Abraxis BioScience (ABII)

Effect of Certain Sales and Acquisitions of the Stock of New Abraxis or New APP

Even if the distribution otherwise qualifies as a tax-free distribution under Section 355 of the Internal Revenue Code, under Section 355(e) of the Internal Revenue Code the distribution of New Abraxis common stock to Abraxis BioScience stockholders would result in significant U.S. federal income tax liabilities to New APP (but not New APP stockholders) if there is an acquisition of stock of New Abraxis or New APP as part of a plan or series of related transactions that includes the distribution and that results in an acquisition of 50% or more of New Abraxis or New APP outstanding common stock. For purposes of these rules, any acquisitions of the stock of New Abraxis or New APP within two years before or after the distribution are presumed to be part of a plan, although the parties may be able to rebut that presumption.

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The process for determining whether a prohibited 50% or greater change in control has occurred under these rules is complex, inherently factual and subject to interpretation of the facts and circumstances of a particular case. If New Abraxis or New APP engages in a transaction involving the issuance or disposition of shares, or that otherwise creates a significant change in ownership, New APP would recognize taxable gain if such issuance, disposition or other change in ownership results in an acquisition of 50% or more of the outstanding common stock of New Abraxis or New APP. Furthermore, because a substantial portion of our stock and the stock of New APP will be held by or on behalf of a single stockholder, that stockholder will have the ability to cause or permit a prohibited change in the ownership of New APP or of New Abraxis to occur, which would also cause New APP to recognize a taxable gain under these rules. The private letter ruling does not address, and the opinion will not address, whether the distribution and any acquisition or acquisitions are part of a plan or series of related transactions under Section 355(e) of the Internal Revenue Code.

Sales of New Abraxis common stock or New APP common stock by Dr. Soon-Shiong, his wife, or entities affiliated with Dr. Soon-Shiong or one or more members of his family after completion of the distribution may adversely affect the tax-free nature of the distribution. Sales of New Abraxis common stock or New APP common stock by Dr. Soon-Shiong, his wife, or entities affiliated with Dr. Soon-Shiong or one or more members of his family after completion of the distribution might be considered evidence that the distribution was used principally as a device for the distribution of earnings and profits of New APP, New Abraxis or both, particularly if it were determined that the selling stockholder had an intent to effect such sale at the time of the distribution. The obligation of the parties to effect the proprietary contribution, the cash contribution and the distribution are conditioned upon the receipt of an opinion of Fried, Frank, Harris, Shriver & Jacobson LLP to the effect that, among other requirements, the distribution is not being used principally as a device for the distribution of earnings and profits of New APP, New Abraxis or both. If sales of New Abraxis common stock or New APP common stock by Dr. Soon-Shiong, his wife, or entities affiliated with Dr. Soon-Shiong or one or more members of his family occur after the distribution, the conclusions reached in the opinion may not apply. Dr. Soon-Shiong, his wife and the entities that hold shares of Old Abraxis common stock on behalf of Dr. Soon-Shiong or one or more members of his immediate family have provided a representation to the Internal Revenue Service in connection with the private letter ruling that they have no plan or intention to sell, transfer or otherwise dispose of any of the shares of New Abraxis common stock and New APP common stock they will hold after the distribution. Dr. Soon-Shiong, his wife and such entities will provide a similar representation to counsel in connection with counsel’s opinion. If the Internal Revenue Service successfully asserted that the distribution was used principally as a device for the distribution of earnings and profits of New APP, New Abraxis or both, the distribution would not qualify as a tax-free distribution, and thus would be taxable to both New APP and the New APP stockholders. Furthermore, sales of New Abraxis common stock or New APP common stock by Dr. Soon-Shiong, his wife, or entities affiliated with Dr. Soon-Shiong or one or more members of his family after completion of the distribution could cause a prohibited change in the ownership of New Abraxis or New APP to occur within the meaning of Section 355(e) of the Internal Revenue Code, which would cause New APP to recognize a taxable gain.

In the event that New APP recognizes a taxable gain in connection with the distribution because the distribution does not qualify as a tax-free distribution under Section 355 of the Internal Revenue Code or because of an acquisition of 50% or more of the outstanding common stock of New Abraxis or New APP as part of a plan or series of related transactions that includes the distribution within the meaning of Section 355(e) of the Internal Revenue Code, the taxable gain recognized by New APP would result in significant U.S. federal income tax liabilities to New APP. Under the Internal Revenue Code, New APP would be primarily liable for these taxes and New Abraxis would be secondarily liable. Under the terms of the tax allocation agreement among New APP, New APP LLC, New Abraxis and New Abraxis LLC, New Abraxis will generally be required to indemnify New APP against any such taxes unless such taxes would not have been imposed but for an act of New APP or its affiliates, subject to specified exceptions. See “Relationship Between New APP and Us After the Separation and Distribution—Tax Allocation Agreement.” New Abraxis’s or New APP’s respective obligations to indemnify the other pursuant to the tax allocation agreement could have a material adverse effect on New APP and/or New Abraxis. There can be no assurance that New APP would be able to fulfill its obligations under the tax allocation

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agreement if New APP was determined to be responsible for these taxes. In addition, these mutual indemnity obligations could discourage or prevent a third party from making a proposal to acquire either party.