lender and any assignee harmless from, all fees (including, but not limited to, license, documentation, recording and registration fees), and all sales, use, gross receipts, -6-

7 personal property, occupational, value added or other taxes, levies, imposts, duties, assessments, charges, or withholdings of any nature whatsoever, together with any penalties, fines, additions to tax, or interest thereon (the foregoing collectively "Impositions"), except same as may be attributable to Lender's income, arising at any time prior to or during the term of any Notes or of this Security Agreement, or upon termination or early termination of this Security Agreement and levied or imposed upon Lender directly or otherwise by any Federal, state or local government in the United States or by any foreign country or foreign or international taxing authority upon or with respect to (a) the Collateral, (b) the exportation, importation, registration, purchase, ownership, delivery, leasing, financing, possession, use, operation, storage, maintenance, repair, return, sale, transfer of title, or other disposition thereof, (c) the rentals, receipts, or earnings arising from the Collateral, or any disposition of the rights to such rentals, receipts, or earnings, (d) any payment pursuant to this Security Agreement or the Notes, or (e) this Security Agreement, the Notes or any transaction or any part hereof or thereof. SECTION 14. RELEASE OF LIENS. Upon payment of all of the Indebtedness and performance of all of the Obligations, Lender shall execute UCC termination statements and such other documents as Borrower shall reasonably request to evidence the release of Lender's lien relating to the Collateral. SECTION 15. ASSIGNMENT. WITHOUT LENDER'S PRIOR WRITTEN CONSENT WHICH CONSENT WILL NOT BE UNREASONABLY WITHHELD OR DELAYED, BORROWER SHALL NOT (a) ASSIGN, TRANSFER, PLEDGE, HYPOTHECATE OR OTHERWISE DISPOSE OF THIS SECURITY AGREEMENT, ANY NOTE, ANY COLLATERAL, OR ANY INTEREST THEREIN, (I,) LEASE OR LEND COLLATERAL OR PERMIT IT TO BE USED BY ANYONE OTHER THAN BORROWER OR BORROWER'S EMPLOYEES, CONTRACTORS AND AGENTS OR (c) MERGE INTO, CONSOLIDATE WITH OR CONVEY OR TRANSFER ITS PROPERTIES SUBSTANTIALLY AS AN ENTIRETY TO ANY OTHER PERSON OR ENTITY. LENDER MAY ASSIGN ANY OF THE NOTES, THIS SECURITY AGREEMENT OR ITS SECURITY INTEREST IN ANY OR ALL COLLATERAL, OR ANY OR ALL OF THE ABOVE, IN WHOLE OR IN PART TO ONE OR MORE ASSIGNEES OR SECURED PARTIES WITHOUT NOTICE TO BORROWER. If Borrower is given notice of such assignment it agrees to acknowledge receipt thereof in writing and Borrower shall execute such additional documentation as Lender's assignee and/or secured party shall reasonably require at Lender's expense. Each such assignee and/or secured party shall have all of the rights, but (except as provided in this Section 15) none of the obligations, of Lender under this Security Agreement, unless such assignee or secured party expressly agrees to assume such obligations in writing. Borrower shall not assert against any assignee and/or secured party any defense, counterclaim or offset that Borrower may have against Lender. Notwithstanding any such assignment, and providing no Event of Default has occurred and is continuing, Lender, or its assignees, secured parties, or their agents or assigns, shall not interfere with Borrower's right to quietly enjoy use of Collateral subject to the terms and conditions of this Security Agreement. Subject to the foregoing, the Notes and this Security Agreement shall inure to the benefit of, and are binding upon, the successors and assignees of the parties hereto. Borrower acknowledges that any such -7-

8 assignment by Lender will not change Borrower's duties or obligations under this Security Agreement and the Notes or increase any burden or risk on Borrower. SECTION 16. DEFAULT. (a) Events of Default. Any of the following events or conditions shall constitute an "Event of Default" hereunder: (i) Borrower's failure to pay any monies due to Lender hereunder or under any Note beyond the tenth (10th) day after the same is due; (ii) Borrower's failure to comply with its obligations under Section 10 or Section 15; (iii) any representation or warranty of Borrower made in this Security Agreement or the Notes or in any other agreement, statement or certificate furnished to Lender in connection with this Security Agreement or the Notes shall prove to have been incorrect in any material respect when made or given; (iv) Borrower's failure to comply with or perform any material term, covenant or condition of this Security Agreement or any Note or under any lease or mortgage of real property covering the location of the Collateral if such failure to comply or perform is not cured by Borrower within thirty (30) days after Borrower knows of the noncompliance or nonperformance or notice from Lender or such longer period that Borrower is diligently attempting to effect such cure; (v) seizure of any of the Collateral under legal process; (vi) the filing by or against Borrower or any guarantor under any guaranty executed in connection with this Security Agreement ("Guarantor") of a petition for reorganization or liquidation under the Bankruptcy Code or any amendment thereto or under any other insolvency law providing for the relief of debtors; (vii) the voluntary or involuntary making of an assignment of a substantial portion of its assets by Borrower or by any Guarantor for the benefit of its creditors, the appointment of a receiver or trustee for Borrower or any Guarantor or for any of Borrower's or Guarantor's assets, the institution by or against Borrower or any Guarantor of any formal or informal proceeding for dissolution, liquidation, settlement of claims against or winding up of the affairs of Borrower or any Guarantor provided that in the case of all such involuntary proceedings, same are not dismissed within sixty (60) days after commencement; (viii) the making by Borrower or by any Guarantor of a transfer of all or a material portion of Borrower's or Guarantor's assets or inventory not in the ordinary course of business; or (ix) any default or breach by any Guarantor of any of the terms of its guaranty to Lender in connection with this Security Agreement. (b) Remedies. If any Event of Default has occurred, Lender may in its sole discretion exercise one or more of the following remedies with respect to any or all of the Collateral: (i) declare due any or all of the aggregate sum of all remaining payments under the Notes, including the amount of any mandatory or optional payment required or permitted to be paid by Borrower to Lender at the maturity of the Notes ("Remaining Payments"); (ii) proceed by appropriate court action or actions either at law or in equity to enforce Borrower's performance of the applicable covenants of the Notes and this Security Agreement or to recover all reasonable damages and expenses incurred by Lender by reason of an Event of Default; (iii) except as provided by law, without court order or prior demand, enter upon the premises where the Collateral is located and take immediate possession of and remove it without liability of Lender to Borrower or any other person or entity; (iv) terminate this Security Agreement and sell the Collateral at public or private sale, or otherwise dispose of, hold, use or lease any or all of the Collateral in a commercially reasonable manner; or (v) exercise any other right or remedy available to it under applicable law. If Lender has declared due any or all of the Remaining Payments, Borrower will pay immediately to Lender, without duplication, (A) the Remaining Payments discounted to -8-

9 present value at the Discount Rate, (B) all amounts which may be then due or accrued, and (C) all other amounts due under this Security Agreement and under the Notes (Lender's Return, as referred to below, means the amounts described in clauses (A), (B) and (C) above). The net proceeds of any sale or lease of such Collateral will be credited against Lender's Return. The net proceeds of a sale of the Collateral pursuant to this Section 16(b) is defined as the sales price of the Collateral less selling expenses, including, without limitation, costs of remarketing the Collateral and all refurbishing costs and commissions paid with respect to such remarketing. The net proceeds of a lease of the Collateral pursuant to this Section 16(b) is defined as the amount equal to the monthly payments due under such lease (discounted to present value at the Discount Rate) plus the residual value of the Collateral at the end of the basic term of such lease, as reasonably determined by Lender, and discounted at the Discount Rate. At Lender's request, Borrower shall assemble the Collateral and make it available to Lender at such time and location as Lender may reasonably designate. Borrower waives any right it may have to redeem the Collateral. Declaration that any or all amounts under this Security Agreement and/or the Notes are immediately due and payable and Lender's taking possession of any or all Equipment shall not terminate this Security Agreement or any of the Notes unless Lender so notifies Borrower in writing. None of the above remedies is intended to be exclusive but each is cumulative and may be enforced separately or concurrently. (c) Application of Proceeds. The proceeds of any sale of all or any part of the Collateral and the proceeds of any remedy afforded to Lender by this Security Agreement shall be paid to and applied as follows: First, to the payment of reasonable costs and expenses of suit or foreclosure, if any, and of the sale, if any, including, without limitation, refurbishing costs, costs of remarketing and commissions related to remarketing, all Remedy Expenses, all expenses, liabilities and advances incurred or made pursuant to this Security Agreement or any Note by Lender in connection with foreclosure, suit, sale or enforcement of this Security Agreement or the Notes, and taxes, assessments or liens superior to Lender's security interest granted by this Security Agreement; Second, to the payment of all other amounts not described in item Third below due under this Security Agreement and all Notes; Third, to pay Lender an amount equal to Lender's Return, to the extent not previously paid by Borrower; and Fourth, to the payment of any surplus to Borrower or to whomever may lawfully be entitled to receive it. (d) Effect of Delay: Waiver: Foreclosure on Collateral. No delay or omission of Lender, in exercising any right or power arising from any Event of Default shall prevent Lender from exercising that right or power if the Event of Default continues. No waiver of an Event of Default, whether full or partial, by Lender or such holder shall be taken to extend to any -9-

10 subsequent Event of Default, or to impair the rights of Lender in respect of any damages suffered as a result of the Event of Default. The giving, taking or enforcement of any other or additional security, collateral or guaranty for the payment or discharge of the Indebtedness and performance of the Obligations shall in no way operate to prejudice, waive or affect the security interest created by this Security Agreement or any rights, powers or remedies exercised hereunder or thereunder. Lender shall not be required first to foreclose on the Collateral prior to bringing an action against Borrower for sums owed to Lender under this Security Agreement or under any Note. SECTION 17. LATE PAYMENTS. Borrower shall pay Lender a late charge of 10% of any payment owed Lender by Borrower which is not paid when due (taking into account applicable grace periods), for every month such payment is not paid when due. If such amounts have not been received by Lender at Lender's place of business or by Lender's designated agent by the date such amounts are due under this Security Agreement or the Notes, Lender shall bill Borrower for such charges. Borrower acknowledges that invoices for amounts due hereunder or under the Notes are sent by Lender for Borrower's convenience only. Borrower's non-receipt of an invoice will not relieve Borrower of its obligation to make payments hereunder or under the Notes. SECTION 18. PAYMENTS BY LENDER. If Borrower shall fail to make any payment or perform any act required hereunder (including, but not limited to, maintenance of any insurance required by Section 10), then Lender may, but shall not be required to, after such notice to Borrower as is reasonable under the circumstances, make such payment or perform such act with the same effect as if made or performed by Borrower. Borrower will upon demand reimburse Lender for all sums paid and all reasonable costs and expenses incurred in connection with the performance of any such act. SECTION 19. FINANCING STATEMENTS. Borrower hereby appoints Lender (and each of Lender's officers, employees or agents designated by Lender) with full power of substitution by Lender, as Borrower's attorney, with power to execute and deliver on Borrower's behalf, financing statements and other documents necessary to perfect and/or give notice of Lender's security interest in any of the Collateral. Notwithstanding the above, Borrower will, upon Lender's request, execute all financing statements pursuant to the Uniform Commercial Code and all such other documents reasonably requested by Lender to perfect Lender's security interests hereunder. Borrower authorizes Lender to file financing statements signed only by Lender (where such authorization is permitted by law) at all places where Lender deems necessary. SECTION 20. NATURE OF TRANSACTION. Lender makes no representation whatsoever, express or implied, concerning the legal character of the transaction evidenced hereby, for tax or any other purpose. SECTION 21. SUSPENSION OF LENDER'S OBLIGATIONS. The obligations of Lender hereunder will be suspended to the extent that Lender is hindered or prevented from complying therewith because of labor disturbances, including but not limited to strikes and -10-

11 lockouts, acts of God, fires, floods, storms, accidents, industrial unrest, acts of war, insurrection, riot or civil disorder, any order, decree, law or governmental regulations or interference, failure of the manufacturer to deliver any item of Collateral or any cause whatsoever not within the sole and exclusive control of Lender. SECTION 22. LENDER'S EXPENSE. Borrower shall pay Lender all reasonable costs and expenses including reasonable attorney's fees, litigation expenses and the fees of collection agencies, incurred by Lender (a) in enforcing any of the terms, conditions or provisions hereof and related to the exercise of its remedies ("Remedy Expenses"), and (b) in connection with any bankruptcy or post-judgment proceeding, whether or not suit is filed and, in each and every action, suit or proceeding, including any and all appeals and petitions therefrom. SECTION 23. ALTERATIONS; ATTACHMENTS. No alterations or attachments shall be made to the Collateral without Lender's prior written consent, which shall not be given for changes that will adversely affect the reliability and utility of the Collateral or which cannot be removed without damage to the Collateral, or which in any way decrease the value of the Collateral for purposes of resale or lease. All attachments and improvements to the Collateral shall be deemed to be "Collateral" for purposes of the Security Agreement, and a first priority security interest therein shall immediately vest in Lender. SECTION 24. CHATTEL PAPER. (a) One executed copy of the Security Agreement will be marked "Original" and all other counterparts will be duplicates. To the extent, if any, that this Security Agreement constitutes chattel paper (as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction) no security interest in the Security Agreement may be created in any documents other than the "Original." (b)There shall be only one original of each Note and it shall be marked "Original," and all other counterparts will be duplicates. To the extent, if any, that any Notes to this Security Agreement constitutes chattel paper (or as such term is defined in the Uniform Commercial Code as in effect in any applicable jurisdiction) no security interest in any Note(s) may be created in any documents other than the "Original." SECTION 25. STOCK WARRANT. Borrower agrees that it will issue to Lender upon execution of this Security Agreement a Warrant in the form of the Warrant Agreement attached hereto as Exhibit B. Borrower and Lender agree that the value of the Warrant hereunder is ten dollars ($10.00). SECTION 26. COMMITMENT FEE. Borrower has paid to Lender a commitment fee ("Fee") of $10,000. The Fee shall be applied by Lender first to reimburse Lender for all out-of-pocket UCC and other search costs, inspections and labeling costs and appraisal fees, if any, incurred by Lender, and then proportionally to the first monthly payment for each Note hereunder in the proportion that the Collateral value for such Note bears to Lender's entire commitment. However, the portion of the Fee which is not applied to such monthly payments shall be non-refundable except if Lender defaults in its obligation to fund Loans pursuant to Section 3. -11-

12 SECTION 27. NOTICES. All notices hereunder shall be in writing, by registered mail, or reliable messenger or delivery service (including overnight service) and shall be directed, as the case may be, to Lender at 2401 Kerner Boulevard, San Rafael, California 94901, Attention: Asset Management and to Borrower at 2203 Airport Way South, Suite 300, Seattle, WA 98134, Attention: Kathi Cordova, Director Finance, or at such other address as the parties may notify one another of in writing from time to time. SECTION 28. MISCELLANEOUS. (a) Borrower shall provide Lender with such corporate resolutions, financial statements and other documents as Lender shall reasonably request from time to time. (b) Borrower represents that the Collateral hereunder is used solely for business purposes. (c) Time is of the essence with respect to this Security Agreement. (d) Borrower acknowledges that Borrower has read this Security Agreement and the Notes, understands them and agrees to be bound by their terms and further agrees that this Security Agreement and the Notes constitute the entire agreement between Lender and Borrower with respect to the subject matter hereof and supersede all previous agreements, promises, or representations. (e) This Security Agreement and the Notes may not be changed, altered or modified except by an instrument signed by an officer or authorized representative of Lender and Borrower. (f) Any failure of Lender to require strict performance by Borrower or any waiver by Lender of any provision herein or in a Note shall not be construed as a consent or waiver of any other breach of the same or any other provision. (g) If any provision of this Security Agreement or any Note is held invalid, such invalidity shall not affect any other provisions hereof or thereof. (h) The obligations of Borrower to pay the Indebtedness and perform the Obligations shall survive the expiration or earlier termination of this Security Agreement and each Note until all Obligations of Borrower to Lender have been met and all liabilities of Borrower to Lender and any assignee have been paid in full. (i) Borrower will notify Lender at least 30 days before changing its name, principal place of business or chief executive office. (j) Borrower will, at its expense, promptly execute and deliver to Lender such documents and assurances (including financing statements) and take such further action as Lender may reasonably request in order to carry out the intent of this Security Agreement and Lender's rights and remedies. SECTION 29. JURISDICTION AND WAIVER OF JURY TRIAL. This Security Agreement and each Note shall be deemed to have been made under and shall be governed by the laws of the State of California in all respects, including matters of construction, validity and performance. At Lender's sole discretion, option and election, jurisdiction and venue for any legal action between the parties arising out of or relating to this Security Agreement or any Note shall be in the Superior Court of Mann County, California, or, in cases where federal diversity jurisdiction is available, in the United States District Court for the Northern District of California located in San Francisco, California. BORROWER, TO THE EXTENT IT MAY LAWFULLY DO SO, HEREBY WAIVES ITS RIGHT TO TRIAL BY JURY IN ANY ACTION BROUGHT ON OR WITH RESPECT TO THIS SECURITY AGREEMENT, ANY NOTE, ANY SECURITY DOCUMENTS, OR ANY OTHER AGREEMENTS EXECUTED IN CONNECTION HEREWITH. SECTION 30. END OF LOAN POSITION. (a) General. Borrower shall be required to choose a final payment or Note extension election ("End of Loan Position") at the expiration -12-

13 of the first Note's term. Borrower shall provide written notice of its election to Lender at least 90 days prior to the end of the term of the first Note. That choice shall be an election of Borrower's End of Loan Position election for all, but not less than all, of the Collateral under all Notes under the Security Agreement. In the event Borrower does not provide 90 days' prior written notice of its election, Borrower shall be deemed to have elected Election No. 2. (b) End of Loan Position Elections. As its End of Loan Position, Borrower shall be required to: Election No. 1: Make a final payment equal to 12% of the Note's original principal amount. Election No. 2: Extend the Note's term for an additional 12 months ("Extended Term") for a monthly rate of 1.44% of the Note's original principal amount. IN WITNESS WHEREOF, Borrower and Lender have caused this Security Agreement to be executed as of the date and year first above written. PHOENIX LEASING INCORPORATED XCYTE THERAPIES, INC. By: By: /s/ Ronald Jay Berenson --------------------------- ---------------------------------------- Name: Name (Print): Ronald Jay Berenson ------------------------- ------------------------------ Title: Title: President & CEO ------------------------ ------------------------------------- HEADQUARTERS LOCATION: 2203 Airport Way South, Suite 300 Seattle, WA 98134 County of King EXHIBITS AND SCHEDULES: Exhibit A -- Closing Memorandum Exhibit B -- Stock Warrant -13-

14 EXHIBIT A TO SENIOR LOAN AND SECURITY AGREEMENT NO. 6261 DATED JULY 1, 1999 CLOSING MEMORANDUM 1.* Duly executed Senior Loan and Security Agreement. 2. Duly executed Senior Security Promissory Note with Exhibit A Collateral description attached. 3. Insurance certificates reflecting coverage required under Section 10 of the Senior Loan and Security Agreement. 4.* Resolutions of Borrower's board of directors. 5. Real Property Waiver.** 6. UCC-1 Financing Statements with respect to the Collateral. 7. * Stock warrant. 8. UCC search (Lender will obtain). 9. Certificate of Chief Financial Officer stating that (i) there are no liens, charges, security interests or other encumbrances that may affect Lender's right, title and interest in the Collateral and there are no UCC-1 financing statements filed or in the process of being filed against any of the Collateral, (ii) Borrower is performing according to Borrower's business plan, (iii) no change which is a Material Adverse Effect has occurred in the financial condition of Borrower, (iv) no default has occurred, and (v) the representations and warranties in Section 5 of the Senior Loan and Security Agreement are true and correct as if made on the date of the Loan. 10.* Certificate from the Secretary of State of Borrower's state of incorporation, and from the state in which Borrower's chief executive office is located, if different, stating the Borrower is in good standing or is authorized to transact business, as the case may be, dated not more than thirty days prior to the first Loan (Lender will obtain). 11.* Borrower's Business Plan. 12. Borrower's most recent financial statements. 13. List of proposed Collateral. 14. Purchase documentation verifying Borrower's ownership of equipment. -14-

15 15. See Section 3 of the Senior Loan and Security Agreement for additional conditions to closing. 16. Intercreditor Agreement, if applicable. * First Loan only. ** Required if any Equipment is a fixture, i.e., attached to real property, or located in certain states. -15-

16 EXHIBIT B TO SENIOR LOAN AND SECURITY AGREEMENT NO. 6261 FORM OF STOCK WARRANT -16-

17 CORPORATE RESOLUTION TO BORROW RESOLVED: That this corporation, XCYTE THERAPIES, INC., borrow funds from PHOENIX LEASING INCORPORATED, a California corporation, ("Lender") and grant as collateral for such borrowings such items of personal property and fixtures, and upon such terms and conditions, as the officer or officers hereinafter authorized, in their discretion, may deem necessary or advisable; and that the aggregate principal amount of borrowings hereunder shall be the sum of $1,000,000 which amount may be exceeded in the future. RESOLVED FURTHER: That: Ronald Jay Berenson President & CEO Ronald Jay Berenson - ----------------------- --------------------------- ---------------------- or - ----------------------- --------------------------- ---------------------- (Print or type name) (Title of Corporate Officer (specimen signature) of this corporation (this officer or officers authorized to act pursuant hereto being hereinafter designated as "authorized officers"), are individually authorized, directed and empowered, in the name of this corporation, to execute and deliver to Lender, and Lender is requested to accept, any notes, security agreements, and other documents or agreements that may be required by Lender in connection with such borrowings. RESOLVED FURTHER: That the authorized officers are individually authorized, directed and empowered, in the name of this corporation, to do or cause to be done all such further acts and things as they shall deem necessary, advisable, convenient, or proper in connection with the execution and delivery of any such notes, security agreements, and other documents or agreements and in connection with or incidental to the carrying of the same into effect, including without limitation, the execution, acknowledgment, and delivery of all instruments and documents which may reasonably Lender under or in connection with any such borrowing. RESOLVED FURTHER: That Lender is authorized to act upon these resolutions until [PHOTOCOPY CUT OFF] their revocation is delivered to Lender, and that the authority hereby granted shall apply and effect to the successors in office of the officers herein named. I, _______________________, Officer of XCYTE THERAPIES, INC., a corporation in [PHOTOCOPY CUT OFF] the laws of the State of Delaware, do hereby certify that the foregoing is a full, true and [PHOTOCOPY CUT OFF] resolutions of the Board of Directors of the said corporation, duly and regularly passed [PHOTOCOPY CUT OFF] Board of Directors of said corporation as required by law and by the by-laws of the said [PHOTOCOPY CUT OFF] the ____ day of _______________, 19___. I further certify that said resolutions are still in full force and effect and have not been [PHOTOCOPY CUT OFF] revoked and that the specimen signatures appearing above are the signatures of the office [PHOTOCOPY CUT OFF] sign for this corporation by virtue of the said resolutions. -17-

18 IN WITNESS WHEREOF, I have hereunto set my hand as such Secretary, and affixed the corporate seal of the said corporation, this _______ day of __________________, 19___. ------------------------------------ AFFIX CORPORATE SEAL HERE OFFICER OF XCYTE THERAPIES, INC. [PERSON WHO SIGNS HERE MUST BE DIFFERENT FROM PERSON(S) WHO SIGNED ABOVE.] -18-

1 EXHIBIT 10.12 MASTER SECURITY AGREEMENT dated as of JANUARY 15,2000 ("AGREEMENT") THIS AGREEMENT is between GENERAL ELECTRIC CAPITAL CORPORATION (together with its successors and assigns, if any, "SECURED PARTY"), and XCYTE THERAPIES, INC. ("DEBTOR"). Secured Party has an office at 5150 El Camino Real, Suite B-21, Los Altos, CA 94022. Debtor is a corporation organized and existing under the laws of the state of Delaware. Debtor's mailing address and chief place of business is 1124 COLUMBIA STREET, SUITE 130, SEATTLE, WA 98104. 1. CREATION OF SECURITY INTEREST. Debtor grants to Secured Party, its successors and assigns, a security interest in and against all property listed on any collateral schedule now or in the future annexed to or made a part of this Agreement ("COLLATERAL SCHEDULE"), and in and against all additions, attachments, accessories and accessions to such property, all substitutions, replacements or exchanges therefor, and all insurance and/or other proceeds thereof (all such property is individually and collectively called the "COLLATERAL"). This security interest is given to secure the payment and performance of all debts, obligations and liabilities of any kind whatsoever of Debtor to Secured Party, now existing or arising in the future, including but not limited to the payment and performance of certain Promissory Notes from time to time identified on any Collateral Schedule (collectively "NOTES" and each a "NOTE"), and any renewals, extensions and modifications of such debts, obligations and liabilities (such Notes, debts, obligations and liabilities are called the "INDEBTEDNESS"). Notwithstanding anything to the contrary contained in this Agreement, to the extent that Secured Party asserts a purchase money security interest in any items of Collateral ("PMSI COLLATERAL"): (i) the PMSI Collateral shall secure only that portion of the Indebtedness which has been advanced by Secured Party to enable Debtor to purchase, or acquire rights in or the use of such PMSI Collateral (the "PMSI INDEBTEDNESS"), and (ii) no other Collateral shall secure the PMSI Indebtedness. 2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF DEBTOR. Debtor represents, warrants and covenants as of the date of this Agreement and as of the date of each Collateral Schedule that: (a) Debtor is, and will remain, duly organized, existing and in good standing under the laws of the State set forth in the preamble of this Agreement, has its chief executive offices at the location specified in the preamble, and is, and will remain, duly qualified and licensed in every jurisdiction wherever necessary to carry on its business and operations; (b) Debtor has adequate power and capacity to enter into, and to perform its obligations under this Agreement, each Note and any other documents evidencing, or given in connection with, any of the Indebtedness (all of the foregoing are called the "DEBT DOCUMENTS"); (c) This Agreement and the other Debt Documents have been duly authorized, executed and delivered by Debtor and constitute legal, valid and binding agreements enforceable in accordance with their terms, except to the extent that the enforcement of remedies may be limited under applicable bankruptcy and insolvency laws; (d) No approval, consent or withholding of objections is required from any governmental authority or instrumentality with respect to the entry into, or performance by Debtor of any of the Debt Documents, except any already obtained; (e) The entry into, and performance by, Debtor of the Debt Documents will not (i) violate any of the organizational documents of Debtor or any judgment, order, law or regulation applicable to Debtor, or (ii) result in any breach of or constitute a default under any contract to which Debtor is a party, or result in the creation of any lien, claim or encumbrance on any of Debtor's property (except for liens in favor of Secured Party) pursuant to any indenture, mortgage, deed of trust, bank loan, credit agreement, or other agreement or instrument to which Debtor is a party; (f) There are no suits or proceedings pending in court or before any commission, board or other administrative agency against or affecting Debtor which could, in the aggregate, have a material adverse effect on Debtor, its business or operations, or its ability to perform its obligations under the Debt Documents, nor does Debtor have reason to believe that any such suits or proceedings are threatened; (g) All financial statements delivered to Secured Party in connection with the Indebtedness have been prepared in accordance with generally accepted accounting principles, and since the date of the most recent financial statement, there has been no material adverse change in Debtors financi