CELL GENESYS INC, S-4, 1997-04-30

CELL GENESYS INC
S-4, 1997-04-30
PHARMACEUTICAL PREPARATIONS

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL , 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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CELL GENESYS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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<TABLE>
<S> <C> <C>
DELAWARE 8731 94-3061375
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>

<TABLE>
<S> <C>
KATHLEEN SEREDA GLAUB
342 LAKESIDE DRIVE 342 LAKESIDE DRIVE
FOSTER CITY, CALIFORNIA 94404 FOSTER CITY, CALIFORNIA 94404
(415) 358-9600 (415) 358-9600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE (NAME, ADDRESS, INCLUDING ZIP CODE, AND
NUMBER, INCLUDING TELEPHONE NUMBER,
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE
OFFICES) INCLUDING AREA CODE, OF AGENT FOR SERVICE)
</TABLE>

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COPIES TO:
<TABLE>
<S> <C>
STEPHEN A. SHERWIN, M.D. DAVID W. CARTER
CHAIRMAN OF THE BOARD, PRESIDENT CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER AND CHIEF EXECUTIVE OFFICER
CELL GENESYS, INC. SOMATIX THERAPY CORPORATION
342 LAKESIDE DRIVE 950 MARINA VILLAGE PARKWAY
FOSTER CITY, CALIFORNIA 94404 ALAMEDA, CALIFORNIA 94501
(415) 358-9600 (510) 748-3000

WILLIAM H. HINMAN, JR., ESQ. J. STEPHAN DOLEZALEK, ESQ.
SHEARMAN & STERLING BROBECK, PHLEGER & HARRISON LLP
555 CALIFORNIA STREET TWO EMBARCADERO PLACE, 2200 GENG ROAD
SAN FRANCISCO, CALIFORNIA 94104 PALO ALTO, CALIFORNIA 94303
(415) 616-1100 (415) 424-0160
</TABLE>

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As promptly
as practicable after this registration statement becomes effective and certain
other conditions to the merger proposed herein are satisfied.

If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]

CALCULATION OF REGISTRATION FEE
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<CAPTION>
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED(1) REGISTERED(2) PER UNIT(3) PRICE(3) FEE(3)
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<S> <C> <C> <C> <C>
Common stock, par value $.001 per
share (including associated preferred
share purchase rights).............. 11,025,100 $4.00 $44,066,614 $13,353.52
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</TABLE>
(1) This registration statement relates to securities of the registrant
issuable to holders of capital stock of Somatix Therapy Corporation, a
corporation organized under the laws of the State of Delaware ("Somatix"),
in the proposed merger of a wholly owned subsidiary of the registrant with
and into Somatix.
(2) Based upon the number of shares of capital stock of Somatix outstanding as
of April 22, 1997.
(3) Pursuant to Rule 457(f) under the Securities Act of 1933, as amended, the
registration fee was computed on the basis of the average of the high and
low bid prices of the common stock, par value $.01 per share, of Somatix
on The Nasdaq National Market on April 28, 1997. Pursuant to Rule 457(b)
under the Securities Act, the registration fee has been reduced by the
$15,341.40 paid on February 14, 1997 upon the filing under the Securities
Exchange Act of 1934, as amended, of preliminary copies of the proxy
material of the registrant and Somatix included herein.

---------------

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 THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.

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<PAGE>

CELL GENESYS, INC.
342 LAKESIDE DRIVE
FOSTER CITY, CALIFORNIA 94404

Dear Stockholder:

You are cordially invited to attend the annual meeting of stockholders (the
"Cell Genesys Annual Meeting") of Cell Genesys, Inc. ("Cell Genesys") to be
held at the Holiday Inn, 1221 Chess Drive, Foster City, California 94404, on
Friday, May 30, 1997, at 9:00 a.m., local time.

At the Cell Genesys Annual Meeting you will be asked to consider and vote
upon proposals:

1. To approve and adopt the agreement and plan of merger and
reorganization, dated as of January 12, 1997 (as amended and restated as of
March 27, 1997, the "Merger Agreement"), among Cell Genesys, Somatix
Therapy Corporation, a corporation organized under the laws of the State of
Delaware ("Somatix"), and S Merger Corp., a corporation organized under the
laws of the State of Delaware and a direct wholly owned subsidiary of Cell
Genesys ("Merger Sub"), and to approve the merger (the "Merger") of Merger
Sub with and into Somatix pursuant to the Merger Agreement and the issuance
of common stock, par value $.001 per share, of Cell Genesys (together with
the associated preferred share purchase rights, the "Cell Genesys Common
Stock") pursuant to the Merger. At the effective time of the Merger (the
"Effective Time"), (i) each outstanding share of common stock, par value
$.01 per share, of Somatix will be converted into the right to receive
0.3850 shares of Cell Genesys Common Stock, (ii) each outstanding share of
series A-1 preferred stock and series A-2 preferred stock of Somatix will
be converted into the right to receive 2.4062 shares of Cell Genesys Common
Stock, (iii) each outstanding share of series B-1 preferred stock of
Somatix will be converted into the right to receive a number of shares of
Cell Genesys Common Stock equal to the quotient of $150.00 divided by the
average of the daily closing prices of the Cell Genesys Common Stock over
the 30-day period ending three days prior to the Effective Time, and (iv)
Somatix will become a wholly owned subsidiary of Cell Genesys;

2. To approve and adopt an amendment (the "Cell Genesys Amendment") to
the certificate of incorporation of Cell Genesys to increase the number of
shares authorized for issuance to 80,000,000;

3. To approve a special grant of an option to purchase 30,000 shares of
Cell Genesys Common Stock at an exercise price equal to the fair market
value per share of the Cell Genesys Common Stock on the effective date of
such grant (the "Special Option Grant"), effective as of the Effective
Time, to each of the eight independent directors of the combined company as
of the Effective Time,

4. To elect directors to serve until the next annual meeting of
stockholders or until their successors are elected;

5. To approve an amendment (the "Incentive Plan Amendment") to Cell
Genesys' 1989 Incentive Stock Plan to increase the number of shares of Cell
Genesys Common Stock reserved for issuance by 1,750,000 shares, to a total
of approximately 5,445,000 shares;

6. To ratify the appointment of Ernst & Young LLP as independent auditors
of Cell Genesys for the fiscal year ending December 31, 1997; and

7. To transact such other business as may properly come before the Cell
Genesys Annual Meeting or any adjournments or postponements thereof.

ISSUANCE OF CELL GENESYS COMMON STOCK PURSUANT THERETO, (II) THE APPROVAL OF
THE CELL GENESYS AMENDMENT, (III) THE APPROVAL OF THE SPECIAL OPTION GRANT,
(IV) THE ELECTION OF THE DIRECTOR NOMINEES SPECIFIED IN THE ACCOMPANYING JOINT
PROXY STATEMENT/PROSPECTUS, (V) THE APPROVAL OF THE INCENTIVE PLAN AMENDMENT
AND (VI) THE RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS
INDEPENDENT AUDITORS OF CELL GENESYS FOR THE FISCAL YEAR ENDING DECEMBER 31,
1997.

You are urged to read carefully the accompanying Joint Proxy
Statement/Prospectus for more detailed information concerning Cell Genesys,
Somatix, the Merger Agreement and the Merger.

Whether or not you plan to attend the Cell Genesys Annual Meeting, please
complete, sign and date the accompanying proxy card and return it in the
enclosed prepaid envelope. You may revoke your proxy in the manner described
in the accompanying Joint Proxy Statement/Prospectus at any time before it has
been voted at the Cell Genesys Annual Meeting. If you attend the Cell Genesys
Annual Meeting in person, you may vote your shares personally on all matters
even if you have previously returned a proxy card. Your prompt cooperation
will be greatly appreciated.

Very truly yours,

/s/ Stephen A. Sherwin
Stephen A. Sherwin, M.D.
Chairman of the Board, President
and Chief Executive Officer

April 30, 1997

2
<PAGE>

CELL GENESYS, INC.
342 LAKESIDE DRIVE
FOSTER CITY, CALIFORNIA 94404

----------------

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 30, 1997

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To the Stockholders of Cell Genesys, Inc.:

NOTICE IS HEREBY GIVEN that the annual meeting of stockholders (the "Cell
Genesys Annual Meeting") of Cell Genesys, Inc., a corporation organized under
the laws of the State of Delaware ("Cell Genesys"), will be held at the
Holiday Inn, 1221 Chess Drive, Foster City, California 94404, on Friday,
May 30, 1997, at 9:00 a.m., local time, for the following purposes:

2. To approve and adopt an amendment to the certificate of incorporation
of Cell Genesys to increase the number of shares authorized for issuance to
80,000,000;

3. To approve a special grant of an option to purchase 30,000 shares of
Cell Genesys Common Stock at an exercise price equal to the fair market
value per share of the Cell Genesys Common Stock on the effective date of
such grant, effective as of the Effective Time, to each of the eight
independent directors of the combined company as of the Effective Time;

4. To elect directors to serve until the next annual meeting of
stockholders or until their successors are elected;

5. To approve an amendment to Cell Genesys' 1989 Incentive Stock Plan to
increase the number of shares of Cell Genesys Common Stock reserved for
issuance by 1,750,000 shares, to a total of approximately 5,445,000 shares;

6. To ratify the appointment of Ernst & Young LLP as independent auditors
of Cell Genesys for the fiscal year ending December 31, 1997; and

7. To transact such other business as may properly come before the Cell
Genesys Annual Meeting or any adjournments or postponements thereof.

The Merger, the Merger Agreement and the other matters enumerated above are
more fully described in the accompanying Joint Proxy Statement/Prospectus.
<PAGE>

Only holders of record of common stock, par value $.001 per share, of Cell
Genesys on April 22, 1997 are entitled to notice of and to vote at the Cell
Genesys Annual Meeting and any adjournments or postponements thereof.

All stockholders are cordially invited to attend the Cell Genesys Annual
Meeting. However, to ensure your representation at the Cell Genesys Annual
Meeting, you are urged to complete, sign and date the accompanying proxy card
and return it as promptly as possible in the enclosed postage-prepaid, self-
addressed envelope. You may revoke your proxy in the manner described in the
accompanying Joint Proxy Statement/Prospectus at any time before it has been
voted at the Cell Genesys Annual Meeting. If you attend the Cell Genesys
Annual Meeting in person, you may vote your shares personally on all matters
even if you have previously returned a proxy card.

BY ORDER OF THE BOARD OF DIRECTORS

/s/ Kathleen Sereda Glaub
Kathleen Sereda Glaub
Secretary

April 30, 1997

2
<PAGE>

SOMATIX THERAPY CORPORATION
950 MARINA VILLAGE PARKWAY
ALAMEDA, CALIFORNIA 94501

Dear Stockholder:

You are cordially invited to attend a special meeting of stockholders (the
"Somatix Special Meeting") of Somatix Therapy Corporation ("Somatix") to be
held at 850 Marina Village Parkway, Alameda, California 94501, on Friday, May
30, 1997, at 9:00 a.m., local time.

At the Somatix Special Meeting you will be asked to consider and vote upon
proposals:

1. To approve and adopt the agreement and plan of merger and reorganization,
dated as of January 12, 1997 (as amended and restated as of March 27, 1997,
the "Merger Agreement"), among Somatix, Cell Genesys, Inc., a corporation
organized under the laws of the State of Delaware ("Cell Genesys"), and S
Merger Corp., a corporation organized under the laws of the State of Delaware
and a direct wholly owned subsidiary of Cell Genesys ("Merger Sub"), and to
approve the merger (the "Merger") of Merger Sub with and into Somatix pursuant
to the Merger Agreement. At the effective time of the Merger (the "Effective
Time"), (i) each outstanding share of common stock, par value $.01 per share,
of Somatix will be converted into the right to receive 0.3850 shares of common
stock, par value $.001 per share, of Cell Genesys (together with the
associated preferred share purchase rights, the "Cell Genesys Common Stock"),
(ii) each outstanding share of series A-1 preferred stock and series A-2
preferred stock of Somatix (together, the "Somatix Series A Preferred Stock")
will be converted into the right to receive 2.4062 shares of Cell Genesys
Common Stock, (iii) each outstanding share of series B-1 preferred stock of
Somatix will be converted into the right to receive a number of shares of Cell
Genesys Common Stock equal to the quotient of $150.00 divided by the average
of the daily closing prices of the Cell Genesys Common Stock over the 30-day
period ending three days prior to the Effective Time, and (iv) Somatix will
become a wholly owned subsidiary of Cell Genesys;

2. To approve and adopt an amendment (the "Somatix Amendment") to the
certificate of incorporation of Somatix to provide that the Somatix Series A
Preferred Stock will be converted into Cell Genesys Common Stock pursuant to
the Merger; and

3. To transact such other business as may properly come before the Somatix
Special Meeting or any adjournments or postponements thereof.

THE BOARD OF DIRECTORS OF SOMATIX HAS, WITH ONE ABSTENTION, APPROVED AND
ADOPTED THE MERGER AGREEMENT AND APPROVED THE MERGER, AND, WITH ONE
ABSTENTION, RECOMMENDS THAT THE STOCKHOLDERS OF SOMATIX VOTE FOR (I) THE
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE MERGER AND
(II) THE APPROVAL OF THE SOMATIX AMENDMENT.

You are urged to read carefully the accompanying Joint Proxy
Statement/Prospectus for more detailed information concerning Somatix, Cell
Genesys, the Merger Agreement and the Merger.
<PAGE>

Whether or not you plan to attend the Somatix Special Meeting, please
complete, sign and date the accompanying proxy card and return it in the
enclosed prepaid envelope. You may revoke your proxy in the manner described
in the accompanying Joint Proxy Statement/Prospectus at any time before it has
been voted at the Somatix Special Meeting. If you attend the Somatix Special
Meeting in person, you may vote your shares personally on all matters even if
you have previously returned a proxy card. Your prompt cooperation will be
greatly appreciated.

Very truly yours,

/s/ David W. Carter
David W. Carter
Chairman of the Board, President and
Chief Executive Officer

April 30, 1997

2
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SOMATIX THERAPY CORPORATION
950 MARINA VILLAGE PARKWAY
ALAMEDA, CALIFORNIA 94501

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NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 30, 1997

----------------

To the Stockholders of Somatix Therapy Corporation:

NOTICE IS HEREBY GIVEN that a special meeting of stockholders (the "Somatix
Special Meeting") of Somatix Therapy Corporation, a corporation organized
under the laws of the State of Delaware ("Somatix"), will be held at 850
Marina Village Parkway, Alameda, California 94501, on Friday, May 30, 1997, at
9:00 a.m., local time, for the following purposes:

1. To approve and adopt the agreement and plan of merger and reorganization,
dated as of January 12, 1997 (as amended and restated as of March 27, 1997,
the "Merger Agreement"), among Somatix, Cell Genesys, Inc., a corporation
organized under the laws of the State of Delaware ("Cell Genesys"), and S
Merger Corp., a corporation organized under the laws of the State of Delaware
and a direct wholly owned subsidiary of Cell Genesys ("Merger Sub"), and to
approve the merger (the "Merger") of Merger Sub with and into Somatix pursuant
to the Merger Agreement. At the effective time of the Merger (the "Effective
Time"), (i) each outstanding share of common stock, par value $.01 per share,
of Somatix (the "Somatix Common Stock") will be converted into the right to
receive 0.3850 shares of common stock, par value $.001 per share, of Cell
Genesys (together with the associated preferred share purchase rights, the
"Cell Genesys Common Stock"), (ii) each outstanding share of series A-1
preferred stock and series A-2 preferred stock of Somatix (together, the
"Somatix Series A Preferred Stock") will be converted into the right to
receive 2.4062 shares of Cell Genesys Common Stock, (iii) each outstanding
share of series B-1 preferred stock of Somatix (the "Somatix Series B
Preferred Stock") will be converted into the right to receive a number of
shares of Cell Genesys Common Stock equal to the quotient of $150.00 divided
by the average of the daily closing prices of the Cell Genesys Common Stock
over the 30-day period ending three days prior to the Effective Time, and (iv)
Somatix will become a wholly owned subsidiary of Cell Genesys;

2. To approve and adopt an amendment to the certificate of incorporation of
Somatix to provide that the Somatix Series A Preferred Stock will be converted
into Cell Genesys Common Stock pursuant to the Merger; and

3. To transact such other business as may properly come before the Somatix
Special Meeting or any adjournments or postponements thereof.

The Merger, the Merger Agreement and the other matters enumerated above are
more fully described in the accompanying Joint Proxy Statement/Prospectus.

Only holders of record of Somatix Common Stock, Somatix Series A Preferred
Stock and Somatix Series B Preferred Stock on April 22, 1997 are entitled to
notice of and to vote at the Somatix Special Meeting and any adjournments or
postponements thereof.
<PAGE>

All stockholders are cordially invited to attend the Somatix Special
Meeting. However, to ensure your representation at the Somatix Special
Meeting, you are urged to complete, sign and date the accompanying proxy card
and return it as promptly as possible in the enclosed postage-prepaid, self-
addressed envelope. You may revoke your proxy in the manner described in the
accompanying Joint Proxy Statement/Prospectus at any time before it has been
voted at the Somatix Special Meeting. If you attend the Somatix Special
Meeting in person, you may vote your shares personally on all matters even if
you have previously returned a proxy card.

BY ORDER OF THE BOARD OF DIRECTORS

/s/ Edward O. Lanphier II
Edward O. Lanphier II
Secretary

April 30, 1997

2
<PAGE>

CELL GENESYS, INC.
AND
SOMATIX THERAPY CORPORATION
JOINT PROXY STATEMENT
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CELL GENESYS, INC.
PROSPECTUS
---------------
This Joint Proxy Statement/Prospectus is being furnished to stockholders of
Cell Genesys, Inc., a corporation organized under the laws of the State of
Delaware ("Cell Genesys"), in connection with the solicitation of proxies by
the board of directors of Cell Genesys for use at the annual meeting of
stockholders of Cell Genesys to be held at the Holiday Inn, 1221 Chess Drive,
Foster City, California 94404, on Friday, May 30, 1997, at 9:00 a.m., local
time, and at any adjournments or postponements thereof, for the purposes set
forth herein and in the accompanying notice of annual meeting of stockholders
of Cell Genesys.
This Joint Proxy Statement/Prospectus is also being furnished to
stockholders of Somatix Therapy Corporation, a corporation organized under the
laws of the State of Delaware ("Somatix"), in connection with the solicitation
of proxies by the board of directors of Somatix for use at the special meeting
of stockholders of Somatix to be held at 850 Marina Village Parkway, Alameda,
California 94501, on Friday, May 30, 1997, at 9:00 a.m., local time, and at
any adjournments or postponements thereof, for the purposes set forth herein
and in the accompanying notice of special meeting of stockholders of Somatix.
This Joint Proxy Statement/Prospectus also constitutes a prospectus of Cell
Genesys with respect to shares of common stock, par value $.001 per share, of
Cell Genesys (together with the associated preferred share purchase rights,
the "Cell Genesys Common Stock") to be issued in connection with the merger
(the "Merger") of S Merger Corp., a corporation organized under the laws of
the State of Delaware and a direct wholly owned subsidiary of Cell Genesys
("Merger Sub"), with and into Somatix pursuant to the agreement and plan of
merger and reorganization, dated as of January 12, 1997 (as amended and
restated as of March 27, 1997, the "Merger Agreement"), among Somatix, Cell
Genesys and Merger Sub. At the effective time of the Merger (the "Effective
Time"), (i) each outstanding share of common stock, par value $.01 per share,
of Somatix (the "Somatix Common Stock") will be converted into the right to
receive 0.3850 shares of Cell Genesys Common Stock ("Common Exchange Ratio"),
(ii) each outstanding share of series A-1 preferred stock and series A-2
preferred stock of Somatix (together, the "Somatix Series A Preferred Stock")
will be converted into the right to receive 2.4062 shares of Cell Genesys
Common Stock, (iii) each outstanding share of series B-1 preferred stock of
Somatix (the "Somatix Series B Preferred Stock" and, together with the Somatix
Common Stock and the Somatix Series A Preferred Stock, the "Somatix Capital
Stock") will be converted into the right to receive a number of shares of
Cell Genesys Common Stock equal to the quotient of $150.00 divided by the
average of the daily closing prices of the Cell Genesys Common Stock over the
30-day period ending three days prior to the Effective Time, (iv) each
outstanding option and warrant to purchase Somatix Common Stock will be
assumed by Cell Genesys and converted into an option or warrant, as the case
may be, to purchase the number of shares of Cell Genesys Common Stock equal to
the product of the number of shares of Somatix Common Stock subject to such
option or warrant immediately prior to the Effective Time multiplied by the
Common Exchange Ratio, and (v) Somatix will become a wholly owned subsidiary
of Cell Genesys.
The proposed Merger is contingent upon, among other things, the approval of
the holders of the requisite number of shares of (i) Cell Genesys Common
Stock, (ii) Somatix Capital Stock and (iii) Somatix Series A Preferred Stock,
all as described in this Joint Proxy Statement/Prospectus. The proposed Merger
will be consummated as soon as practicable after such approvals are obtained
and the other conditions to the Merger are satisfied or waived. Cell Genesys
and Somatix currently expect that the Merger will become effective on May 30,
1997.
On January 10, 1997, the last full trading day prior to the public
announcement of the execution of the Merger Agreement, the last reported bid
prices on The Nasdaq National Market of Cell Genesys Common Stock and Somatix
Common Stock were $9.125 and $3.813, respectively. On April 28, 1997, the
latest practicable trading day prior to the printing of this Joint Proxy
Statement/Prospectus, the last reported bid prices on The Nasdaq National
Market of Cell Genesys Common Stock and Somatix Common Stock were $4.625 and
$1.500, respectively.
All information contained in this Joint Proxy Statement/Prospectus relating
to Cell Genesys has been supplied by Cell Genesys, and all information
contained herein relating to Somatix has been supplied by Somatix.
This Joint Proxy Statement/Prospectus and the accompanying forms of proxy
are first being mailed to stockholders of Cell Genesys and Somatix on or about
May 1, 1997.

SEE "RISK FACTORS" FOR CERTAIN INFORMATION THAT SHOULD BE CONSIDERED BY BOTH
CELL GENESYS AND SOMATIX STOCKHOLDERS.
---------------
THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROSPECTUS HAVE NOT BEEN APPROVED
OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
The date of this Joint Proxy Statement/Prospectus is April 30, 1997.
<PAGE>

TABLE OF CONTENTS

<TABLE>
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PAGE
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AVAILABLE INFORMATION..................................................... 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... 1
TRADEMARKS................................................................ 2
SUMMARY................................................................... 3
Cell Genesys............................................................ 3
Somatix................................................................. 3
Merger Sub.............................................................. 4
The Merger.............................................................. 4
The Cell Genesys Annual Meeting......................................... 4
The Somatix Special Meeting............................................. 6
Recommendation of Cell Genesys' Board of Directors...................... 7
Recommendation of Somatix' Board of Directors........................... 7
Opinion of Cell Genesys' Financial Advisor.............................. 7
Opinion of Somatix' Financial Advisor................................... 8
Regulatory Matters...................................................... 8
Appraisal Rights........................................................ 8
Effective Time of the Merger............................................ 8
Conditions to the Merger................................................ 8
Termination............................................................. 9
Fees and Expenses....................................................... 9
Stock Option Agreements................................................. 9
Accounting Treatment.................................................... 9
Interests of Certain Persons............................................ 9
Exchange of Share Certificates.......................................... 10
Certain Federal Income Tax Consequences................................. 10
Operations Following the Merger......................................... 10
Markets and Market Prices............................................... 11
Selected Historical and Pro Forma Financial Information................. 12
Comparative Per Share Data.............................................. 15
RISK FACTORS.............................................................. 16
Risks Relating to the Merger............................................ 16
Risks Relating to Somatix, Cell Genesys and the Combined Company........ 18
THE MEETINGS.............................................................. 25
The Cell Genesys Annual Meeting......................................... 25
The Somatix Special Meeting............................................. 26
Proxies................................................................. 28
THE MERGER................................................................ 29
General................................................................. 29
Conversion of Somatix Capital Stock..................................... 29
Background of the Merger................................................ 29
Cell Genesys' Reasons for the Merger; Recommendation of Cell Genesys'
Board of Directors..................................................... 33
Somatix' Reasons for the Merger; Recommendation of Somatix' Board of
Directors.............................................................. 34
Opinion of Cell Genesys' Financial Advisor.............................. 36
Opinion of Somatix' Financial Advisor................................... 40
Certain Federal Income Tax Consequences................................. 43
Certain Federal Securities Law Consequences............................. 44
Accounting Treatment.................................................... 44
</TABLE>

i
<PAGE>

TABLE OF CONTENTS--(CONTINUED)

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PAGE
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Interests of Certain Persons in the Merger............................... 45
Regulatory Matters....................................................... 46
Appraisal Rights......................................................... 46
Exchange of Shares....................................................... 46
THE MERGER AGREEMENT....................................................... 48
Effective Time........................................................... 48
Corporate Matters........................................................ 48
Conversion of Securities................................................. 48
Options and Warrants to Purchase Somatix Common Stock.................... 48
Representations and Warranties........................................... 48
Conduct of Business Pending the Merger................................... 49
Cooperation; Steering Committee.......................................... 50
Notices of Certain Events................................................ 50
Access to Information; Confidentiality................................... 50
No Solicitation of Transactions.......................................... 50
Plan of Reorganization................................................... 51
Further Action; Consents; Filings........................................ 51
Officers and Directors of Cell Genesys After the Merger.................. 51
Nasdaq National Market Listing........................................... 52
Bridge Facility.......................................................... 52
Audited Financial Statements............................................. 53
Permitted Financings..................................................... 53
Directors' and Officers' Indemnification and Insurance................... 53
Conditions to the Merger................................................. 54
Termination.............................................................. 55
Termination Fees and Expenses............................................ 56
Amendment and Waiver..................................................... 56
THE STOCK OPTION AGREEMENTS................................................ 57
General.................................................................. 57
The Cell Genesys Stock Option Agreement.................................. 57
The Somatix Stock Option Agreement....................................... 58
CELL GENESYS............................................................... 60
Overview................................................................. 60
Background............................................................... 61
Gene Therapy............................................................. 61
Product Development Programs............................................. 62
Government Regulation.................................................... 65
Other Assets of Cell Genesys............................................. 66
Gene Therapy Patents and Trade Secrets................................... 67
Human Resources.......................................................... 68
Facilities............................................................... 68
SOMATIX.................................................................... 69
Overview................................................................. 69
Platform Technology...................................................... 69
Product Development Programs............................................. 70
Patents, Proprietary Rights and Licenses................................. 73
Government Regulation.................................................... 74
</TABLE>

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Human Resources......................................................... 74
Facilities.............................................................. 74
THE COMBINED COMPANY...................................................... 75
Overview................................................................ 75
Gene Therapy............................................................ 75
Strategy for the Combined Company....................................... 75
Product Development Programs............................................ 76
Proprietary Technologies................................................ 78
Other Assets of the Combined Company.................................... 79
Corporate Relationships................................................. 80
Intellectual Property Position.......................................... 81
Facilities and Personnel................................................ 81
Management and Directors................................................ 82
Scientific Advisory Board............................................... 83
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS............... 84
DESCRIPTION OF CELL GENESYS CAPITAL STOCK................................. 89
Cell Genesys Common Stock............................................... 89
Cell Genesys Preferred Stock............................................ 89
Cell Genesys Rights Plan................................................ 89
COMPARISON OF STOCKHOLDER RIGHTS.......................................... 92
Special Meetings of Stockholders........................................ 92
Stockholder Rights Plans................................................ 92
ADDITIONAL MATTERS SUBMITTED TO A VOTE OF CELL GENESYS STOCKHOLDERS....... 93
Additional Proposal No. 1--Amendment to Certificate of Incorporation.... 93
Additional Proposal No. 2--Special Option Grant......................... 93
Additional Proposal No. 3--Election of Directors........................ 94
Additional Proposal No. 4--Amendment to 1989 Incentive Stock Plan....... 96
Additional Proposal No. 5--Ratification of Appointment of Independent
Auditors............................................................... 101
ADDITIONAL MATTERS SUBMITTED TO A VOTE OF SOMATIX STOCKHOLDERS............ 102
Additional Proposal No. 1--Amendment to Certificate of Incorporation.... 102
OTHER INFORMATION REGARDING CELL GENESYS.................................. 103
Directors and Officers.................................................. 103
Stock Ownership of Principal Stockholders and Management................ 105
Compliance with Section 16(a) of the Exchange Act....................... 106
Employment Contracts.................................................... 106
CELL GENESYS EXECUTIVE COMPENSATION....................................... 107
Summary Compensation Table.............................................. 107
Option Grants in Last Fiscal Year....................................... 108
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End
Option Values.......................................................... 108
CELL GENESYS COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION...... 109
Compensation Committee Interlocks and Insider Participation............. 111
CELL GENESYS STOCK PERFORMANCE GRAPH...................................... 112
Stockholder Return Comparison........................................... 112
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OTHER INFORMATION REGARDING SOMATIX........................................ 113
Directors and Officers................................................... 113
Stock Ownership of Principal Stockholders and Management................. 115
</TABLE>

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OTHER MATTERS.............................................................. 117
EXPERTS.................................................................... 117
LEGAL MATTERS.............................................................. 117
STOCKHOLDER PROPOSALS...................................................... 117

APPENDICES

APPENDIX A--Amended and Restated Agreement and Plan of Merger and
Reorganization............................................................ A-1
APPENDIX B--Fairness Opinion of Lehman Brothers Inc........................ B-1
APPENDIX C--Fairness Opinion of Donaldson, Lufkin & Jenrette Securities
Corporation............................................................... C-1
</TABLE>

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AVAILABLE INFORMATION

Cell Genesys, Inc., a corporation organized under the laws of the State of
Delaware ("Cell Genesys"), and Somatix Therapy Corporation, a corporation
organized under the laws of the State of Delaware ("Somatix"), are each
subject to the information requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and in accordance therewith file
reports, proxy and information statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy and
information statements and other information filed with the Commission may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the Commission's Regional Offices at 7 World Trade Center, Suite 1300, New
York, New York 10048, and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material may also be obtained at
prescribed rates by writing to the Public Reference Section of the Commission,
450 Fifth Street, N.W., Washington, D.C. 20549. In addition, Cell Genesys and
Somatix are each required to file electronic versions of such material with
the Commission through the Commission's Electronic Data Gathering, Analysis
and Retrieval ("EDGAR") system. The Commission maintains a World Wide Web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. Electronic
filings are publicly available on the Commission's World Wide Web site within
24 hours of acceptance. The address of such site is http://www.sec.gov. The
Cell Genesys Common Stock and the Somatix Common Stock are each quoted on The
Nasdaq National Market. Reports, proxy and information statements and other
information filed by Cell Genesys and Somatix with The Nasdaq National Market
may also be inspected at the offices of the National Association Securities
Dealers, Inc. (the "NASD"), Market Listing Section, 1735 K Street, N.W.,
Washington, D.C. 20006.

Cell Genesys has filed with the Commission a registration statement on Form
S-4 (together with any amendments or supplements thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the securities to be issued by Cell Genesys to holders
of Somatix Capital Stock. This Joint Proxy Statement/Prospectus does not
contain all the information set forth in the Registration Statement, certain
portions of which have been omitted pursuant to the rules and regulations of
the Commission and to which portions reference is hereby made. Such additional
information may be obtained from the Commission's principal office in
Washington, D.C. Statements contained in this Joint Proxy Statement/Prospectus
as to the contents of any contract or other document referred to herein are
not necessarily complete, and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.

This Joint Proxy Statement/Prospectus is accompanied by copies of Somatix'
Annual Report on Form 10-K for the fiscal year ended June 30, 1996 and
Somatix' Quarterly Report on Form 10-Q for the fiscal quarter ended December
31, 1996.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents previously filed by Cell Genesys with the Commission
are incorporated by reference in this Joint Proxy Statement/Prospectus:

1. Cell Genesys' Annual Report on Form 10-K for the fiscal year ended
December 31, 1996;

2. Cell Genesys' amended and restated Annual Report on Form 10-K/A for the
fiscal year ended December 31, 1996 filed on April 29, 1997;

3. The description of Cell Genesys' capital stock contained in Cell
Genesys' Registration Statement on Form 8-A filed on August 8, 1995;

4. Cell Genesys' Current Report on Form 8-K filed on January 27, 1997; and

5. Cell Genesys' Current Report on Form 8-K filed on April 3, 1997.

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The following documents previously filed by Somatix with the Commission are
incorporated by reference in this Joint Proxy Statement/Prospectus:

1.Somatix' Annual Report on Form 10-K for the fiscal year ended June 30,
1996;

2.Somatix' Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1996;

3.Somatix' Quarterly Report on Form 10-Q for the fiscal quarter ended
December 31, 1996;

4.Somatix' Current Report on Form 8-K filed on January 27, 1997; and

5.Somatix' Current Report on Form 8-K filed on April 3, 1997.

All documents filed by Cell Genesys and Somatix pursuant to Section 13(a),
13(c), 14 or 15(d) of the Exchange Act after the date of this Joint Proxy
Statement/Prospectus and prior to the date of the Cell Genesys Annual Meeting
(as defined below) and the Somatix Special Meeting (as defined below) shall be
deemed to be incorporated by reference in this Joint Proxy
Statement/Prospectus and to be a part hereof from the dates of filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Joint Proxy Statement/Prospectus to the extent that a
statement contained herein or in any other subsequently filed document that
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Joint Proxy Statement/Prospectus.

----------------

THIS JOINT PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (WITHOUT
EXHIBITS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE) ARE
AVAILABLE WITHOUT CHARGE UPON REQUEST. REQUESTS FOR CELL GENESYS DOCUMENTS
SHOULD BE DIRECTED TO CELL GENESYS, INC., 342 LAKESIDE DRIVE, FOSTER CITY,
CALIFORNIA 94404 (TELEPHONE (415) 358-9600), ATTENTION: INVESTOR RELATIONS.
REQUESTS FOR SOMATIX DOCUMENTS SHOULD BE DIRECTED TO SOMATIX THERAPY
CORPORATION, 950 MARINA VILLAGE PARKWAY, ALAMEDA, CALIFORNIA 94501 (TELEPHONE
(510) 748-3000), ATTENTION: INVESTOR RELATIONS. IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS PRIOR TO THE CELL GENESYS ANNUAL MEETING AND THE
SOMATIX SPECIAL MEETING, ANY REQUEST SHOULD BE MADE PRIOR TO MAY 22, 1997.

----------------

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED OR INCORPORATED BY REFERENCE IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IN CONNECTION WITH THE OFFERING AND THE SOLICITATIONS
MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY CELL GENESYS, MERGER SUB OR
SOMATIX. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, ANY SECURITIES, OR THE
SOLICITATION OF A PROXY, IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON TO
WHOM, IT WOULD BE UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF
SECURITIES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY INFERENCE
THAT THERE HAS NOT BEEN ANY CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN
THE AFFAIRS OF EITHER CELL GENESYS OR SOMATIX SINCE THE DATE HEREOF.

----------------

TRADEMARKS

This Joint Proxy Statement/Prospectus contains trademarks of Cell Genesys
and Somatix, as well as trademarks of other companies.

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<PAGE>

SUMMARY

The following is a summary of certain information contained elsewhere in this
Joint Proxy Statement/ Prospectus. This summary is not, and is not intended to
be, a complete description of the matters covered in this Joint Proxy
Statement/Prospectus and is subject to and qualified in its entirety by
reference to the more detailed information contained elsewhere in this Joint
Proxy Statement/Prospectus, including the appendices hereto and the documents
incorporated herein by reference. Stockholders of Cell Genesys and Somatix are
urged to read carefully the entire Joint Proxy Statement/Prospectus, including
the appendices hereto and the documents incorporated herein by reference.

Other than statements of historical fact, statements contained in this Joint
Proxy Statement/Prospectus, including statements as to the benefits expected to
be realized as a result of the Merger and as to future financial performance,
and the analyses performed by the financial advisors to Cell Genesys and
Somatix, constitute forward-looking statements. Holders of Somatix Capital
Stock and Cell Genesys Common Stock are cautioned not to place undue reliance
on the forward-looking statements contained in this Joint Proxy Statement/
Prospectus, which speak only as of the date hereof. Neither Cell Genesys nor
Somatix undertakes any obligation to publicly release the results of any
revisions to such forward-looking statements which may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events. See "The Merger--Cell Genesys' Reasons for the Merger;
Recommendation of Cell Genesys' Board of Directors," "--Somatix' Reasons for
the Merger; Recommendation of Somatix' Board of Directors," "--Opinion of Cell
Genesys' Financial Advisor," "--Opinion of Somatix' Financial Advisor," "Cell
Genesys," "Somatix" and "The Combined Company." There are a number of important
factors that could cause actual results to differ materially from those
indicated by such forward-looking statements. Such factors include those set
forth in this Joint Proxy Statement/Prospectus under "Risk Factors."

CELL GENESYS

Cell Genesys is focused on the development and commercialization of gene
therapies to treat major, life-threatening diseases, including Acquired Immune
Deficiency Syndrome ("AIDS") and cancer. Cell Genesys' objective is to
commercialize both ex vivo gene therapy with genetically engineered human
immune cells and in vivo gene therapy. Gene therapy for AIDS is in Phase II
human clinical testing and is being developed through a worldwide collaboration
with Hoechst AG and certain of its affiliates (collectively, "Hoechst Marion
Roussel"). Cell Genesys has retained worldwide rights to gene therapy for
cancer and is conducting preclinical studies for colon, ovarian and other
specific types of cancer. Outside of gene therapy, Cell Genesys has other
assets, including Abgenix, Inc. ("Abgenix"), a subsidiary of Cell Genesys
established in June 1996 to focus on the development and commercialization of
human antibodies to treat a wide range of medical disorders, including
inflammation, autoimmune disorders, cancer and other serious diseases, as well
as Cell Genesys' licensing program in gene activation technology for the
production of therapeutic proteins. See "Cell Genesys."

The principal executive offices of Cell Genesys are located at 342 Lakeside
Drive, Foster City, California 94404, and its telephone number is (415) 358-
9600. As used in this Joint Proxy Statement/Prospectus, the term "Cell Genesys"
refers to Cell Genesys, Inc. and its subsidiaries, unless the context otherwise
requires.

SOMATIX

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<PAGE>

transfer and human gene therapy utilizing retroviral, lentiviral, adenoviral,
adeno-associated viral, and synthetic vector systems. Somatix is applying its
core scientific expertise to the development of novel treatments for cancer,
neurological diseases and genetic diseases. See "Somatix."

The principal executive offices of Somatix are located at 950 Marina Village
Parkway, Alameda, California 94501, and its telephone number is (510) 748-3000.
As used in this Joint Proxy Statement/Prospectus, the term "Somatix" refers to
Somatix Therapy Corporation and its subsidiaries, unless the context otherwise
requires.

MERGER SUB

Merger Sub, a corporation organized under the laws of the State of Delaware
and a direct wholly owned subsidiary of Cell Genesys, was incorporated in
January 1997 for the purpose of effecting the Merger. Merger Sub has no
material assets and has not engaged in any activities except in connection with
the Merger. The principal executive offices of Merger Sub are located at 342
Lakeside Drive, Foster City, California 94404, and its telephone number is
(415) 358-9600.

THE MERGER

Pursuant to the agreement and plan of merger and reorganization, dated as of
January 12, 1997 (as amended and restated as of March 27, 1997, the "Merger
Agreement"), among Somatix, Cell Genesys and S Merger Corp., a corporation
organized under the laws of the State of Delaware and a direct wholly owned
subsidiary of Cell Genesys ("Merger Sub"), Merger Sub will be merged (the
"Merger") with and into Somatix, and at the effective time thereof (the
"Effective Time"), (i) each outstanding share of common stock, par value $.01
per share, of Somatix (the "Somatix Common Stock") will be converted into the
right to receive 0.3850 shares of common stock, par value $.001 per share, of
Cell Genesys (together with the associated preferred share purchase rights, the
"Cell Genesys Common Stock"), (ii) each outstanding share of series A-1
preferred stock and series A-2 preferred stock of Somatix (together, the
"Somatix Series A Preferred Stock") will be converted into the right to receive
2.4062 shares of Cell Genesys Common Stock, (iii) each outstanding share of
series B-1 preferred stock of Somatix (the "Somatix Series B Preferred Stock"
and, together with the Somatix Common Stock and the Somatix Series A Preferred
Stock, the "Somatix Capital Stock") will be converted into the right to receive
a number of shares of Cell Genesys Common Stock equal to the quotient of
$150.00 divided by the average of the daily closing prices of the Cell Genesys
Common Stock over the 30-day period ending three days prior to the Effective
Time, (iv) each outstanding option and warrant to purchase Somatix Common Stock
will be assumed by Cell Genesys and converted into an option or warrant, as the
case may be, to purchase the number of shares of Cell Genesys Common Stock
equal to the product of the number of shares of Somatix Common Stock subject to
such option or warrant immediately prior to the Effective Time multiplied by
the Common Exchange Ratio (as defined below under "The Merger--Conversion of
Somatix Capital Stock--Somatix Common Stock"), and (v) Somatix will become a
wholly owned subsidiary of Cell Genesys. See "The Merger" and "The Merger
Agreement." As of April 28, 1997, the latest practicable trading day prior to
the printing of this Joint Proxy Statement/Prospectus, the approximate
aggregate market price as of such date of the shares of Cell Genesys Common
Stock that would have become issuable by Cell Genesys in the Merger if the
Merger had been consummated on such date would have been $50,991,087. The
actual aggregate market price of the shares of Cell Genesys Common Stock that
will become issuable at the Effective Time will not be known until the
Effective Time. As of April 28, 1997, the latest practicable trading day prior
to the printing of this Joint Proxy Statement/Prospectus, the number of shares
of Cell Genesys Common Stock that would have been issuable in exchange for the
Somatix Series B Preferred Stock if the Merger had been consummated on such
date was 997,990. The actual number of shares of Cell Genesys Common Stock that
will be issued in exchange for the Somatix Series B Preferred Stock in the
Merger will not be known until three days prior to the Effective Time and is
not subject to any cap.

THE CELL GENESYS ANNUAL MEETING

Date and Place of the Meeting. The annual meeting of stockholders of Cell
Genesys (the "Cell Genesys Annual Meeting") will be held at the Holiday Inn,
1221 Chess Drive, Foster City, California 94404, on Friday, May 30, 1997, at
9:00 a.m., local time.

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<PAGE>

Stockholders Entitled to Vote. The record date for determination of holders
of Cell Genesys Common Stock entitled to vote at the Cell Genesys Annual
Meeting was April 22, 1997 (the "Cell Genesys Record Date"). As of the close of
business on the Cell Genesys Record Date, 16,566,348 shares of Cell Genesys
Common Stock were outstanding, held by approximately 249 holders of record.
Only holders of record of Cell Genesys Common Stock as of the close of business
on the Cell Genesys Record Date are entitled to notice of and to vote at the
Cell Genesys Annual Meeting and any adjournments or postponements thereof.

Purpose of the Meeting. The purpose of the Cell Genesys Annual Meeting is to
consider and vote upon proposals (i) to approve and adopt the Merger Agreement
and to approve the Merger and the issuance of Cell Genesys Common Stock
pursuant thereto; (ii) to approve and adopt an amendment (the "Cell Genesys
Amendment") to the certificate of incorporation of Cell Genesys to increase the
number of shares authorized for issuance to 80,000,000; (iii) to approve a
special grant of an option to purchase 30,000 shares of Cell Genesys Common
Stock at an exercise price equal to the fair market value of the Cell Genesys
Common Stock on the effective date of such grant (the "Special Option Grant"),
effective as of the Effective Time, to each of the eight independent directors
of the combined company resulting from the Merger (the "Combined Company") as
of the Effective Time; (iv) to elect directors to serve until the next annual
meeting of stockholders or until their successors are elected; (v) to approve
an amendment (the "Incentive Plan Amendment") to Cell Genesys' 1989 Incentive
Stock Plan (the "Cell Genesys Incentive Plan") to increase the number of shares
of Cell Genesys Common Stock reserved for issuance by 1,750,000 shares, to a
total of approximately 5,445,000 shares; and (vi) to ratify the appointment of
Ernst & Young LLP as independent auditors of Cell Genesys for the fiscal year
ending December 31, 1997; and to transact such other business as may properly
come before the Cell Genesys Annual Meeting or any adjournments or
postponements thereof.

Vote Required. The approval of the Merger Agreement, the Merger and the
issuance of shares of Cell Genesys Common Stock pursuant to the Merger, the
approval of the Special Option Grant, the approval of the Incentive Plan
Amendment and the ratification of the appointment of Ernst & Young LLP as
independent auditors of Cell Genesys for the fiscal year ending December 31,
1997, will each require the affirmative vote of a majority of the shares of
Cell Genesys Common Stock present in person or represented by properly executed
proxy at the Cell Genesys Annual Meeting. The approval of the Cell Genesys
Amendment will require the affirmative vote of a majority of the outstanding
shares of Cell Genesys Common Stock. The election of each director will require
the affirmative vote of a plurality of the shares of Cell Genesys Common Stock
present in person or represented by properly executed proxy at the Cell Genesys
Annual Meeting. See "The Meetings--The Cell Genesys Annual Meeting--Voting;
Vote Required."

Shares of Cell Genesys Common Stock that are voted "FOR," "AGAINST" or
"WITHHELD" at the Cell Genesys Annual Meeting will be treated as being present
at such meeting for purposes of establishing a quorum and will also be treated
as votes eligible to be cast by the Cell Genesys Common Stock present in person
or represented by proxy at the annual meeting and entitled to vote on the
subject matter. Abstentions will be counted for purposes of determining both
the presence or absence of a quorum for the transaction of business and the
total number of votes cast with respect to a particular matter. Broker non-
votes will be counted for purposes of determining the presence or absence of a
quorum for the transaction of business, but will not be counted for purposes of
determining the number of votes cast with respect to the particular proposal on
which the broker has expressly not voted. Broker non-votes with respect to
proposals set forth in this Joint Proxy Statement/Prospectus will therefore not
be considered votes cast and, accordingly, will not affect the determination as
to whether a majority of votes cast has been obtained with respect to a
particular matter, other than with respect to the approval of the Cell Genesys
Amendment, which approval will require the affirmative vote of a majority of
the outstanding shares of Cell Genesys Common Stock.

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<PAGE>

9.22 percent of the outstanding voting power of Cell Genesys. Each of the
directors and executive officers of Cell Genesys has indicated that such person
intends to vote or direct the vote of all the shares of Cell Genesys Common
Stock over which such person has voting control in favor of the Merger
Agreement, the Merger, the issuance of shares of Cell Genesys Common Stock
pursuant to the Merger, the Cell Genesys Amendment, the approval of the Special
Option Grant, the election of the director nominees specified herein and the
ratification of the appointment of Ernst & Young LLP as independent auditors of
Cell Genesys for the fiscal year ending December 31, 1997. In addition, Hoechst
Marion Roussel, a corporate partner of Cell Genesys and the beneficial owner of
shares of Cell Genesys Common Stock representing approximately 12.1 percent of
the outstanding voting power of Cell Genesys, has agreed to vote or direct the
vote of all the shares of Cell Genesys Common Stock over which it has voting
control in favor of the Merger Agreement and the Merger.

THE SOMATIX SPECIAL MEETING

Date and Place of the Meeting. The special meeting of stockholders of Somatix
(the "Somatix Special Meeting") will be held at 850 Marina Village Parkway,
Alameda, California 94501, on Friday, May 30, 1997, at 9:00 a.m., local time.

Stockholders Entitled to Vote. The record date for determination of holders
of Somatix Capital Stock entitled to vote at the Somatix Special Meeting was
March 14, 1997 (the "Somatix Record Date"). As of the close of business on the
Somatix Record Date, (i) 24,496,624 shares of Somatix Common Stock were
outstanding, held by approximately 933 holders of record; (ii) 247,651 shares
of Somatix Series A Preferred Stock were outstanding, held by nine holders of
record; and (iii) 33,333 shares of Somatix Series B Preferred Stock were
outstanding, held by one holder of record. Only holders of record of Somatix
Capital Stock as of the close of business on the Somatix Record Date are
entitled to notice of and to vote at the Somatix Special Meeting and any
adjournments or postponements thereof.

Purpose of the Meeting. The purpose of the Somatix Special Meeting is to
consider and vote upon proposals (i) to approve and adopt the Merger Agreement
and to approve the Merger and (ii) to approve and adopt an amendment (the
"Somatix Amendment") to the certificate of incorporation of Somatix to provide
that the Somatix Series A Preferred Stock will be converted into Cell Genesys
Common Stock pursuant to the Merger; and to transact such other business as may
properly come before the Somatix Special Meeting or any adjournments or
postponements thereof.

Vote Required. The approval of the Merger Agreement and the Merger and the
approval of the Somatix Amendment, will require the affirmative vote of a
majority of the outstanding shares of Somatix Capital Stock (with the Somatix
Series A Preferred Stock and Somatix Series B Preferred Stock voting on an as-
converted basis), voting together as a single class, and the affirmative vote
of a majority of the outstanding shares of Somatix Series A Preferred Stock.
See "The Meetings--The Somatix Special Meeting--Voting; Vote Required."

Shares of Somatix Capital Stock that are voted "FOR," "AGAINST" or "WITHHELD"
at the Somatix Special Meeting will be treated as being present at such meeting
for purposes of establishing a quorum and will also be treated as votes
eligible to be cast by the Somatix Capital Stock present in person or
represented by proxy at the annual meeting and entitled to vote on the subject
matter. Abstentions will be counted for purposes of determining both the
presence or absence of a quorum for the transaction of business and the total
number of votes cast with respect to a particular matter. Broker non-votes will
be counted for purposes of determining the presence or absence of a quorum for
the transaction of business, but will not be counted for purposes of
determining the number of votes cast with respect to the particular proposal on
which the broker has expressly not voted. Broker non-votes with respect to
proposals set forth in this Joint Proxy Statement/Prospectus will therefore not
be considered votes cast and, accordingly, will not affect the determination as
to whether a majority of votes cast has been obtained with respect to a
particular matter, other than with respect to the approval of the

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Merger Agreement and the Merger and the approval of the Somatix Amendment,
which approvals will require the affirmative vote of a majority of the
outstanding shares of Somatix Capital Stock (with the Somatix Series A
Preferred Stock and Somatix Series B Preferred Stock voting on an as-converted
basis), voting together as a single class, and the affirmative vote of a
majority of the outstanding shares of Somatix Series A Preferred Stock.

Security Ownership by Certain Beneficial Owners and Management. As of the
close of business on the Somatix Record Date, directors and executive officers
of Somatix and their respective affiliates may be deemed to be the beneficial
owners of shares of Somatix Capital Stock representing approximately 15.12
percent of the outstanding voting power of Somatix. Each of the directors
(other than Leon E. Rosenberg, M.D., an affiliate of Bristol-Myers Squibb
Company ("Bristol-Myers Squibb"); see "--Recommendation of Somatix' Board of
Directors") and executive officers of Somatix has indicated that such person
intends to vote or direct the vote of all the shares of Somatix Capital Stock
over which such person has voting control in favor of the Merger Agreement, the
Merger and the Somatix Amendment. In addition, Bristol-Myers Squibb, the
beneficial owner of shares of Somatix Capital Stock representing approximately
8.11 percent of the outstanding voting power of Somatix, has agreed to vote or
direct the vote of all the shares of Somatix Capital Stock over which it has
voting control in favor of the Merger Agreement and the Merger.

RECOMMENDATION OF CELL GENESYS' BOARD OF DIRECTORS

THE BOARD OF DIRECTORS OF CELL GENESYS HAS UNANIMOUSLY APPROVED AND ADOPTED
THE MERGER AGREEMENT AND APPROVED THE MERGER, AND UNANIMOUSLY RECOMMENDS THAT
THE STOCKHOLDERS OF CELL GENESYS VOTE FOR (I) THE APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT AND APPROVAL OF THE MERGER AND THE ISSUANCE OF CELL GENESYS
COMMON STOCK PURSUANT THERETO, (II) THE APPROVAL OF THE CELL GENESYS AMENDMENT,
(III) THE APPROVAL OF THE SPECIAL OPTION GRANT, (IV) THE ELECTION OF THE
DIRECTOR NOMINEES SPECIFIED HEREIN, (V) THE APPROVAL OF THE INCENTIVE PLAN
AMENDMENT AND (VI) THE RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS
INDEPENDENT AUDITORS OF CELL GENESYS FOR THE FISCAL YEAR ENDING DECEMBER 31,
1997. See "The Merger--Cell Genesys' Reasons for the Merger; Recommendation of
Cell Genesys' Board of Directors."

RECOMMENDATION OF SOMATIX' BOARD OF DIRECTORS

THE BOARD OF DIRECTORS OF SOMATIX HAS, WITH ONE ABSTENTION, APPROVED AND
ADOPTED THE MERGER AGREEMENT AND APPROVED THE MERGER, AND, WITH ONE ABSTENTION,
RECOMMENDS THAT THE STOCKHOLDERS OF SOMATIX VOTE FOR (I) THE APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE MERGER AND (II) THE
APPROVAL OF THE SOMATIX AMENDMENT. See "The Merger--Somatix' Reasons for the
Merger; Recommendation of Somatix' Board of Directors."

Leon E. Rosenberg, M.D., a director of Somatix and former president of
Bristol-Myers Squibb Pharmaceutical Research Institute, a subsidiary of
Bristol-Myers Squibb, a significant stockholder of Somatix, abstained from
voting with respect to the approval and adoption of the Merger Agreement. Due
to potential conflicts of interest arising out of Bristol-Myers Squibb's
contractual relationship with Somatix, Dr. Rosenberg was advised by counsel to
Bristol-Myers Squibb to abstain from voting on the Merger.

OPINION OF CELL GENESYS' FINANCIAL ADVISOR

In making its recommendation with respect to the Merger, the board of
directors of Cell Genesys considered, among other things, the written opinion
dated January 12, 1997, of Lehman Brothers Inc. ("Lehman Brothers"), Cell
Genesys' financial advisor, to the effect that, based upon and subject to the
various assumptions and considerations set forth in such opinion, as of such
date, the Exchange Ratio (as defined in such written opinion) to be offered to
the stockholders of Somatix in the Merger is fair to Cell Genesys from a
financial point of view. A copy of Lehman Brothers' opinion letter is attached
to this Joint Proxy Statement/Prospectus as

7
<PAGE>

Appendix B. Lehman Brothers' opinion letter, which sets forth the assumptions
made, procedures followed and matters considered by Lehman Brothers, and the
scope of Lehman Brothers' review, should be read carefully in its entirety. The
Merger Agreement does not require that such opinion be updated prior to the
Effective Time. Certain of the fees payable by Cell Genesys to Lehman Brothers
as compensation for services rendered by Lehman Brothers in connection with the
Merger are contingent upon the effectiveness of the Merger. See "The Merger--
Opinion of Cell Genesys' Financial Advisor."

OPINION OF SOMATIX' FINANCIAL ADVISOR

In making its recommendation with respect to the Merger, the board of
directors of Somatix considered, among other things, the written opinion dated
January 12, 1997, of Donaldson, Lufkin & Jenrette Securities Corporation
("Donaldson, Lufkin & Jenrette"), Somatix' financial advisor, to the effect
that, as of such date and based upon and subject to the assumptions,
limitations and qualifications set forth in such opinion, the Common Exchange
Ratio was fair to the holders of Somatix Common Stock, the Series A Exchange
Ratio was fair to the holders of Somatix Series A Preferred Stock and the
Series B Exchange Ratio was fair to the holders of Somatix Series B Preferred
Stock, in each case, from a financial point of view. A copy of Donaldson,
Lufkin & Jenrette's opinion is attached to this Joint Proxy
Statement/Prospectus as Appendix C. Donaldson, Lufkin & Jenrette's opinion,
which sets forth the assumptions made, procedures followed and other matters
considered by Donaldson, Lufkin & Jenrette, and the limits of Donaldson, Lufkin
& Jenrette's review, should be read carefully in its entirety. The Merger
Agreement does not require that such opinion be updated prior to the Effective
Time. Certain of the fees payable by Somatix to Donaldson, Lufkin & Jenrette as
compensation for services rendered by Donaldson, Lufkin & Jenrette in
connection with the Merger are contingent upon the effectiveness of the Merger.
See "The Merger--Opinion of Somatix' Financial Advisor."

REGULATORY MATTERS

No filing is required under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, and no other filing with or approval of any federal or
state governmental entity is required in connection with the Merger.

APPRAISAL RIGHTS

Holders of Somatix Capital Stock are not entitled to appraisal rights under
Section 262 of the General Corporation Law of the State of Delaware (the
"General Corporation Law") in connection with the Merger because the Somatix
Common Stock was designated as a national market system security on The Nasdaq
National Market on the Somatix Record Date and the shares of Cell Genesys
Common Stock to be issued pursuant to the Merger will be designated as national
market system securities on The Nasdaq National Market at the Effective Time.
Holders of Cell Genesys Common Stock are not entitled to appraisal rights under
Section 262 of the General Corporation Law in connection with the Merger
because Cell Genesys is not a constituent corporation in the Merger.

EFFECTIVE TIME OF THE MERGER

As promptly as practicable after the satisfaction or waiver of the conditions
set forth in the Merger Agreement, the parties thereto will file a certificate
of merger with the Secretary of State of the State of Delaware. The Merger will
become effective upon such filing, which, assuming all conditions are met, is
anticipated to occur on or before May 30, 1997. See "The Merger Agreement--
Effective Time."

CONDITIONS TO THE MERGER

Consummation of the Merger is subject to the satisfaction of certain
conditions, including, without limitation, (i) the approval and adoption of the
Merger Agreement and the approval of the Merger by the requisite

8
<PAGE>

vote of the stockholders of both Cell Genesys and Somatix; (ii) the absence of
any restrictive court orders or any other legal restraints or prohibitions,
preventing or making illegal the consummation of the Merger; (iii) the
continuing accuracy of the representations and warranties made in the Merger
Agreement at and as of the Effective Time; and (iv) the receipt by Cell Genesys
and Somatix of certain opinions regarding tax matters. Certain of the
conditions to the Merger run in favor of Cell Genesys or Somatix only. While
neither Cell Genesys nor Somatix currently intends to waive any such
conditions, if either Cell Genesys or Somatix were to elect to waive any such
conditions, assuming all other conditions to the Merger had been satisfied, the
Merger would be consummated without the waived conditions having been
satisfied. However, if any such condition is waived by Cell Genesys or Somatix,
and the board of directors of Cell Genesys or Somatix, as the case may be,
determines in the exercise of its business judgment and upon the advice of
counsel that such condition is material, Cell Genesys or Somatix, as the case
may be, will resolicit proxies from its stockholders in connection with the
Cell Genesys Annual Meeting or the Somatix Special Meeting, as the case may be.
See "The Merger Agreement--Conditions to the Merger."

TERMINATION

The Merger Agreement may be terminated and the Merger, the Cell Genesys
Amendment and the Somatix Amendment may be abandoned prior to the Effective
Time notwithstanding approval by the stockholders of Cell Genesys and/or
Somatix, under the circumstances specified in the Merger Agreement, including
by mutual written agreement of Cell Genesys and Somatix and termination by
either party if the Merger is not consummated by August 31, 1997. See "The
Merger Agreement--Termination."

FEES AND EXPENSES

Under certain circumstances, either Cell Genesys or Somatix may be required
to pay a termination fee and to reimburse the other party for its reasonable
out-of-pocket expenses if the Merger Agreement is terminated. See "The Merger
Agreement--Termination Fees and Expenses."

STOCK OPTION AGREEMENTS

Concurrent with the execution of the Merger Agreement and as an inducement to
the other party to enter into the Merger Agreement, Cell Genesys and Somatix
entered into stock option agreements, each dated as of January 12, 1997,
pursuant to which (i) Somatix granted to Cell Genesys an option to purchase up
to 5,441,480 newly issued shares of Somatix Common Stock, representing
approximately 19.9 percent of the shares of the Somatix Common Stock issued and
outstanding on the date of grant, at a purchase price of $3.51 per share (the
"Somatix Stock Option Agreement") and (ii) Cell Genesys granted to Somatix an
option to purchase up to 3,286,703 newly issued shares of Cell Genesys Common
Stock, representing approximately 19.9 percent of the shares of the Cell
Genesys Common Stock issued and outstanding on the date of grant, at a purchase
price of $9.12 per share (the "Cell Genesys Stock Option Agreement" and,
together with the Somatix Stock Option Agreement, the "Stock Option
Agreements").

ACCOUNTING TREATMENT

The Merger is expected to be accounted for as a purchase and substantially
all of the purchase price is expected to be allocated to in-process acquired
technology and charged to expense in the quarter ending June 30, 1997.

INTERESTS OF CERTAIN PERSONS IN THE MERGER

In considering the recommendations of the Cell Genesys and Somatix boards of
directors with respect to the Merger Agreement and the transactions
contemplated thereby, holders of Cell Genesys Common Stock and Somatix Capital
Stock, respectively, should be aware that certain members of Somatix'
management and of the Cell Genesys and Somatix boards of directors have
interests in the Merger that are in addition to the interests of Cell Genesys'
and Somatix' stockholders in general. See "The Merger--Interests of Certain
Persons in the Merger."

9
<PAGE>

EXCHANGE OF SHARE CERTIFICATES

If the Merger becomes effective, Cell Genesys will mail a letter of
transmittal with instructions to all holders of record of Somatix Capital Stock
as of the Effective Time for use in surrendering their stock certificates in
exchange for certificates representing Cell Genesys Common Stock and a cash
payment in lieu of fractional shares. CERTIFICATES SHOULD NOT BE SURRENDERED
UNTIL THE LETTER OF TRANSMITTAL IS RECEIVED. See "The Merger--Exchange of
Shares."

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

The Merger is expected to qualify as a tax-free reorganization under Section
368 of the Internal Revenue Code of 1986, as amended (the "Code"). Accordingly,
holders of Somatix Capital Stock will not recognize gain or loss for federal
income tax purposes by reason of the conversion of Somatix Capital Stock into
Cell Genesys Common Stock, except for cash received in lieu of fractional
shares. It is a condition to Cell Genesys' and Somatix' obligations to
consummate the Merger that they shall each have received opinions from their
respective tax counsel, which opinions shall not have been withdrawn or
modified in any material respect, to the effect that the Merger will qualify as
a tax-free reorganization under Section 368 of the Code and that each of Cell
Genesys, Merger Sub and Somatix will be a party to the reorganization within
the meaning of Section 368(b) of the Code. The Merger will not have any tax
consequences to Cell Genesys stockholders. See "The Merger--Certain Federal
Income Tax Consequences."

OPERATIONS FOLLOWING THE MERGER

Following the Merger, Cell Genesys plans to integrate promptly the
operations, facilities and personnel of Cell Genesys and Somatix. The general
result will be to combine research, development and administration
organizations with a reduced headcount and overhead structure. The headquarters
and business operations of the Combined Company will be located in Cell
Genesys' current facilities in Foster City, California. In connection with the
Merger, the Combined Company is expected to incur a charge in the quarter
ending June 30, 1997, currently estimated to be in the range of $100 million to
$105 million, to reflect the combination of the two companies, including the
write-off of in-process acquired technology, the elimination of redundant
facilities, severance costs relating to employee terminations, the write-off of
certain intangibles and property and equipment, and transaction costs. Of the
total charge, approximately $90 million is expected to be noncash. See "The
Combined Company."

10
<PAGE>

MARKETS AND MARKET PRICES

The Cell Genesys Common Stock is traded in the over-the-counter market and is
quoted on The Nasdaq National Market under the symbol "CEGE." The following
table sets forth, for the periods indicated, the high and low closing bid
prices per share of Cell Genesys Common Stock as quoted on The Nasdaq National
Market. Cell Genesys did not pay any cash dividends with respect to the Cell
Genesys Common Stock during any of the periods indicated below.

<TABLE>
<CAPTION>
HIGH LOW
------ -----
<S> <C> <C>
Calendar Year 1995
First Quarter................................................ $ 7.88 $5.25
Second Quarter............................................... $ 5.63 $3.81
Third Quarter................................................ $ 7.13 $5.00
Fourth Quarter............................................... $10.00 $5.88
Calendar Year 1996
First Quarter................................................ $11.63 $7.38
Second Quarter............................................... $10.00 $7.38
Third Quarter................................................ $ 8.00 $6.25
Fourth Quarter............................................... $ 9.25 $6.25
Calendar Year 1997
First Quarter................................................ $ 9.44 $6.13
Second Quarter (through April 28, 1997)...................... $ 6.25 $4.63
</TABLE>

The Somatix Common Stock is traded in the over-the-counter market and is
quoted on The Nasdaq National Market under the symbol "SOMA." The following
table sets forth, for the periods indicated, the high and low closing bid
prices per share of Somatix Common Stock as quoted on The Nasdaq National
Market. Somatix did not pay any cash dividends with respect to the Somatix
Common Stock during any of the periods indicated below.

<TABLE>
<CAPTION>
HIGH LOW
----- -----
<S> <C> <C>
Calendar Year 1995
First Quarter................................................. $4.91 $3.00
Second Quarter................................................ $4.63 $3.00
Third Quarter................................................. $7.38 $4.00
Fourth Quarter................................................ $6.38 $3.75
Calendar Year 1996
First Quarter................................................. $7.13 $5.63
Second Quarter................................................ $9.31 $6.38
Third Quarter................................................. $7.00 $4.19
Fourth Quarter................................................ $4.31 $3.13
Calendar Year 1997
First Quarter................................................. $3.81 $2.00
Second Quarter (through April 28, 1997)....................... $2.13 $1.44
</TABLE>

The following table sets forth the closing bid prices per share of Cell
Genesys Common Stock and Somatix Common Stock on The Nasdaq National Market on
January 10, 1997, the last full trading day prior to the public announcement of
the execution of the Merger Agreement, and on April 28, 1997, the latest
practicable trading day prior to the printing of this Joint Proxy
Statement/Prospectus. The following table also sets forth the equivalent market
value of Somatix Common Stock based on the Common Exchange Ratio as of January
10, 1997 and April 28, 1997.

<TABLE>
<CAPTION>
CELL
GENESYS SOMATIX
COMMON COMMON SOMATIX
DATE STOCK STOCK EQUIVALENT
---- ------- ------- ----------
<S> <C> <C> <C>
January 10, 1997.................................. $9.125 $3.813 $3.513
April 28, 1997.................................... $4.625 $1.500 $1.781
</TABLE>

11
<PAGE>

SELECTED HISTORICAL AND PRO FORMA FINANCIAL INFORMATION

The following selected historical consolidated financial information of Cell
Genesys and Somatix has been derived from their respective historical
consolidated financial statements, and should be read in conjunction with such
consolidated financial statements and the notes thereto, which are incorporated
by reference in this Joint Proxy Statement/Prospectus. See "Incorporation of
Certain Documents by Reference." Selected historical consolidated financial
information of Cell Genesys is presented as of and for the fiscal years ended
December 31, 1992, 1993, 1994, 1995 and 1996. Selected historical consolidated
financial information of Somatix is presented as of and for the fiscal years
ended June 30, 1992, 1993, 1994, 1995 and 1996, and as of and for the six-month
period ended December 31, 1996.

The following selected pro forma financial information of Cell Genesys and
Somatix has been derived from the pro forma condensed combined financial
statements, which give effect to the Merger as a purchase, and should be read
in conjunction with such pro forma statements and the notes thereto, which are
included in this Joint Proxy Statement/Prospectus. See "Unaudited Pro Forma
Condensed Combined Financial Statements." For pro forma purposes, (i) Cell
Genesys' consolidated balance sheet as of December 31, 1996 has been combined
with Somatix' consolidated balance sheet as of December 31, 1996, giving effect
to the Merger and the Cross-License and Settlement (as defined below) as if
each had occurred on December 31, 1996, and (ii) Cell Genesys' consolidated
statements of operations for the fiscal year ended December 31, 1996 have been
combined with Somatix' unaudited consolidated statements of operations for the
12-month period ended December 31, 1996, giving effect to the Merger and the
Cross-License and Settlement as if each had occurred on January 1, 1996. The
pro forma information is presented for illustrative purposes only and is not
necessarily indicative of the operating results or financial position that
would have occurred if the Merger or the Cross-License and Settlement had been
consummated on January 1, 1996 or December 31, 1996, respectively, nor is it
necessarily indicative of future operating results or financial position.

12
<PAGE>

SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
CELL GENESYS 1992 1993 1994 1995 1996
------------ ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Historical Consolidated Statements
of Operations Data:
Revenue.......................... $5,801 $ 6,916 $ 9,416 $13,822 $22,505
Operating expenses............... 10,434 17,036 26,856 31,549 35,056
Operating loss................... (4,633) (10,120) (17,440) (17,727) (12,551)
Net loss......................... (4,321) (8,616) (14,544) (14,988) (9,274)
Net loss per share............... (2.38) (0.80) (1.07) (1.07) (0.57)
Shares used in computing net loss
per share....................... 1,814 10,830 13,630 14,025 16,373
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------
1992 1993 1994 1995 1996
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Historical Consolidated
Balance Sheet Data:
Cash, cash equivalents and
short-term investments....... $15,495 $ 85,700 $ 70,772 $ 81,929 $ 85,584
Working capital.............. 14,438 82,956 67,923 76,098 64,137
Total assets................. 18,628 91,599 82,162 94,120 99,809
Long-term obligations........ 878 1,648 5,126 7,720 6,133
Accumulated deficit.......... (8,730) (17,346) (32,405) (46,459) (56,270)
Stockholders' equity......... 16,353 86,385 72,329 79,393 71,064
Book value per share......... 15.83 6.43 5.27 4.97 4.30
</TABLE>

<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
-------------------------------------------
SIX MONTHS
ENDED
DECEMBER 31,
SOMATIX 1992 1993 1994 1995 1996 1996
------- ------- ------- ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Historical Consolidated
Statements of
Operations Data:
Revenue................ $ 69 $ -- $ 2,900 $ 250 $ -- $ --
Operating expenses..... 44,085 16,635 17,081 39,525 21,544 11,402
Operating loss......... (44,016) (16,635) (14,181) (39,275) (21,544) (11,402)
Net loss............... (43,223) (15,671) (13,707) (39,053) (20,688) (10,887)
Net loss per share..... (4.43) (1.19) (0.95) (2.34) (0.90) (0.45)
Shares used in
computing net loss per
share................. 9,752 13,191 14,418 16,661 22,971 24,403
</TABLE>

<TABLE>
<CAPTION>
AS OF JUNE 30,
---------------------------------------------------
AS OF
DECEMBER 31,
1992 1993 1994 1995 1996 1996
-------- -------- --------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Historical Consolidated
Balance Sheet Data:
Cash, cash equivalents
and
short-term
investments........... $ 22,096 $ 11,696 $ 19,973 $ 14,576 $ 14,441 $ 9,691
Working capital........ 20,622 10,722 18,613 9,905 10,463 5,475
Total assets........... 38,755 23,524 25,747 19,128 19,370 13,518
Long-term obligations.. 330 176 1,627 1,692 1,217 992
Accumulated deficit.... (81,042) (96,713) (110,420) (149,473) (170,161) (181,049)
Stockholders' equity... 36,510 21,552 21,846 10,489 12,203 6,600
Book value per share... 2.78 1.62 1.39 0.50 0.50 0.27
</TABLE>

13
<PAGE>

SELECTED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
-------------------------------------------
PRO FORMA
COMBINED
CELL PRO FORMA REFLECTING
GENESYS SOMATIX ADJUSTMENTS MERGER
-------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenue.......................... $ 22,505 $ -- $ -- $ 22,505
Operating expenses............... 35,056 22,845 -- 57,901
Operating loss................... (12,551) (22,845) -- (35,396)
Net loss......................... (9,274) (21,895) (1,050) (32,219)
Net loss per share............... (0.57) (0.91) (1.20)
Shares used in computing net loss
per share....................... 16,373 23,374 26,940
<CAPTION>
AS OF DECEMBER 31, 1996
-------------------------------------------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and short-
term investments................ $ 85,584 $ 9,691 $ -- $ 95,275
Working capital.................. 64,137 5,475 (4,611) 65,001
Total assets..................... 99,809 13,518 500 113,827
Long-term obligations............ 6,133 1,704 15,000 22,837
Accumulated deficit.............. (56,270) (181,049) 71,110 (166,209)
Stockholders' equity............. 71,064 6,600 (19,111) 58,553
</TABLE>

14
<PAGE>

COMPARATIVE PER SHARE DATA

The following table sets forth certain historical per share data of Cell
Genesys and Somatix and combined per share data on an unaudited pro forma basis
after giving effect to the Merger as a purchase, assuming that 0.3850 shares of
Cell Genesys Common Stock are issued in exchange for each share of Somatix
Common Stock in the Merger, and after giving effect to the Cross-License and
Settlement. The historical per share data of Cell Genesys and Somatix presented
below is presented as of and for the fiscal year ended December 31, 1996 and
the fiscal year ended June 30, 1996, respectively. The pro forma per share data
presented below combines Cell Genesys' per share data as of and for the fiscal
year ended December 31, 1996 with Somatix' unaudited per share data as of and
for the 12-month period ended December 31, 1996. This data should be read in
conjunction with the selected historical financial information, the unaudited
condensed pro forma combined financial statements and the separate historical
financial statements of Cell Genesys and Somatix and the notes thereto
incorporated or included elsewhere in this Joint Proxy Statement/Prospectus.
The unaudited condensed pro forma combined financial data are not necessarily
indicative of the operating results or financial position that would have been
achieved had the Merger or the Cross-License and Settlement been consummated at
the beginning of the periods presented and should not be construed as
representative of future operating results.

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Historical--Cell Genesys:
Net loss per share............................................ $(0.57)
Book value per share.......................................... 4.30
Cash dividends per share...................................... --
<CAPTION>
YEAR ENDED
JUNE 30,
1996
------------
<S> <C>
Historical--Somatix:
Net loss per share............................................ $(0.90)
Book value per share.......................................... 0.50
Cash dividends per share...................................... --
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Pro Forma Combined:
Pro forma combined net loss per share......................... $(1.20)
Pro forma combined book value per share....................... 2.17
<CAPTION>
YEAR ENDED
DECEMBER 31,
1996
------------
<S> <C>
Equivalent Pro Forma Combined--per Somatix share:
Pro forma combined net loss per share......................... $(0.46)
Pro forma combined book value per share....................... 0.83
</TABLE>

15
<PAGE>

RISK FACTORS

Holders of Somatix Capital Stock, in evaluating whether to approve the
Merger Agreement and the Merger and thereby become holders of Cell Genesys
Common Stock, and holders of Cell Genesys Common Stock, in evaluating whether
to approve the Merger Agreement and the Merger, and the issuance of Cell
Genesys Common Stock pursuant to the Merger, should carefully consider the
following risk factors, in addition to the other information included and
incorporated by reference in this Joint Proxy Statement/Prospectus. Other than
statements of historical fact, statements contained in this Joint Proxy
Statement/Prospectus, including statements as to the benefits expected to be
realized as a result of the Merger and as to future financial performance
constitute forward-looking statements. The Combined Company's actual results
may differ significantly from the results discussed in the forward-looking
statements contained in this Joint Proxy Statement/Prospectus. Factors that
might cause such a difference include, but are not limited to, those discussed
below. Holders of Somatix Capital Stock and Cell Genesys Common Stock are
cautioned not to place undue reliance on the forward-looking statements
contained in this Joint Proxy Statement/Prospectus, which speak only as of the
date hereof. Neither Cell Genesys nor Somatix undertakes any obligation to
publicly release the results of any revisions to such forward-looking
statements which may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.

RISKS RELATING TO THE MERGER

Integration of Operations. The integration of operations following the
Merger will require the dedication of management resources which will detract
from attention to the day-to-day business of the Combined Company. The
difficulties of integration may be increased by the necessity of coordinating
geographically separated organizations, integrating personnel with disparate
business backgrounds and combining two different corporate cultures. Following
the Merger, the Combined Company is expected to seek to reduce expenses by
eliminating duplicative or unnecessary facilities, employees, research and
development programs and other expenses, and by focusing its resources in
those research and development programs which have the greatest scientific
merit and highest probability of attracting a corporate partner. There can be
no assurance that the Combined Company will be able to reduce expenses in this
fashion, that there will not be high costs associated with such activities,
that management will focus the Combined Company's resources on research and
development programs with the actual greatest probability of success or that
there will not be other material adverse effects of such activities. Such
effects could materially increase the losses of the Combined Company. In
addition, there can be no assurance that integration of the product
development programs of the two companies will not have material adverse
effects on results of operations. In connection with the Merger, the Combined
Company is expected to incur a charge in the quarter ending June 30, 1997,
currently estimated to be in the range of $100 million to $105 million, to
reflect the combination of the two companies, including the primarily noncash
charge for in-process acquired technology, the elimination of redundant
facilities, severance costs relating to employee terminations, the write-off
of certain intangibles and property and equipment, and transaction costs. This
amount is a preliminary estimate only and is therefore subject to change. In
addition, there can be no assurance that the Combined Company will not incur
additional charges in subsequent quarters to reflect costs associated with the
Merger.

Management of Growth. The Combined Company's success will depend in part on
its ability to manage the growth of its operations. Any such growth is
expected to place a significant strain on the Combined Company's managerial,
operational and financial resources. The Combined Company's ability to manage
growth effectively will require it to continue to implement and improve its
operational and financial systems and to expand, train and manage its employee
base. These demands are expected to require the addition of new management
personnel and the development of additional expertise by existing management
personnel. There can be no assurance that the Combined Company will be able to
manage effectively the expansion of its operations, that its systems,
procedures or controls will be adequate to support the Combined Company's
operations or that the Combined Company's management will be able to exploit
opportunities for its products or proprietary technology. In addition, the
Combined Company will need to successfully structure and manage any additional
collaborative relationships into which it may enter. There can be no assurance
that the Combined Company will be successful in adding technical personnel as
needed to meet the staffing requirements of any

16
<PAGE>

additional collaborative relationships. An inability to manage growth, if any,
could have a material adverse effect on the Combined Company's business,
results of operations, financial condition and cash flow.

Additional Shares to Be Issued by Cell Genesys; Shares Eligible for Future
Sale. As a result of the Merger, it is anticipated that Cell Genesys will
issue approximately 11,000,000 shares of Cell Genesys Common Stock, and
approximately 2,165,000 shares of Cell Genesys Common Stock will be issuable
upon the exercise of options and warrants to purchase Somatix Common Stock
assumed pursuant to the Merger. In general, these shares will be freely
tradable following the Merger, subject to certain resale restrictions for
affiliates of Somatix or Cell Genesys pursuant to Rules 144 and/or 145 under
the Securities Act. See "The Merger--Certain Federal Securities Law
Consequences." An aggregate of approximately 3,700,000 of the shares issued in
the Merger will be beneficially owned by affiliates of Somatix and, therefore,
subject to resale restrictions. At the time of the Merger substantially all
shares of existing Cell Genesys Common Stock will be eligible for sale in the
public market subject in certain cases to volume and other limitations.
Approximately 4,000,000 additional shares have been registered for sale under
Cell Genesys' stock option and stock purchase plans. The sale of a significant
number of the foregoing shares may cause substantial fluctuations in the price
of Cell Genesys Common Stock over short time periods.

Fixed Common and Series A Exchange Ratios. The number of shares of Cell
Genesys Common Stock into which each share of Somatix Common Stock and Somatix
Series A Preferred Stock is to be converted in the Merger is fixed. The market
value of Cell Genesys Common Stock and/or Somatix Common Stock at the
Effective Time may vary significantly from the price as of the date of
execution of the Merger Agreement, the date hereof or the date on which
stockholders vote on the Merger due to, among other factors, market perception
of the benefits expected to be achieved by the Merger, changes in the
business, operations or prospects of Cell Genesys or Somatix, market
assessments of the likelihood that the Merger will be consummated and the
timing thereof, and general market and economic conditions. Because the Common
Exchange Ratio and Series A Exchange Ratio (as defined below) will not be
adjusted to reflect changes in the market value of Cell Genesys Common Stock
or Somatix Common Stock, the market value of the Cell Genesys Common Stock
issued in the Merger, and the value of the Somatix Common Stock and Somatix
Series A Preferred Stock surrendered in the Merger, may be higher or lower
than the value of such shares at the time the Merger was negotiated or
approved by stockholders.

Floating Series B Exchange Ratio. The number of shares of Cell Genesys
Common Stock into which each share of Somatix Series B Preferred Stock is to
be converted in the Merger is not fixed. Each share of Somatix Series B
Preferred Stock will be converted into the right to receive a number of shares
of Cell Genesys Common Stock equal to the quotient of $150.00 divided by the
average of the daily closing prices of the Cell Genesys Common Stock over the
30-day period ending three days prior to the Effective Time. Since the value,
rather than the number, of shares of Cell Genesys Common Stock to be issued to
holders of Somatix Series B Preferred Stock in the Merger is fixed, the number
of shares of Cell Genesys Common Stock to be issued in the Merger could vary
significantly from the number of such shares that would have been issued if
the Merger had been consummated as of the date of execution of the original
Merger Agreement, the date hereof or the date on which stockholders vote on
the Merger.

Need for Substantial Additional Funds. The Combined Company will require
substantial funds to continue Cell Genesys' and Somatix' existing and planned
preclinical and clinical trials and their respective research and development
activities, and to establish manufacturing and marketing capabilities for any
products it may develop. Cell Genesys and Somatix expect that the combination
of their existing capital resources, together with payments to be received
under existing collaborative agreements and amounts available under existing
equipment financing facilities, will enable the Combined Company to maintain
the companies' respective operations at least through the end of 1998. Beyond
such time, the Combined Company will need to raise substantial additional
capital to fund its operations. See "The Combined Company."

The Combined Company's future capital requirements will depend on, and could
increase as a result of, many factors, including the continuation of the
collaboration with Hoechst Marion Roussel, continued scientific progress in
its research and development programs, the magnitude of such programs, the
progress of preclinical and clinical

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testing, the time and costs involved in obtaining regulatory approvals, the
costs involved in preparing, filing, prosecuting, maintaining, enforcing and
defending patent claims, competing technological and market developments,
changes in collaborative relationships, the terms of any additional
collaborative arrangements into which the Combined Company may enter, the
Combined Company's ability to establish research, development and
commercialization arrangements pertaining to products other than those covered
by existing collaborative arrangements, the cost of establishing manufacturing
facilities, the cost of commercialization activities, and the demand for the
Combined Company's products if and when approved.

Cell Genesys and Somatix expect that the Combined Company will raise
additional funds through additional equity or debt financings, collaborative
relationships, or otherwise. Because of these long-term capital requirements,
the Combined Company may seek to access the public or private equity markets
whenever conditions are favorable, even if it does not have an immediate need
for additional capital at that time. There can be no assurance that any such
additional funding will be available to the Combined Company, or, if
available, that it will be on acceptable terms. If additional funds are raised
by issuing equity securities, further dilution to stockholders may result. If
adequate funds are not available, the Combined Company may be required to
delay, reduce the scope of, or eliminate one or more of its research,
development and clinical activities or to seek to obtain funds through
arrangements with collaborative partners or others that may require the
Combined Company to relinquish rights to certain of its technologies, product
candidates or products that the Combined Company would otherwise seek to
develop or commercialize itself, any of which could have a material adverse
effect on the Combined Company. See "The Combined Company."

RISKS RELATING TO SOMATIX, CELL GENESYS AND THE COMBINED COMPANY

Early Stage of Development; No Developed or Approved Products. Cell Genesys'
and Somatix' potential gene therapy products are in research and development.
No revenues have been generated from the sale of any of such products, nor are
any such revenues expected for at least the next several years. The products
currently under development by Cell Genesys and Somatix will require
significant additional research and development efforts, including extensive
preclinical and clinical testing and regulatory approval, prior to commercial
use. There can be no assurance that Cell Genesys', Somatix' or the Combined
Company's research and development efforts will be successful or that any
commercially successful products will ultimately be developed by Cell Genesys,
Somatix or the Combined Company. Even if developed, these products may not
receive regulatory approval or be successfully introduced and marketed at
prices that would permit Cell Genesys, Somatix or the Combined Company to
operate profitably.

Technological Uncertainty. Gene therapy is a new technology, and existing
preclinical and clinical data on the safety and efficacy of gene therapy are
very limited. Data relating to Cell Genesys' and Somatix' specific gene
therapy approaches are even more limited. Somatix' GVAX(TM) cancer vaccine
product and Cell Genesys' AIDS gene therapy are currently being tested in
Phase I/II and Phase II human clinical trials to determine their safety and
efficacy, although it is anticipated that certain ongoing GVAX(TM) clinical
trials will be phased out by the Combined Company. Somatix has completed a
Phase I human clinical trial to determine the safety of stem cell gene therapy
for chronic granulomatous disease, although the Combined Company is also
expected to phase out this trial. None of the other products or therapies
under development at Somatix or Cell Genesys are in human clinical trials. The
results of preclinical studies do not predict safety or efficacy in humans.
Possible side effects of gene therapy may be serious and life-threatening.
There can be no assurance that unacceptable side effects will not be
discovered during preclinical and clinical testing of Cell Genesys', Somatix'
or the Combined Company's potential products or thereafter. There are many
reasons that potential products that appear promising at an early stage of
research or development do not result in commercialization. Although Cell
Genesys and Somatix are each testing proposed products or therapies in human
clinical trials, there can be no assurance that Cell Genesys or Somatix will
be permitted to undertake human clinical trials for any of its other products
or that the results of such testing will demonstrate safety or efficacy. Even
if clinical trials are successful, there is no assurance that Cell Genesys,
Somatix or the Combined Company will obtain regulatory approval for any
indication, or that an approved product can be produced in commercial
quantities at reasonable cost, or be successfully marketed. Cell Genesys and
Somatix have

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also recently begun development of in vivo approaches to gene therapy that
will target specific cells. There can be no assurance that the desired
specificity will be attained or that such products will not have serious side
effects. See the "Combined Company."

Patents and Trade Secrets. The patent positions of pharmaceutical and
biotechnology firms, including Cell Genesys and Somatix, are generally
uncertain and involve complex legal and factual questions. While Cell Genesys
and Somatix are each prosecuting patent applications, neither knows whether
any given application will result in the issuance of a patent or, if any
patent is issued, whether it will provide significant proprietary protection
or will be invalidated. Because patent applications in the United States are
confidential until patents are issued and publication of discoveries in the
scientific or patent literature tends to lag behind actual discoveries by
several months, neither Cell Genesys nor Somatix can be certain that it was
the first creator of inventions covered by pending patent applications or that
it was the first to file patent applications for such inventions.

The commercial success of the Combined Company will also depend in part on
not infringing the patents or proprietary rights of others and not breaching
licenses granted to Cell Genesys, Somatix or the Combined Company. The
Combined Company may be required to obtain licenses to third party technology
necessary to conduct its business. Any failure by the Combined Company to
license at reasonable cost any technology required to commercialize its
technologies or products may have an adverse impact on the Combined Company.

Litigation, which could result in substantial cost to the Combined Company,
may also be necessary to enforce any patents issued to Cell Genesys, Somatix
or the Combined Company, as the case may be, or to determine the scope and
validity of other parties' proprietary rights. To determine the priority of
inventions, interference proceedings are frequently declared by the United
States Patent Office that could result in substantial costs to the Combined
Company and may result in an adverse decision as to the priority of Cell
Genesys', Somatix' or the Combined Company's inventions. Cell Genesys and
Somatix are each currently involved in separate interference proceedings and
the Combined Company may be involved in others in the future. Cell Genesys and
Somatix believe that there will continue to be significant litigation in the
industry regarding patent and other intellectual property rights. See "--Legal
Proceedings."

Cell Genesys and Somatix also rely on unpatented trade secrets and
improvements, unpatented know-how and continuing technological innovation to
develop and maintain their competitive positions. No assurance can be given
that others will not independently develop substantially equivalent
proprietary information and techniques, or otherwise gain access to the
Combined Company's trade secrets or disclose such technology, or that the
Combined Company can meaningfully protect its rights to its unpatented trade
secrets.

Cell Genesys and Somatix each require their respective employees and
consultants to execute a confidentiality agreement upon the commencement of an
employment or consulting relationship with it. These agreements provide that
all confidential information developed by or made known to an individual
during the course of the employment or consulting relationship generally must
be kept confidential. In the case of employees, the agreements provide that
all inventions conceived by the individual while employed by Cell Genesys or
Somatix, as the case may be, relating to its business are the exclusive
property of Cell Genesys or Somatix, respectively. These agreements may not
provide meaningful protection for the Combined Company's trade secrets in the
event of unauthorized use or disclosure of such information.

Legal Proceedings. One of Somatix' competitors has been granted an exclusive
license to a United States patent recently issued to the National Institutes
of Health, covering ex vivo gene therapy. The United States Patent and
Trademark office recently declared an interference between the competitor's
patent, a patent application exclusively licensed to Somatix, and a patent
application of a third party. Somatix has been accorded Senior Party status,
because the application licensed to Somatix has a priority date earlier than
that of either the patent issued to the National Institutes of Health or the
patent application of the third party. The interference proceeding is in its
early stages. It is expected that, unless settled, the proceeding may last
several years. Somatix has settled a parallel action with Transkaryotic
Therapeutics, Inc. through a technology cross-license. While Somatix believes
that it has a strong position, nothing can be predicted about the outcome of
the proceeding, and an adverse result would have a material adverse effect on
Somatix' intellectual property position and its business.

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Competition. Competition in the field of gene therapy from other
biotechnology and pharmaceutical companies and from research and academic
institutions is intense and expected to increase. There are numerous
competitors working on products to treat each of the diseases for which Cell
Genesys and Somatix are seeking to develop therapeutic products. Some
competitors are pursuing a product development strategy competitive with Cell
Genesys' and/or Somatix', particularly with respect to Cell Genesys' human
monoclonal antibody program. Certain of these competitive products are in
substantially more advanced stages of product development and clinical trials.
The Combined Company's competitors may develop technologies and products that
are more effective than those being developed by Cell Genesys, Somatix or the
Combined Company or that would render the Combined Company's technology and
products less competitive or obsolete. Many of these competitors have
substantially greater financial resources and larger research and development
staffs than Cell Genesys or Somatix have, or the Combined Company will have.
In addition, many of these competitors may have significantly greater
experience than Cell Genesys and Somatix in developing products, in
undertaking preclinical testing and human clinical trials of new
pharmaceutical products, in obtaining United States Food and Drug
Administration (the "FDA") and other regulatory approvals of products, and in
manufacturing and marketing such products. Accordingly, Cell Genesys'
competitors may succeed in obtaining patent protection, receiving FDA approval
or commercializing products more rapidly than Cell Genesys, Somatix or the
Combined Company. There can be no assurance that the Combined Company will be
able to obtain certain biological materials necessary to support its research,
development or manufacturing of any of Cell Genesys', Somatix' or the Combined
Company's planned therapies. If the Combined Company is permitted to commence
commercial sales of products, it will also be competing with respect to
marketing capabilities and manufacturing efficiency, areas in which it has
limited or no experience. It is anticipated that the Combined Company will
build additional clinical scale and commercial scale manufacturing facilities
to the extent that contract facilities are not available in order to
commercialize its products. It is also anticipated that the Combined Company
will secure funding for these and other product development activities through
its partners and future potential partners. Cell Genesys and Somatix also
compete with universities and other research institutions in the development
of products, technologies and processes. In many instances, Cell Genesys and
Somatix compete with other commercial entities in acquiring products or
technology from universities.

Cell Genesys and Somatix expect that competition among products approved for
sale will be based, among other things, on product efficacy, safety,
reliability, availability, price, patent position, and sales, marketing and
distribution capabilities. Cell Genesys' and Somatix' competitive positions
also depend upon their ability to attract and retain qualified personnel,
obtain patent protection or otherwise develop proprietary products or
processes and secure sufficient capital resources for the often substantial
period between product conception and commercial sales.

Cell Genesys has entered into a collaborative research and development
agreement with the National Institute of Allergy and Infectious Diseases at
the National Institutes of Health to facilitate initial clinical trials of
genetically modified T cells directed against the Human Immunodeficiency Virus
("HIV"), and with the National Cancer Institute related to the development of
one of its cancer gene therapies. In the past such collaborative research and
development agreements have provided that potential products developed under
such agreements must be reasonably priced. Although this provision is no
longer in effect, future government regulations could be established which
could limit the potential profitability of such products.

The levels of revenues and profitability of biotechnology and pharmaceutical
companies such as the Combined Company may be affected by the continuing
efforts of governmental and third-party payors to contain or reduce the costs
of health care through various means. In the United States there have been,
and Cell Genesys and Somatix expect that there will continue to be, a number
of federal and state proposals to control health care costs. Neither Cell
Genesys nor Somatix can predict the effect health care reforms may have on its
business, and no assurance can be given that any such reforms will not have a
material adverse effect on Cell Genesys, Somatix or the Combined Company. In
the United States and elsewhere, sales of therapeutic products are dependent
in part on the availability of reimbursement to the consumer from third party
payors, such as government and private insurance plans. If Cell Genesys,
Somatix or the Combined Company succeeds in bringing one or more products to
the market, there can be no assurance that these products will be considered
cost effective and that reimbursement to the consumer will be available or
will be sufficient to allow Cell Genesys, Somatix or the Combined Company to
sell its products on a competitive basis.

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Operating Loss and Accumulated Deficit. Cell Genesys and Somatix have each
incurred net losses since their inceptions. At December 31, 1996, Cell
Genesys' and Somatix' accumulated deficits were approximately $56.3 million
and $181.0 million, respectively. Such losses have resulted principally from
expenses incurred in their respective research and development programs, the
acquisition of new technology, and to a lesser extent, from general and
administrative expenses. Cell Genesys and Somatix incurred losses of $9.3
million and $20.7 million, respectively, for their fiscal years ended December
31, 1996 and June 30, 1996, respectively, and expect to incur substantial and
increasing losses for at least the next several years due primarily to the
expansion of research and development programs, including preclinical studies,
clinical trials and manufacturing. Cell Genesys and Somatix expect that losses
will fluctuate from quarter to quarter and that such fluctuations may be
substantial. There can be no assurance that the Combined Company will
successfully develop, commercialize, manufacture or market its products or
ever achieve or sustain product revenues or profitability.

Volatility of Stock Price. The market prices for securities of
biopharmaceutical and biotechnology companies (including Cell Genesys and
Somatix) have historically been highly volatile, and the market has from time
to time experienced significant price and volume fluctuations that are
unrelated to the operating performance of particular companies. Factors such
as fluctuations in Cell Genesys' and Somatix' respective operating results,
announcements of technological innovations or new therapeutic products by Cell
Genesys or Somatix or their competitors, governmental regulation, developments
in patent or other proprietary rights, public concern as to the safety of
products developed by Cell Genesys, Somatix, the Combined Company or other
biotechnology and pharmaceutical companies, and general market conditions may
have a significant effect on the market price of the Cell Genesys Common Stock
and the Somatix Common Stock before the Merger, and on the common stock of the
Combined Company after the Merger.

Government Regulation. Regulation by governmental authorities in the United
States and foreign countries is a significant factor in the manufacture and
marketing of Cell Genesys' and Somatix' proposed products and their respective
research and development activities. All of Cell Genesys', Somatix' and the
Combined Company's products will require regulatory approval by governmental
agencies prior to commercialization. In particular, human therapeutic products
must undergo rigorous preclinical and clinical testing and other premarket
approval procedures by the FDA and similar authorities in foreign countries.
Since certain of Cell Genesys' and Somatix' potential products involve the
application of new technologies, regulatory approvals may take longer than for
products produced using more conventional methods. Various federal and, in
some cases, state statutes and regulations also govern or influence the
manufacturing, safety, labeling, storage, record keeping and marketing of such
products. The lengthy process of seeking these approvals, and the subsequent
compliance with applicable federal statutes and regulations, requires the
expenditure of substantial resources. Any failure by Cell Genesys, Somatix or
the Combined Company or their respective collaborators or licensees to obtain,
or any delay in obtaining, regulatory approvals could adversely affect the
marketing of any products developed by Cell Genesys, Somatix or the Combined
Company and their ability to receive product or royalty revenue.

In responding to a new drug application or a product license application,
the FDA may grant marketing approvals, request additional information or
further research, or deny the application if it determines that the
application does not satisfy its regulatory approval criteria. Approvals may
not be granted on a timely basis, if at all, or if granted may not cover all
the clinical indications for which Cell Genesys, Somatix or the Combined
Company is seeking approval or may contain significant limitations in the form
of warnings, precautions or contraindications with respect to conditions of
use.

In addition to laws and regulations enforced by the FDA, Cell Genesys and
Somatix are also, and the Combined Company will also be, subject to regulation
under the Occupational Safety and Health Act, the Environmental Protection
Act, the Toxic Substances Control Act, the Resource Conservation and Recovery
Act and other present and potential future federal, state or local laws and
regulations. Cell Genesys' and Somatix' research and development involves the
controlled use of hazardous materials, chemicals, viruses and various
radioactive compounds. Although Cell Genesys and Somatix believe that their
safety procedures for handling and disposing of such materials comply with the
standards prescribed by state and federal regulations, the risk of

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accidental contamination or injury from these materials cannot be completely
eliminated. In the event of such an accident, Cell Genesys, Somatix or the
Combined Company could be held liable for any damages that result and any such
liability could exceed the resources of Cell Genesys, Somatix or the Combined
Company.

The manufacturing facilities of each of Cell Genesys and Somatix are subject
to licensing requirements of the California Department of Health Services.
While not subject to license by the FDA, such facilities are subject to
inspection by the FDA as well as by the California Department of Health
Services. A separate license from the FDA is required for commercial
manufacture of any product. Failure to maintain such licenses or to meet the
inspection criteria of the FDA and the California Department of Health
Services would result in disruption to the manufacturing processes of the
Combined Company and would have a material adverse effect on the Combined
Company.

For marketing outside the United States, Cell Genesys and Somatix are, and
the Combined Company will be, subject to foreign regulatory requirements
governing human clinical trials and marketing approval for drugs and devices.
The requirements governing the conduct of clinical trials, product licensing,
pricing and reimbursement vary greatly from country to country. Failure to
comply with such regulatory requirements or obtain such approvals could impair
the Combined Company's ability to develop these markets and have an adverse
effect on the Combined Company's prospects.

Commercialization; Lack of Marketing Experience. It is anticipated that the
Combined Company will market and sell some of its potential products directly,
while relying on sales and marketing expertise of potential corporate partners
for other programs. Neither Cell Genesys nor Somatix has, and the Combined
Company will not have, any experience in sales, marketing or distribution of
biopharmaceutical products or has or will have developed a specific sales and
marketing plan with respect to any of their potential products. The decision
to market products directly or through corporate partners will be based on a
number of factors including market size and concentration, the size and
expertise of the partner's sales force in a particular market and the Combined
Company's overall strategic objectives. Cell Genesys and Somatix are each
currently engaged in various stages of discussions with potential partners.
There can be no assurance that Cell Genesys, Somatix or the Combined Company
will be able to establish such relationships, if at all, on acceptable terms
and conditions.

Product Liabilities and Insurance. Clinical trials or marketing of any of
Cell Genesys', Somatix' or the Combined Company's potential products may
expose the Combined Company to liability claims resulting from the use of such
products. These claims might be made directly by consumers, health care
providers or by others selling such products. Cell Genesys and Somatix
currently maintain product liability insurance with respect to their
respective clinical trials. There can be no assurance that the Combined
Company will be able to maintain such insurance or, if maintained, that
sufficient coverage can be acquired at a reasonable cost. An inability to
maintain insurance at acceptable cost or at all could prevent or inhibit the
clinical testing or commercialization of products developed by the Combined
Company. A product liability claim or recall could have a material adverse
effect on the business or financial condition of the Combined Company.

Hazardous Materials; Environmental Matters. Cell Genesys' and Somatix'
research and development activities involve, and the Combined Company's
research and development activities will involve, the controlled use of
hazardous materials, chemicals, viruses and various radioactive compounds.
Cell Genesys and Somatix are, and the Combined Company will be, subject to
federal, state and local laws and regulations governing the use, manufacture,
storage, handling and disposal of such materials and certain waste products.
Although Cell Genesys and Somatix believe that their respective safety
procedures for handling and disposing of such materials comply with the
standards prescribed by such laws and regulations, the risk of accidental
contamination or injury from these materials cannot be completely eliminated.
In the event of such an accident, the Combined Company could be held liable
for any damages that result and any such liability could exceed the resources
of the Combined Company. The Combined Company may be required to incur
significant costs to comply with environmental laws and regulations in the
future. The Combined Company's operations, business or assets may be
materially or adversely affected by current or future environmental laws or
regulations.

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Reimbursement. In both domestic and foreign markets, sales of the Combined
Company's potential products will depend in part upon coverage and
reimbursement from third-party payors, including health care organizations,
government agencies, private health care insurers and other health care payors
such as health maintenance organizations, self-insured employee plans and the
Blue Cross/Blue Shield plans. There is considerable pressure to reduce the
cost of drug products. In particular, reimbursement from government agencies
and insurers and large health organizations may become more restricted in the
future. Cell Genesys', Somatix' and the Combined Company's potential products
represent a new mode of therapy and, while the cost-benefit ratio of the
products may be favorable, Cell Genesys and Somatix expect that the costs
associated with the Combined Company's products will be substantial. There can
be no assurance that the Combined Company's proposed products, if successfully
developed, will be considered cost-effective by third-party payors, that
insurance coverage will be available or, if available, that such third-party
payors' reimbursement policies will not adversely affect the Combined
Company's ability to sell its products on a profitable basis. In addition,
there can be no assurance that insurance coverage will be provided by such
third-party payors at all or without substantial delay or, if such coverage is
provided, that the approved reimbursement will provide sufficient funds to
enable the Combined Company to become profitable.

Uncertainty of Pharmaceutical Pricing and Related Matters. The future
revenues and profitability of and availability of capital for biotechnology
companies may be affected by the continuing efforts of governmental and third-
party payors to contain or reduce the costs of health care through various
means. For example, in certain foreign markets, pricing or profitability of
prescription pharmaceuticals is subject to government control. In the United
States, there have been, and Cell Genesys and Somatix expect that there will
continue to be, a number of federal and state proposals to implement similar
government control. While neither Cell Genesys nor Somatix can predict whether
any such legislative or regulatory proposals will be adopted, the announcement
or adoption of such proposals could have a material adverse effect on the
Combined Company's prospects.

Dependence Upon Key Personnel and Collaborative Relationships. Cell Genesys'
and Somatix' success are, and the Combined Company's success will be, highly
dependent on the retention of principal members of management and scientific
staff and the recruitment of additional qualified personnel. The loss of key
personnel or the failure to recruit necessary additional qualified personnel
could have an adverse effect on the operations of the Combined Company. There
is intense competition from other companies, research and academic
institutions and other organizations for qualified personnel in the areas of
Cell Genesys' and Somatix' activities. There is no assurance that the Combined
Company will be able to continue to attract and retain the qualified personnel
necessary for the development of its business. These activities are expected
to require the addition of new personnel with expertise in the areas of
clinical testing, manufacturing, marketing and distribution and the
development of additional expertise by existing personnel. The failure to
acquire such personnel or develop such expertise could adversely affect
prospects for the Combined Company's success.

Cell Genesys has clinical trial arrangements with the National Institutes of
Allergy and Infectious Diseases covering the initial proof-of-principle study
for AIDS gene therapy being conducted in identical twin pairs now in Phase II
testing. Cell Genesys also has clinical trial arrangements with the University
of California, San Francisco and San Francisco General Hospital, the
University of Colorado Health Sciences Center, Massachusetts General Hospital
and the University of California, Los Angeles covering Cell Genesys' patient-
specific configuration of its AIDS gene therapy also now in Phase II testing.
If these relationships were terminated, progress of clinical testing would be
adversely affected.

Somatix has had clinical trial arrangements with The Johns Hopkins
University covering a Phase I clinical trial to treat kidney cancer patients,
completed as of May 1995, and a Phase I/II clinical trial to treat prostate
cancer patients which is ongoing. Somatix has additional arrangements with the
Netherlands Cancer Institute and the Dana Farber Cancer Institute to treat
melanoma patients in two separate Phase I/II clinical trials. Both trials are
currently in progress. In the event that any of these relationships are
terminated, the completion and evaluation of clinical trials could be
adversely affected. Somatix has also completed a Phase I clinical trial in
chronic granulomatous disease in collaboration with the National Institutes of
Health. In addition, Somatix has

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an arrangement with the Parkinson's Institute of Santa Clara, California to
provide animal facilities, animals and consulting services in connection with
preclinical testing of Somatix' gene therapy product for Parkinson's disease.
If these relationships were terminated, progress of preclinical testing would
be adversely affected.

Somatix depends, and the Combined Company will depend, in part, on the
continued availability of outside scientific collaborators performing
research, which may be funded by Somatix or the Combined Company, in certain
areas relevant to Somatix' research. These relationships generally may be
terminated at any time by the collaborator, typically by giving 30 days'
notice to Somatix. Somatix' scientific collaborators are not employees of
Somatix. As a result, Somatix has limited control over their activities and
can expect that only limited amounts of their time will be dedicated to
Somatix' activities. Somatix' agreements with these collaborators, as well as
those with Somatix' scientific consultants provide that any rights Somatix
obtains as a result of the research efforts of these individuals will be
subject to the rights of the research institutions in such work. In addition,
some of these collaborators have consulting or other advisory arrangements
with other entities that may conflict with their obligations to Somatix. For
these reasons, there can be no assurance that inventions or processes
discovered by Somatix' scientific collaborators or consultants will become the
property of Somatix or the Combined Company.

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THE MEETINGS

THE CELL GENESYS ANNUAL MEETING

General. This Joint Proxy Statement/Prospectus is being furnished to
stockholders of Cell Genesys in connection with the solicitation of proxies by
the board of directors of Cell Genesys for use at the Cell Genesys Annual
Meeting to be held at the Holiday Inn, 1221 Chess Drive, Foster City,
California 94404, on Friday, May 30, 1997, at 9:00 a.m., local time, and at
any adjournments or postponements thereof, for the purposes set forth herein
and in the accompanying notice of annual meeting of stockholders of Cell
Genesys.

Matters to Be Considered. At the Cell Genesys Annual Meeting, stockholders
of record of Cell Genesys as of the close of business on the Cell Genesys
Record Date will be asked to consider and vote upon proposals (i) to approve
and adopt the Merger Agreement and to approve the Merger and the issuance of
Cell Genesys Common Stock pursuant thereto; (ii) to approve and adopt the Cell
Genesys Amendment; (iii) to approve the Special Option Grant; (iv) to elect
directors to serve until the next annual meeting of stockholders or until
their successors are elected; (v) to approve the Incentive Plan Amendment; and
(vi) to ratify the appointment of Ernst & Young LLP as independent auditors of
Cell Genesys for the fiscal year ending December 31, 1997; and to transact
such other business as may properly come before the Cell Genesys Annual
Meeting or any adjournments or postponements thereof.

Board of Directors' Recommendations. THE BOARD OF DIRECTORS OF CELL GENESYS
HAS DETERMINED THAT EACH OF THE MERGER AND THE CELL GENESYS AMENDMENT IS FAIR
AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF CELL GENESYS AND HAS
THEREFORE UNANIMOUSLY APPROVED AND ADOPTED THE MERGER AGREEMENT AND APPROVED
THE MERGER AND THE CELL GENESYS AMENDMENT, AND UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS OF CELL GENESYS VOTE FOR (I) THE APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT AND APPROVAL OF THE MERGER AND THE ISSUANCE OF CELL GENESYS
COMMON STOCK PURSUANT THERETO AND (II) THE APPROVAL OF THE CELL GENESYS
AMENDMENT. THE BOARD OF DIRECTORS OF CELL GENESYS HAS ALSO UNANIMOUSLY
APPROVED AND RECOMMENDS THAT THE STOCKHOLDERS OF CELL GENESYS VOTE FOR (I) THE
APPROVAL OF THE SPECIAL OPTION GRANT, (II) THE ELECTION OF THE CELL GENESYS
DIRECTOR NOMINEES SPECIFIED HEREIN, (III) THE APPROVAL OF THE INCENTIVE PLAN
AMENDMENT AND (IV) THE RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS
INDEPENDENT AUDITORS OF CELL GENESYS FOR THE FISCAL YEAR ENDING DECEMBER 31,
1997.

Record Date. The board of directors of Cell Genesys fixed April 22, 1997 as
the record date for determination of holders of Cell Genesys Common Stock
entitled to notice of and to vote at the Cell Genesys Annual Meeting. As of
the close of business on the Cell Genesys Record Date, 16,566,348 shares of
Cell Genesys Common Stock were outstanding, held by approximately 249 holders
of record. Only holders of record of Cell Genesys Common Stock as of the close
of business on the Cell Genesys Record Date are entitled to notice of and to
vote at the Cell Genesys Annual Meeting and any adjournments or postponements
thereof.

Voting; Vote Required. Each holder of record of Cell Genesys Common Stock on
the Cell Genesys Record Date is entitled to cast one vote per share of Cell
Genesys Common Stock held thereby on the Cell Genesys Record Date, exercisable
in person or by properly executed proxy, on each matter properly submitted for
the vote of the stockholders of Cell Genesys at the Cell Genesys Annual
Meeting; provided, however, that each record holder of Cell Genesys Common
Stock on the Cell Genesys Record Date voting in the election of directors may
cumulate such stockholder's votes and give one candidate a number of votes
equal to the number of directors to be elected multiplied by the number of
shares held by such stockholder, or distribute the stockholder's votes on the
same principle among as many candidates as the stockholder may select;
provided further that votes cannot be cast for more candidates than the number
of directors to be elected; provided further that no stockholder will be
entitled to cumulate votes unless the candidate's name has been placed in
nomination prior to the voting and the stockholder, or any other stockholder,
has given notice at the meeting prior to the voting of the intention to
cumulate the stockholder's votes.

Shares of Cell Genesys Common Stock that are voted "FOR," "AGAINST" or
"WITHHELD" at the Cell Genesys Annual Meeting will be treated as being present
at such meeting for purposes of establishing a

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quorum and will also be treated as votes eligible to be cast by the holders of
Cell Genesys Common Stock present in person or represented by proxy at the
annual meeting and entitled to vote on the subject matter. Abstentions will be
counted for purposes of determining both the presence or absence of a quorum
for the transaction of business and the total number of votes cast with
respect to a particular matter. Broker non-votes will be counted for purposes
of determining the presence or absence of a quorum for the transaction of
business, but will not be counted for purposes of determining the number of
votes cast with respect to the particular proposal on which the broker has
expressly not voted. Broker non-votes with respect to proposals set forth in
this Joint Proxy Statement/Prospectus will therefore not be considered votes
cast and, accordingly, will not affect the determination as to whether a
majority of votes cast has been obtained with respect to a particular matter,
other than with respect to the approval of the Cell Genesys Amendment, which
approval will require the affirmative vote of a majority of the outstanding
shares of Cell Genesys Common Stock.

The approval of the Merger Agreement, the Merger and the issuance of shares
of Cell Genesys Common Stock pursuant to the Merger, the approval of the
Special Option Grant, the approval of the Incentive Plan Amendment and the
ratification of the appointment of Ernst & Young LLP as independent auditors
of Cell Genesys for the fiscal year ending December 31, 1997, will each
require the affirmative vote of a majority of the shares of Cell Genesys
Common Stock present in person or represented by properly executed proxy at
the Cell Genesys Annual Meeting. The approval of the Cell Genesys Amendment
will require the affirmative vote of a majority of the outstanding shares of
Cell Genesys Common Stock. The election of each director will require the
affirmative vote of a plurality of the shares of Cell Genesys Common Stock
present in person or represented by properly executed proxy at the Cell
Genesys Annual Meeting.

Security Ownership by Certain Beneficial Owners and Management. As of the
close of business on the Cell Genesys Record Date, directors and executive
officers of Cell Genesys and their respective affiliates may be deemed to be
the beneficial owners of shares of Cell Genesys Common Stock representing
approximately 9.22 percent of the outstanding voting power of Cell Genesys.
See "Other Information Regarding Cell Genesys--Stock Ownership of Principal
Stockholders and Management." Each of the directors and executive officers of
Cell Genesys has indicated that such person intends to vote or direct the vote
of all the shares of Cell Genesys Common Stock over which such person has
voting control in favor of the approval and adoption of the Merger Agreement
and approval of the Merger and the issuance of shares of Cell Genesys Common
Stock pursuant thereto, the approval of the Cell Genesys Amendment, the
approval of the Special Option Grant, the election of the director nominees
specified herein, the approval of the Incentive Plan Amendment and the
ratification of the appointment of Ernst & Young LLP as independent auditors
of Cell Genesys for the fiscal year ending December 31, 1997. In addition,
Hoechst Marion Roussel, a corporate partner of Cell Genesys and the beneficial
owner of shares of Cell Genesys Common Stock representing approximately 12.1
percent of the outstanding voting power of Cell Genesys, has agreed to vote or
direct the vote of all the shares of Cell Genesys Common Stock over which it
has voting control in favor of the Merger Agreement and the Merger.

THE SOMATIX SPECIAL MEETING

General. This Joint Proxy Statement/Prospectus is also being furnished to
stockholders of Somatix in connection with the solicitation of proxies by the
board of directors of Somatix for use at the Somatix Special Meeting to be
held at 850 Marina Village Parkway, Alameda, California 94501, on Friday, May
30, 1997, at 9:00 a.m., local time, and at any adjournments or postponements
thereof, for the purposes set forth herein and in the accompanying notice of
special meeting of stockholders of Somatix.

Matters to Be Considered. At the Somatix Special Meeting, stockholders of
record of Somatix as of the close of business on the Somatix Record Date will
be asked to consider and vote upon proposals (i) to approve and adopt the
Merger Agreement and to approve the Merger and (ii) to approve and adopt the
Somatix Amendment; and to transact such other business as may properly come
before the Somatix Special Meeting or any adjournments or postponements
thereof.

Board of Directors' Recommendations. THE BOARD OF DIRECTORS OF SOMATIX HAS
DETERMINED THAT EACH OF THE MERGER AND THE SOMATIX AMENDMENT IS FAIR AND IN
THE BEST INTERESTS OF THE STOCKHOLDERS OF SOMATIX

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<PAGE>

AND HAS THEREFORE, WITH ONE ABSTENTION, APPROVED AND ADOPTED THE MERGER
AGREEMENT AND APPROVED THE MERGER AND THE SOMATIX AMENDMENT, AND, WITH ONE
ABSTENTION, RECOMMENDS THAT THE STOCKHOLDERS OF SOMATIX VOTE FOR (I) THE
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND APPROVAL OF THE MERGER AND
(II) THE APPROVAL OF THE SOMATIX AMENDMENT.

Record Date. The board of directors of Somatix fixed April 22, 1997 as the
record date for determination of holders of Somatix Capital Stock entitled to
notice of and to vote at the Somatix Special Meeting. As of the close of
business on the Somatix Record Date, (i) 24,496,624 shares of Somatix Common
Stock were outstanding, held by approximately 933 holders of record; (ii)
247,651 shares of Somatix Series A Preferred Stock were outstanding, held by
nine holders of record; and (iii) 33,333 shares of Somatix Series B Preferred
Stock were outstanding, held by one holder of record. Only holders of record of
Somatix Capital Stock as of the close of business on the Somatix Record Date
are entitled to notice of and to vote at the Somatix Special Meeting and any
adjournments or postponements thereof.

Voting; Vote Required. Each holder of record of Somatix Capital Stock on the
Somatix Record Date is entitled to cast one vote for each share of Somatix
Common Stock held thereby, or into which shares of Series A Preferred Stock or
Somatix Series B Preferred Stock held thereby are convertible (6.25 shares of
Somatix Common Stock, in the case of each share of the Series A Preferred
Stock, and the number of shares of Somatix Common Stock equal to $150.00
divided by 101 percent of the daily volume weighted average of the Somatix
Common Stock for the 40 trading day period ending two trading days prior to the
Somatix Record Date, in the case of each share of the Series B Preferred
Stock), on the Somatix Record Date, exercisable in person or by properly
executed proxy, on each matter properly submitted for the vote of the
stockholders of Somatix at the Somatix Special Meeting.

The approval of the Merger Agreement and the Merger, and the approval of the
Somatix Amendment, will require the affirmative vote of a majority of the
outstanding shares of Somatix Capital Stock (with the Somatix Series A
Preferred Stock and Somatix Series B Preferred Stock voting on an as-converted
basis), voting together as a single class, and the affirmative vote of a
majority of the outstanding shares of Somatix Series A Preferred Stock.

Security Ownership by Certain Beneficial Owners and Management. As of the
close of business on the Somatix Record Date, directors and executive officers
of Somatix and their respective affiliates may be deemed to be the beneficial
owners of shares of Somatix Capital Stock representing approximately 15.12
percent of the outstanding voting power of Somatix. See "Other Information
Regarding Somatix--Stock Ownership of Principal Stockholders and Management."
Each of the directors (other than Leon E. Rosenberg, M.D., an affiliate of
Bristol-Myers Squibb; see "The Merger--Somatix' Reasons for the Merger:
Recommendation of Somatix' Board of Directors") and executive officers of
Somatix has indicated that such person intends to vote or direct the vote of
all the shares of Somatix Capital Stock over which such person has voting
control in favor of the Merger Agreement, the Merger and the Somatix Amendment.
In addition, Bristol-Myers Squibb, the beneficial owner of shares of Somatix
Capital Stock representing approximately 8.11 percent of the outstanding voting
power of Somatix, has agreed to vote or direct the vote of all the shares of
Somatix Capital Stock over which it has voting control in favor of the Merger
Agreement and the Merger.

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<PAGE>

PROXIES

This Joint Proxy Statement/Prospectus is being furnished to holders of Cell
Genesys Common Stock and holders of Somatix Capital Stock in connection with
the solicitation of proxies by and on behalf of the boards of directors of
Cell Genesys and Somatix for use at the Cell Genesys Annual Meeting and the
Somatix Special Meeting, respectively. All shares of Cell Genesys Common Stock
and all shares of Somatix Capital Stock that are entitled to vote and are
represented at the Cell Genesys Annual Meeting or the Somatix Special Meeting,
as the case may be, by properly executed proxies received prior to or at such
stockholders meeting and not duly and timely revoked, will be voted at such
stockholders meetings in accordance with the instructions indicated on such
proxies. If no instructions are indicated, such proxies will be voted (i) in
the case of the Cell Genesys Annual Meeting, FOR (A) the approval and adoption
of the Merger Agreement and the approval of the Merger and the issuance of
shares of Cell Genesys Common Stock pursuant to the Merger, (B) the approval
of the Cell Genesys Amendment, (C) the approval of the Special Option Grant,
(D) the election of the Cell Genesys director nominees specified herein, (E)
the approval of the Incentive Plan Amendment and (F) the ratification of the
appointment of Ernst & Young LLP as independent auditors of Cell Genesys for
the fiscal year ending December 31, 1997; and (ii) in the case of the Somatix
Special Meeting, FOR (A) the approval and adoption of the Merger Agreement and
the approval of the Merger and (B) the approval of the Somatix Amendment.

If any other matters are properly presented for consideration at either the
Cell Genesys Annual Meeting or the Somatix Special Meeting or any adjournments
or postponements thereof, including, among other things, consideration of a
motion to adjourn or postpone either such stockholders meeting to another time
and/or place (including, without limitation, for the purpose of soliciting
additional proxies), the persons named in the enclosed forms of proxy and
voting thereunder will have discretion to vote on such matters in accordance
with their best judgment.

Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of Cell Genesys or Somatix, as the case may be, at or
before the taking of the vote at the Cell Genesys Annual Meeting or the
Somatix Special Meeting, as the case may be, a written notice of revocation
bearing a later date than the proxy, (ii) duly executing a later dated proxy
relating to the same shares and delivering it to the Secretary of Cell Genesys
or Somatix, as the case may be, before the taking of the vote at the Cell
Genesys Annual Meeting or the Somatix Special Meeting, as the case may be, or
(iii) attending the Cell Genesys Annual Meeting or the Somatix Special
Meeting, as the case may be, and voting in person (although attendance at the
Cell Genesys Annual Meeting or the Somatix Special Meeting, as the case may
be, will not in and of itself constitute a revocation of a proxy). Any written
notice of revocation or subsequent proxy should be sent so as to be delivered,
in the case of holders of Cell Genesys Common Stock, to Cell Genesys, Inc., at
342 Lakeside Drive, Foster City, California 94404, Attention: Secretary, and
in the case of holders of Somatix Capital Stock, to Somatix Therapy
Corporation, at 950 Marina Village Parkway, Alameda, California 94501,
Attention: Secretary, or hand-delivered to the Secretary of Cell Genesys or
Somatix, as the case may be, at or before the taking of the vote at the Cell
Genesys Annual Meeting or the Somatix Special Meeting, respectively.

All expenses of this solicitation, including the cost of preparing and
mailing this Joint Proxy Statement/Prospectus, will be borne equally by Cell
Genesys and Somatix. In addition to solicitation by use of the mails, proxies
may be solicited by directors, officers and employees of Cell Genesys and
Somatix in person or by telephone, telegram or other means of communication.
Such directors, officers and employees will not be additionally compensated,
but may be reimbursed for reasonable out-of-pocket expenses in connection with
such solicitation. Cell Genesys and Somatix have retained D.F. King & Co.,
Inc. at an estimated cost of $60,000 to assist in their respective
solicitations of proxies from brokers, nominees, institutions and individuals.
Arrangements will also be made with custodians, nominees and fiduciaries for
forwarding of proxy solicitation materials to beneficial owners of shares held
of record by such custodians, nominees and fiduciaries, and Cell Genesys and
Somatix will reimburse such custodians, nominees and fiduciaries for
reasonable expenses incurred in connection therewith.

STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES
WITH THEIR PROXY CARDS.

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<PAGE>

THE MERGER

GENERAL

The Merger Agreement provides that Merger Sub will be merged with and into
Somatix. As a result of the Merger, the separate corporate existence of Merger
Sub will cease and Somatix will continue as the surviving corporation of the
Merger (the "Surviving Corporation" ) and will become a direct wholly owned
subsidiary of Cell Genesys. The Merger will take place as promptly as
practicable after the adoption and approval of the Merger Agreement and the
approval of the Merger by the stockholders of Cell Genesys and Somatix, and
the satisfaction or waiver of the other conditions to the Merger set forth in
the Merger Agreement. See "The Merger Agreement."

CONVERSION OF SOMATIX CAPITAL STOCK

At the Effective Time, by virtue of the Merger and without any action on the
part of Cell Genesys, Merger Sub, Somatix or the holders of Somatix Capital
Stock, each share of Somatix Capital Stock issued and outstanding immediately
prior to the Effective Time (other than any shares of Somatix Capital Stock to
be cancelled as described below) and all rights in respect thereof will
forthwith cease to exist and will be converted into and become exchangeable
for the number of shares of Cell Genesys Common Stock (and associated Cell
Genesys Rights) described below.

Somatix Common Stock. Each share of Somatix Common Stock will be converted
into the number of shares of Cell Genesys Common Stock equal to 0.3850 (the
"Common Exchange Ratio").

Somatix Series A Preferred Stock. Each share of Series A Preferred Stock
will be converted into the number of shares of Cell Genesys Common Stock equal
to 2.4062 (the "Series A Exchange Ratio").

Somatix Series B Preferred Stock. Each share of Somatix Series B Preferred
Stock will be converted into the number of shares of Cell Genesys Common Stock
equal to the quotient of $150.00 divided by the average of the daily closing
prices of the Cell Genesys Common Stock over the 30-day period ending three
days prior to the Effective Time (the "Series B Exchange Ratio" and, together
with the Common Exchange Ratio and the Series A Exchange Ratio, the "Exchange
Ratios").

Somatix Treasury Stock. Each share of Somatix Capital Stock held in the
treasury of Somatix and each share of Somatix Capital Stock owned by Cell
Genesys or any direct or indirect wholly owned subsidiary of Cell Genesys or
of Somatix immediately prior to the Effective Time will be cancelled and
extinguished without any conversion thereof and no payment will be made with
respect thereto.

No Fractional Shares. No fractional share certificates for Cell Genesys
Common Stock will be issued upon the surrender for exchange of certificates
evidencing shares of Somatix Capital Stock. In lieu thereof, the Exchange
Agent or Cell Genesys, as the case may be, will pay each holder of Somatix
Capital Stock an amount in cash calculated as provided in the Merger
Agreement.

Certain Adjustments. If, between the date of the Merger Agreement and the
Effective Time, the outstanding shares of Somatix Capital Stock or Cell
Genesys Common Stock are changed into a different number of shares by reason
of any reclassification, recapitalization, split-up, combination or exchange
of shares, or any dividend payable in stock or other securities is declared
thereon with a record date within such period, the Common Exchange Ratio and
the Series A Exchange Ratio will be adjusted accordingly to provide the
holders of Somatix Common Stock and Somatix Series A Preferred Stock the same
economic effect as contemplated by the Merger Agreement prior to such
reclassification, recapitalization, split-up, combination, exchange or
dividend.

BACKGROUND OF THE MERGER

In the fall of 1994, members of the senior management of Cell Genesys and
Somatix met on several occasions to discuss the possibility of a business
combination of Cell Genesys and Somatix. These discussions were held on a
general level and involved exchanging information regarding the respective
scientific programs

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<PAGE>

of the companies. Although the discussions were brought to the attention of
the respective boards of directors of the companies, neither board took any
formal action to pursue these matters. Cell Genesys and Somatix had no further
contacts regarding a business combination until May 1996.

In May 1996, Stephen A. Sherwin, M.D., chairman, president and chief
executive officer of Cell Genesys, met with David W. Carter, chairman,
president and chief executive officer of Somatix. The possibility of a
business combination of Cell Genesys and Somatix was briefly discussed at such
meeting. Dr. Sherwin informed Mr. Carter that he would call him back in the
summer to discuss further the possibility of such a combination.

In June 1996, Bruce A. Hironaka, vice president for corporate development of
Cell Genesys, met with Edward O. Lanphier II, executive vice president and
chief financial officer of Somatix, at the 1996 annual meeting of the
Biotechnology Industry Organization. During their meeting Messrs. Hironaka and
Lanphier discussed the possibility of a business combination of Cell Genesys
and Somatix.

In July 1996, Somatix engaged Donaldson, Lufkin & Jenrette to consider
strategic partnerships or combinations between Somatix and other
pharmaceutical or biotechnology companies. Donaldson, Lufkin & Jenrette
pursued the initiation of discussions with gene therapy companies and other
companies in the pharmaceutical or biotechnology industry that Somatix and
Donaldson, Lufkin & Jenrette believed would have an interest in pursuing a
strategic partnership or combination.

A total of 12 potential partners were contacted of which four indicated an
interest in receiving additional public information. Of these four recipients,
two potential partners indicated an interest in receiving confidential
information. After receiving requested information and discussions with
Donaldson, Lufkin & Jenrette, none of the contacted potential Somatix partners
indicated a willingness to pursue a transaction.

Even without the receipt of public or confidential information about
Somatix, most of the potential partners were familiar with Somatix and its
technology. The reasons given by potential partners for not pursuing a
transaction included (i) prior commitments on the part of the potential
partner to an alternative gene transfer technology; (ii) the lengthy time
period before the commercial viability of Somatix' programs could be
demonstrated; (iii) concern of the potential partner that it was not clear
which gene transfer vector technology would ultimately prevail; (iv) concern
of the potential partner about choosing a strategic partner too early in the
development cycle of gene therapy technologies; and (v) the level of Bristol-
Myers Squibb's equity ownership and its contractual relationship with Somatix.

On August 12, 1996, Dr. Sherwin met with Mr. Carter to discuss further the
possibility of a business combination of Cell Genesys and Somatix, the
rationale therefor, and the principal issues that would arise in the context
of negotiating and consummating such a business combination. Following their
August 12 meeting, Dr. Sherwin and Mr. Carter had several telephone
conversations in early September 1996 to further discuss issues in connection
with a potential business combination. Also during September 1996, Messrs.
Hironaka and Lanphier met on two occasions to continue discussions relating to
a potential business combination of Cell Genesys and Somatix and the due
diligence investigations that each company would be required to undertake with
respect to the other.

On September 23, 1996, at a special meeting, the board of directors of
Somatix approved the terms of and authorized management to execute and deliver
financing documents pursuant to which Somatix received a $5 million investment
and the right to take down limited additional financing in the future, subject
to meeting certain requirements, from a single non-United States investor.
This financing was completed in view of informal advice received from Somatix'
financial advisors at the time that completing a financing other than this
would be difficult or impossible given Somatix' financial status and the
status of its research and development and clinical programs. At this same
meeting, the board of directors of Somatix discussed the ongoing discussions
with Cell Genesys, and also instructed management to continue to pursue
alternative partnering and financing possibilities.

On September 30 and October 1, 1996, representatives of Cell Genesys and
Somatix met, each to provide the other an overview of its business and
research and development programs. Following those meetings, Cell Genesys and
Somatix entered into a confidentiality agreement on October 14, 1996, and
thereafter representatives

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<PAGE>

of Cell Genesys and Somatix met to commence their respective technical due
diligence investigations, and met on several occasions during the remainder of
October 1996 in connection with such due diligence investigations and to
discuss open issues relating to a potential business combination.

On October 24, 1996, at a regular meeting, the board of directors of Cell
Genesys, among other things, met with Cell Genesys' management and its
financial and legal advisors to discuss the status of the discussions with
Somatix. Such meeting included a presentation by Lehman Brothers during which
it updated the board of directors on financial and market conditions related
to the proposed transaction. Lehman Brothers did not render any opinion in
connection with such discussions. At the conclusion of such discussions, the
board of directors of Cell Genesys authorized management to continue
discussions with Somatix.

Representatives of Cell Genesys and Somatix continued to meet during late
October and November to discuss the proposed business combination, to continue
their respective technical due diligence investigations and, with the
assistance of their respective financial and legal advisors, to commence their
respective financial and legal due diligence investigations. On November 21,
1996, representatives of Cell Genesys and Somatix, including their respective
financial and legal advisors, met to discuss business issues that could
potentially arise in connection with the proposed business combination.

On November 22, 1996, at a special meeting, the board of directors of Cell
Genesys, among other things, met with Cell Genesys' management and its
financial and legal advisors to discuss the status of the discussions with
Somatix. Such meeting included a presentation by Lehman Brothers during which
it updated the board of directors on financial and market conditions related
to the proposed transaction. Lehman Brothers did not render any opinion in
connection with such discussions. At the conclusion of such discussions, the
board of directors of Cell Genesys authorized management to continue
discussions with Somatix.

On December 2, 1996, in connection with their respective financial due
diligence investigations, representatives of Cell Genesys and Somatix met and,
with the assistance of their respective financial advisors, each gave a
presentation with respect to its financial condition.

Throughout December 1996, Cell Genesys and Somatix continued their
respective business, financial and legal due diligence investigations, and
their representatives continued discussions regarding the possible terms and
timing of the proposed transaction and potential plans to integrate the two
companies upon consummation of a business combination.

On December 6, 1996, representatives of Cell Genesys and Somatix, including
certain of each company's scientific advisors, met to discuss the preliminary
results of their respective business, financial and legal due diligence
investigations, and potential research and development strategies for the
Combined Company.

On December 10, 1996, at a regular meeting, the board of directors of Cell
Genesys, among other things, met with Cell Genesys' management and its
financial and legal advisors to discuss the status of the discussions with
Somatix. Such meeting included a presentation by Lehman Brothers during which
it updated the board of directors on financial and market conditions related
to the proposed transaction. Lehman Brothers did not render any opinion in
connection with such discussions. At the conclusion of such discussions, the
board of directors of Cell Genesys authorized management to continue
discussions with Somatix.

On December 19, 1996, at a regular meeting, the board of directors of
Somatix again discussed the ongoing discussions with Cell Genesys, including
presentations from some of Somatix' senior scientific advisors, including
Richard Mulligan, Ph.D., Thomas E. Shenk, Ph.D., Inder M. Verma, Ph.D. and
Fred H. Gage, Ph.D., each of whom had met with either Dr. Sherwin and/or other
Cell Genesys scientific management to discuss the benefits that would arise
from a combination of the two companies' respective research and development

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<PAGE>

programs. Donaldson, Lufkin & Jenrette again updated the board of directors
with respect to general market conditions and on prospects of finding
alternative financing or partnering opportunities. With respect to potential
partnering opportunities, Donaldson, Lufkin & Jenrette indicated that there
had been no material developments or increased likelihood that any of the 12
potential partners previously contacted would be willing to pursue a
transaction. With respect to finding alternative financing, Donaldson, Lufkin
& Jenrette indicated again that it would be difficult or impossible, given
Somatix' financial status and the status of its research and development and
clinical programs, to complete any additional financing transaction. The board
of directors instructed management to continue its discussions with Cell
Genesys.

On December 20, 1996, representatives of Cell Genesys and Somatix, including
their respective financial and legal advisors, met to commence negotiating the
definitive terms of a merger agreement. Such negotiations continued at various
times through January 12, 1997.

On January 6, 1997, at a special meeting, the board of directors of Cell
Genesys, among other things, met with Cell Genesys' management and its
financial and legal advisors to discuss the status of the discussions with
Somatix. Such meeting included a presentation by Lehman Brothers during which
it updated the board of directors on financial and market conditions related
to the proposed transaction. Lehman Brothers did not render any opinion in
connection with such discussions. At the conclusion of such discussions, the
board of directors of Cell Genesys authorized management to continue
discussions with Somatix.

During the late morning and early afternoon of January 12, 1997, at a
special meeting, the board of directors of Cell Genesys met with Cell Genesys'
management and its financial and legal advisors to discuss the results of
their evaluations of Somatix and the status of the negotiations with Somatix.
The financial and legal advisors reviewed the terms of the proposed merger
agreement. At the conclusion of such discussions, the board of directors of
Cell Genesys approved the then current draft of the merger agreement, the
Merger and the Exchange Ratios.

During the evening of January 12, 1997, at a special meeting, the board of
directors of Somatix met with Somatix' management and its financial and legal
advisors to discuss the results of their evaluations of Cell Genesys and the
status of the negotiations with Cell Genesys. The financial and legal advisors
reviewed the terms of the proposed merger, including a detailed review of the
various provisions of the merger agreement and the bridge financing
contemplated therein. At the conclusion of such discussions, the board of
directors of Somatix discussed questions raised by individual board members,
and then approved the then current draft of the merger agreement, the Merger
and the Exchange Ratios.

After the meeting of the Somatix board of directors concluded,
representatives of Cell Genesys and Somatix met to finalize the merger
agreement. At approximately 1:30 a.m., San Francisco time, on January 13,
1997, Cell Genesys, Somatix and Merger Sub each delivered final copies of the
Merger Agreement and related documents. Cell Genesys and Somatix announced the
Merger Agreement at 5:30 a.m., San Francisco time, by the issuance of press
releases.

On March 27, 1997, Cell Genesys announced that, together with its Abgenix
subsidiary and Abgenix' Xenotech L.P. joint venture partner, Japan Tobacco,
Inc. ("Japan Tobacco"), it had signed a comprehensive patent cross-license and
settlement agreement with GenPharm International Inc. that resolved all
related litigation and claims between the parties (the "Cross-License and
Settlement"). In connection with the Cross-License and Settlement, Cell
Genesys sought Somatix' consent to the Cross-License and Settlement, which
consent was required under the Merger Agreement as in effect prior to its
amendment and restatement as of March 27, 1997. Somatix indicated a
willingness to consent to the Cross-License and Settlement, but sought an
amendment to the original Merger Agreement to, among other things, eliminate
certain adjustments to the Common Exchange Ratio and the Series A Exchange
Ratio. On March 27, 1997, Somatix consented to the Cross-License and
Settlement and the Merger Agreement was amended and restated to, among other
things, eliminate two contingent downward adjustments to the Common Exchange
Ratio and the Series A Exchange Ratio, which, if they had become applicable,
and assuming the Merger had been consummated as of March 27, 1997, could have
reduced the Common Exchange Ratio by an aggregate of .0150 to .3700, and the
Series A Exchange Ratio by an aggregate of .0936 to 2.3125.

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The Common Exchange Ratio and the Series A Exchange Ratio and the other
terms of the Merger were determined in arm's-length negotiations between the
management teams and the boards of directors of Cell Genesys and Somatix. The
Common Exchange Ratio and the Series A Exchange Ratio were determined after
consideration of the shares and options outstanding of each company, the
relative trading prices of the two companies' stock over various periods of
time, the business prospects of the Combined Company and the financial
analysis of the companies' respective financial advisors summarized under "--
Opinion of Cell Genesys' Financial Advisor" and "--Opinion of Somatix'
Financial Advisor."

CELL GENESYS' REASONS FOR THE MERGER; RECOMMENDATION OF CELL GENESYS' BOARD OF
DIRECTORS

The board of directors of Cell Genesys has carefully considered the
advisability of the Merger and believes that the terms of the Merger Agreement
are fair to, and that the Merger is in the best interests of, Cell Genesys'
stockholders. THE BOARD OF DIRECTORS OF CELL GENESYS HAS UNANIMOUSLY APPROVED
AND ADOPTED THE MERGER AGREEMENT AND APPROVED THE MERGER AND THE ISSUANCE OF
CELL GENESYS COMMON STOCK PURSUANT THERETO, AND UNANIMOUSLY RECOMMENDS THAT
THE STOCKHOLDERS OF CELL GENESYS VOTE FOR THE APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT AND APPROVAL OF THE MERGER AND THE ISSUANCE OF CELL GENESYS
COMMON STOCK PURSUANT THERETO.

The board of directors of Cell Genesys believes that the Merger provides a
unique opportunity for Cell Genesys and that it is consistent with Cell
Genesys' long-term business strategy to strengthen and complement Cell
Genesys' gene therapy programs. In the course of its deliberations, the board
of directors of Cell Genesys reviewed and considered with Cell Genesys'
management a number of factors relevant to the Merger in light of Cell
Genesys' status as an early stage research and development biotechnology
company. In particular, the board of directors of Cell Genesys considered,
among other things, the following positive factors:

(i) the respective businesses, assets, operations, managements, including
scientific personnel and advisors, and prospects of Cell Genesys and
Somatix;

(ii) the complementary gene therapy delivery technologies and therapeutic
product development opportunities of Cell Genesys and Somatix;

(iii) the respective intellectual property portfolios of Cell Genesys and
Somatix;

(iv) the respective prospects of Cell Genesys and Somatix for obtaining
additional financing for their proposed activities, including from
potential corporate partners and public capital markets;

(v) the results of investigations comparing certain financial and stock
market information for certain other life science companies which are
publicly traded;

(vi) the conclusions of a review of the financial terms of certain recent
business combinations which were deemed comparable, in whole or in part, to
the proposed Merger;

(vii) the historical market prices of, and other information with respect
to, the Cell Genesys Common Stock and the Somatix Common Stock (see
"Summary--Markets and Market Prices");

(viii) the observations and conclusions of management of Cell Genesys
with respect to the prospects for a strategic business combination between
Cell Genesys and candidates other than Somatix;

(ix) the prospects for the long-term performance of Cell Genesys Common
Stock as well as the potential volatility of such stock;

(x) the terms and conditions of the Merger, including the tax-free status
of the Merger and the accounting and financial impact of the Merger;

(xi) a financial presentation by Lehman Brothers, including (A) certain
quantitative analyses of factors relating to the financial implications of
the Merger and (B) the opinion of Lehman Brothers that the Exchange Ratios
were fair from a financial point of view to Cell Genesys (see "--Opinion of
Cell Genesys' Financial Advisor"); and

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<PAGE>

(xii) reports from management and financial and legal advisors as to the
results of their due diligence investigation of Somatix.

The board of directors of Cell Genesys also considered a variety of
potentially negative factors in its deliberations concerning the Merger. In
particular, the board of directors of Cell Genesys considered, among other
things:

(i) the potential dilutive effect of the issuance of Cell Genesys Common
Stock pursuant to the Merger;

(ii) the substantial charges expected to be incurred, primarily in the
quarter ending June 30, 1997, in connection with the Merger, including
costs of integrating the business and transaction expenses arising from the
Merger;

(iii) the risk that the public market price of the Cell Genesys Common
Stock may be adversely affected by announcement of the Merger;

(iv) the risk that, despite the efforts of the Combined Company, key
technical and management personnel may not remain employed by the Combined
Company;

(v) the risk that other benefits sought to be achieved in the Merger will
not be achieved; and

(vi) other risks described above under "Risk Factors."

In view of the wide variety of factors, both positive and negative,
considered by the board of directors of Cell Genesys (of which, the above
enumerated factors include all of the material factors considered), it did not
find it practical to, and did not, quantify or otherwise assign relative
weights to the specific factors considered, and individual directors may have
given differing weights to the same factors. However, as a general matter, the
board of directors of Cell Genesys believed that the above enumerated positive
factors supported its decision to approve the Merger, including any such
factors relating to the financial implications of the Merger, and, taken as a
whole, outweighed the risks associated with the Merger as set forth in the
above enumerated negative factors.

SOMATIX' REASONS FOR THE MERGER; RECOMMENDATION OF SOMATIX' BOARD OF DIRECTORS

The board of directors of Somatix has carefully considered the advisability
of the Merger and believes that the terms of the Merger Agreement are fair to,
and that the Merger is in the best interests of, Somatix' stockholders. THE
BOARD OF DIRECTORS OF SOMATIX HAS, WITH ONE ABSTENTION, APPROVED AND ADOPTED
THE MERGER AGREEMENT AND APPROVED THE MERGER, AND, WITH ONE ABSTENTION,
RECOMMENDS THAT THE STOCKHOLDERS OF SOMATIX VOTE FOR THE APPROVAL AND ADOPTION
OF THE MERGER AGREEMENT AND APPROVAL OF THE MERGER.

In the course of its deliberations, the board of directors of Somatix
reviewed and considered with Somatix' management a number of factors relevant
to the Merger in light of Somatix' status as an early stage research and
development biotechnology company. In particular, the board of directors of
Somatix considered, among other things, the following positive factors:

(i) Somatix' need to raise significant additional capital to finance its
operations, the relative difficulty of obtaining equity and other
financings given the developmental status of Somatix' programs, and the
fact that such programs are not currently supported by corporate partners;

(ii) the terms and conditions of the Merger Agreement, including the
amount and form of the consideration, which it believed represented the
most favorable transaction possible with Cell Genesys for the Somatix
stockholders;

(iii) the historical market prices of, and other information with respect
to, the Cell Genesys Common Stock and the Somatix Common Stock (see
"Summary--Markets and Market Prices");

(iv) the respective businesses, prospects, financial performance,
financial condition and operations of Cell Genesys and Somatix;

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<PAGE>

(v) the complementary gene therapy delivery technologies and therapeutic
product development opportunities of Cell Genesys and Somatix;

(vi) the compatibility of the managements of Cell Genesys and Somatix;

(vii) a financial presentation by Donaldson, Lufkin & Jenrette, including
(A) certain quantitative analyses of factors relating to the financial
implications of the Merger and (B) the written opinion of Donaldson, Lufkin
& Jenrette to the effect that, as of January 12, 1997 and based on, and
subject to, the assumptions, limitations and qualifications set forth in
such opinion letter, the Common Exchange Ratio was fair to the holders of
Somatix Common Stock, the Series A Exchange Ratio was fair to the holders
of Somatix Series A Preferred Stock and the Series B Exchange Ratio was
fair to the holders of Somatix Series B Preferred Stock, in each case, from
a financial point of view (see "--Opinion of Somatix' Financial Advisor");

(viii) reports from management and financial and legal advisors as to the
results of their due diligence investigation of Cell Genesys;

(ix) the unanimous support of senior Somatix scientific advisors,
including Richard Mulligan, Ph.D. Thomas E. Shenk, Ph.D., Inder M. Verma,
Ph.D. and Fred H. Gage, Ph.D., each of whom had conducted his own
scientific due diligence investigation of Cell Genesys and had met with
senior Cell Genesys scientific management; and

(x) the structure of the Merger, which will permit the holders of Somatix
Capital Stock to exchange their shares for Cell Genesys Common Stock on a
tax-free basis.

The board of directors of Somatix also considered a variety of potentially
negative factors in its deliberations concerning the Merger. In particular,
the board of directors of Somatix considered, among other things:

(i) the potential disruption of Somatix' business that might result from
employee uncertainty and lack of focus following announcement of the Merger
and during the integration of the operations of Cell Genesys and Somatix;

(ii) the possibility that the Merger might not be consummated, and the
effects of the public announcement of the Merger on (A) Somatix' ability to
attract and retain key management and technical personnel, (B) progress of
certain development projects and (C) Somatix' vulnerability to an
unsolicited takeover bid or other change of control transaction on terms
less favorable to Somatix' stockholders than the Merger;

(iii) the risk that the market price of Cell Genesys Common Stock might
be adversely affected by the public announcement of the Merger;

(iv) the risk that other benefits sought to be achieved in the Merger
will not be achieved; and

(v) other risks described above under "Risk Factors."

In view of the wide variety of factors, both positive and negative,
considered by the board of directors of Somatix (of which, the above
enumerated factors include all of the material factors considered), it did not
find it practical to, and did not, quantify or otherwise assign relative
weights to the specific factors considered, and individual directors may have
given differing weights to the same factors. However, as a general matter, the
board of directors of Somatix believed that the above enumerated positive
factors supported its decision to approve the Merger, including any such
factors relating to the financial implications of the Merger, and, taken as a
whole, outweighed the risks associated with the Merger as set forth in the
above enumerated negative factors.

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<PAGE>

OPINION OF CELL GENESYS' FINANCIAL ADVISOR

Cell Genesys retained Lehman Brothers to act as its financial advisor in
connection with the Merger. Lehman Brothers was selected by the board of
directors of Cell Genesys to act as Cell Genesys' financial advisor based on
Lehman Brothers' qualifications, expertise and reputation, as well as Lehman
Brothers' investment banking relationship and familiarity with Cell Genesys.

Between October 24, 1996 and January 6, 1997, Lehman Brothers made five oral
presentations to the board of directors of Cell Genesys. These presentations
covered the then current state of the equity market and the then current
absolute and relative trading prices of the Cell Genesys Common Stock and the
Somatix Common Stock, and applied certain exchange ratio analyses, comparable
company analyses and comparable transaction analyses to the then current
status of discussions with Somatix. Finally, in its oral presentation made on
January 12, 1997, Lehman Brothers reviewed the terms of the proposed merger
agreement with Somatix and reviewed the then current state of the equity
market, the then current absolute and relative trading prices of the Cell
Genesys Common Stock and the Somatix Common Stock, and applied the financial
and comparative analyses that are described below to the then current terms of
the proposed merger agreement. In addition, Lehman Brothers delivered an oral
opinion to the board of directors of Cell Genesys on January 12, 1997, which
it subsequently confirmed in writing, to the effect that on the date of the
Lehman Brothers opinion, and based upon assumptions made, matters considered,
and limitations on its review as set forth in the opinion, from a financial
point of view, the Exchange Ratio (as defined in the Lehman Brothers opinion)
to be offered to the stockholders of Somatix in the Merger was fair to Cell
Genesys.

THE FULL TEXT OF THE LEHMAN BROTHERS OPINION IS ATTACHED AS APPENDIX B TO
THIS JOINT PROXY STATEMENT/PROSPECTUS AND IS INCORPORATED HEREIN BY REFERENCE.
CELL GENESYS STOCKHOLDERS MAY READ THE LEHMAN BROTHERS OPINION FOR A DISCUS-
SION OF ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE REVIEW UN-
DERTAKEN BY LEHMAN BROTHERS IN RENDERING ITS OPINION. THE SUMMARY OF THE LEH-
MAN BROTHERS OPINION SET FORTH IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE LEHMAN BROTHERS
OPINION.

Lehman Brothers' opinion is directed only to the fairness of the Exchange
Ratios to Cell Genesys from a financial point of view and does not constitute
a recommendation to any stockholder of Cell Genesys as to how such stockholder
should vote at the Cell Genesys Annual Meeting. The summary of the opinion of
Lehman Brothers set forth in this Joint Proxy Statement/Prospectus is
qualified in its entirety by reference to the full text of such opinion.

No limitations were imposed by Cell Genesys on the scope of Lehman Brothers'
investigation or the procedures to be followed by Lehman Brothers in rendering
its opinion. Lehman Brothers was not requested to and did not make any
recommendation to the board of directors of Cell Genesys as to the form or
amount of the consideration to be paid by Cell Genesys in the Merger, which
was determined through arm's-length negotiations between the parties. In
arriving at its opinion, Lehman Brothers did not ascribe a specific range of
value to Somatix, but rather made its determination as to the fairness, from a
financial point of view, of the Exchange Ratio to be offered to the
stockholders of Somatix in the Merger on the basis of the financial and
comparative analyses described below. Lehman Brothers' opinion is for the use
and benefit of the board of directors of Cell Genesys and was rendered to the
board of directors of Cell Genesys in connection with the board's
consideration of the Merger. Lehman Brothers' opinion is not intended to be
and does not constitute a recommendation to any stockholder of Cell Genesys or
Somatix as to how such stockholder should vote with respect to the Merger.
Lehman Brothers was not requested to opine as to, and its opinion does not
address, Cell Genesys' underlying business decision to proceed with or effect
the Merger.

In arriving at its opinion, Lehman Brothers reviewed and analyzed (i) the
Merger Agreement and the specific terms of the Merger, (ii) the Form 10-K for
the fiscal year ended December 31, 1995 and the Form 10-Q for the quarter
ended September 30, 1996 of Cell Genesys and the Form 10-K for the fiscal year
ended June 30, 1996 and the Form 10-Q for the quarter ended September 30, 1996
for Somatix, and such other publicly available

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<PAGE>

information concerning Cell Genesys and Somatix that Lehman Brothers believed
to be relevant to its analysis, (iii) financial and operating information with
respect to the business, operations and prospects of Cell Genesys and Somatix
furnished to Lehman Brothers by Cell Genesys and Somatix, (iv) trading
histories of Cell Genesys and Somatix common stock and a comparison of those
trading histories with those of other companies that Lehman Brothers deemed
relevant, (v) a comparison of the historical financial results and present
financial condition of Cell Genesys and Somatix with those of other companies
that Lehman Brothers deemed relevant, and (vi) a comparison of the financial
terms of the Merger with the financial terms of certain other transactions
that Lehman Brothers deemed relevant. In addition, Lehman Brothers had
discussions with the managements of Cell Genesys and Somatix concerning their
respective businesses, operations, assets, financial conditions and prospects
and the operating synergies and other strategic benefits expected to result
from a combination of the businesses of Cell Genesys and Somatix, and
undertook such other studies, analyses and investigations as Lehman Brothers
deemed appropriate.

In arriving at its opinion, Lehman Brothers assumed and relied upon the
accuracy and completeness of the financial and other information used by
Lehman Brothers without assuming any responsibility for independent
verification of such information and further relied upon the assurances of the
managements of Cell Genesys and Somatix that they are not aware of any facts
or circumstances that would make such information materially inaccurate or
misleading. With respect to the financial projections of Cell Genesys and
Somatix, upon advice of Cell Genesys, Lehman Brothers assumed that such
projections were reasonably prepared on a basis reflecting the best currently
available estimates and judgment of the management of Cell Genesys as to the
future financial performance of Cell Genesys and Somatix and that Cell Genesys
and Somatix will perform substantially in accordance with such projections. In
arriving at its opinion, Lehman Brothers did not conduct a physical inspection
of the properties and facilities of Cell Genesys or Somatix and did not make
or obtain any evaluations or appraisals of the assets or liabilities of Cell
Genesys or Somatix. Upon the advice of Cell Genesys and its legal and
accounting advisors, Lehman Brothers assumed that the Merger will qualify as a
reorganization within the meaning of Section 368(a) of the Code, and therefore
as a tax-free transaction to the stockholders of Cell Genesys and Somatix.
Their opinion necessarily was based upon market, economic and other conditions
as they existed on, and could be evaluated as of, January 12, 1997.

In connection with the preparation and delivery of its opinion to the board
of directors of Cell Genesys, Lehman Brothers performed a variety of financial
and comparative analyses, as described below. The preparation of a fairness
opinion involves various determinations as to the most appropriate and
relevant methods of financial and comparative analysis and the application of
those methods to the particular circumstances and, therefore, such an opinion
is not readily susceptible to summary description. Furthermore, in arriving at
its opinion, Lehman Brothers did not attribute any particular weight to any
analysis or factor considered by it, but rather made qualitative judgments as
to the significance and relevance of each analysis and factor. Lehman Brothers
did not form a conclusion as to whether any individual analysis, considered in
isolation, supported or failed to support an opinion as to fairness from a
financial point of view. Accordingly, Lehman Brothers believes that its
analyses must be considered as a whole and that considering any portion of
such analyses and factors, without considering all analyses and factors, could
create a misleading or incomplete view of the process underlying its opinion.
In its analyses, Lehman Brothers made numerous assumptions with respect to
industry performance, general business and economic conditions and other
matters, many of which are beyond the control of Cell Genesys. Any estimates
contained in these analyses are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or
less favorable than as set forth therein. In addition, analyses relating to
the value of businesses do not purport to be appraisals or to reflect the
prices at which businesses actually may be sold.

Exchange Ratio Analysis. This analysis sets forth the implied value to be
offered to the stockholders of Somatix by Cell Genesys. The closing price of
Cell Genesys' stock on January 10, 1997, the last trading day prior to
announcement of the Merger, was $9.125, which, with the Common Exchange Ratio
of 0.385, implies a value of $3.513 per Somatix share. The closing price of
Somatix stock on the last trading day prior to announcement of the Merger was
$3.813.

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<PAGE>

Common Stock Trading Volume Analysis. Lehman Brothers analyzed the
historical daily trading volume of Somatix' common stock over various periods.
Lehman Brothers noted that from January 11, 1996 to January 10, 1997,
36,774,700 shares were traded. Of these shares, 18.2 percent of the shares
traded at $3.00 to $4.00; 19.0 percent of the shares traded at $4.00 to $5.00;
10.1 percent of the shares traded at $5.00 to $6.00; and the remaining 52.7
percent of the shares traded at $6.00 per share or above.

Comparable Public Company Analysis. Lehman Brothers compared the historical
financial, operating and stock market performances of certain publicly traded
companies that it considered relevant with the historical financial and
operating performance of Somatix, based upon information provided to Lehman
Brothers by the management of Somatix and information that was publicly
available. The companies that Lehman Brothers included in its universe of
comparable gene therapy companies were Avigen Inc., CellPro Incorporated,
GeneMedicine, Inc., Ribozyme Pharmaceuticals, Inc., SyStemix, Inc., Targeted
Genetics Corporation and Vical Incorporated (the "Comparable Companies").
Lehman Brothers examined both the market value of the total outstanding equity
(the "Market Value") and the Market Value minus "Cash" (the "Technology
Value"), the historical cash burn rate, cash on hand and years of cash
remaining for the Comparable Companies. "Cash" equals cash and cash
equivalents plus short-term marketable securities.

Lehman Brothers noted that the fully-diluted Market Value for Somatix of
$116.0 million, implied by the 0.385 Common Exchange Ratio, the closing price
of Cell Genesys on the trading day prior to announcement of the Merger and
Somatix' fully-diluted shares of 33.0 million (determined as of the trading
day prior to announcement of the merger) ("Somatix' Fully-Diluted Shares"),
was equal to the mean value of the Comparable Companies and a 23.2 percent
discount to the median value for the Comparable Companies of $151.4 million.

Lehman Brothers also noted that the fully-diluted Technology Value for
Somatix of $106.0 million, implied by the 0.385 exchange ratio, the closing
price of Cell Genesys on the trading day prior to announcement of the Merger,
Somatix' Fully-Diluted Shares, and Somatix' cash on hand at December 31, 1996
of $10.0 million, was a 10.1 percent premium to the mean value of $96.3
million for the Comparable Companies and a 35.9 percent premium to the median
value of $78.0 million for the Comparable Companies.

Lehman Brothers noted that, per discussions with Somatix management, Somatix
had approximately $10.0 million in cash and cash equivalents at December 31,
1996. Lehman Brothers noted that Somatix' implied burn life, calculated as the
cash on hand divided by the latest 12 months cash burn rate (defined as the
sum of net income and depreciation less capital expenditures) of 0.5 years was
85.3 percent less than the mean burn life of 3.4 years for the Comparable
Companies and 82.1 percent less than the median burn life of 2.8 years for the
Comparable Companies.

Lehman Brothers also compared the price performance of Somatix' common stock
from January 11, 1996 to January 10, 1997 to that of the Comparable Companies
as well as to the Nasdaq 100 index. Using January 11, 1996 as the base of 100
percent, on January 10, 1997, Somatix' common stock price was 61.0 percent of
the base value, compared to 86.9 percent for the Comparable Companies and
156.0 percent for the Nasdaq 100 index.

Because of the inherent differences between the business, operations and
prospects of Somatix and the businesses, operations and prospects of the
Comparable Companies, Lehman Brothers believed that it was inappropriate to,
and therefore did not, rely solely on the quantitative results of the
analyses, but rather also made qualitative judgments concerning differences
between the financial and operating characteristics and prospects of Somatix
and the Comparable Companies that would affect the public trading values of
each. In particular, Lehman Brothers considered for each company the quality
and amount of corporate collaborations, the size and desirability of the
markets focused upon and the strengths of management. These qualitative
judgments did not lead to specific conclusions regarding the fairness of the
merger consideration, but rather were part of Lehman Brothers' evaluation of
the relevancy of this comparative analysis under the particular circumstances
of the Merger.

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Discounted Cash Flow Analysis. Lehman Brothers performed a discounted cash
flow analysis on the projected financial information provided by Cell Genesys'
management as an estimate of the projected financial performance of Somatix.
Lehman Brothers noted that Cell Genesys' projections for Somatix were prepared
based on assumptions that included, among other things, the success of Somatix
in arranging corporate partnering arrangements as well as the success of each
of its products in human clinical trials and in the marketplace. Lehman
Brothers informed the board of directors of Cell Genesys that any forecast in
the biotechnology industry is subject to a number of variables which present
significant obstacles. These variables include the ability to secure adequate
funding to bring products to market, the technological feasibility, market
capacity and market acceptance of products and the competitive risk presented
by other biotechnology companies with similar products and/or better
resources.

Lehman Brothers discounted to present value the projected stream of after-
tax cash flows and the terminal year value (the "Terminal Value") of the
business. The Terminal Value for the discounted cash flow analysis of the
projections was based upon a range of 15 to 20 times net income in 2006.
Lehman Brothers used discount rates ranging from 25 to 35 percent, which were
chosen based on factors such as the current level of inflation and interest
rates, the inherent business risk of Somatix and the biotechnology industry as
a whole, and the cost of capital to Somatix.

Of the two scenarios analyzed by Lehman Brothers, the first produced
Technology Values ranging from $57.9 million to $182.4 million and Market
Values ranging from $67.9 million to $192.4 million. This represents a range
of Market Values per share for Somatix' stock, based on fully-diluted shares
of 33.0 million, of $2.05 to $5.83. The second of the scenarios produced
Technology Values ranging from $72.3 million to $227.1 million and Market
Values ranging from $82.3 million to $237.1 million. This represents a range
of Market Values per share for Somatix' stock, based on fully-diluted shares
of 33.0 million, of $2.49 to $7.18.

Analysis of Selected Comparable Transactions. Lehman Brothers compared the
financial and operating performance of certain companies that had engaged in
recent merger or alliance transactions, and that Lehman Brothers considered
relevant, with the historical financial and operating performance of Somatix,
based upon information that was publicly available at the time and based upon
information provided to Lehman Brothers by Somatix' management. The
transactions that Lehman Brothers considered comparable to the Merger included
the transactions by Elan with Athena Neurosciences, NA Biologicals with Univax
Biologics, Cytogen with Cellcor, Medco Research with Repligen (terminated),
Chiron with Viagene, Ligand with Glycomed, Amgen with Synergen, NeXagen with
Vestar, Genzyme with BioSurface, Immunex with Receptech, and Chiron with
Cetus. Lehman Brothers analyzed the tender/merger price per share for each of
these transactions (the "Merger Purchase Price Per Share"). The Merger
Purchase Price Per Share for each of these transactions was then compared to
the target stock price one day prior to the announcement of the transaction to
calculate the premium over such stock price (the "Premium"). The Premium in
the comparable transactions analyzed by Lehman Brothers ranged from a high of
123.5 percent to a low of 1.1 percent. Lehman Brothers noted that the premium
implied by the 0.385 exchange ratio and the closing price of Cell Genesys on
the trading day prior to announcement of the Merger was (7.9) percent.

In addition, the Merger Purchase Price Per Share for each of these
transactions was then compared to the target's stock price one month prior to
the announcement of the transaction. The high and low premiums were 98.6
percent and (13.6) percent. Lehman Brothers noted that the premium for Somatix
to its stock price one month prior to the announcement of the transaction was
(1.4) percent.

Because the reasons for and the circumstances surrounding each of the
transactions analyzed were specific to each transaction and because of the
inherent differences between the businesses, operations and prospects of Cell
Genesys and Somatix compared to the businesses, operations and prospects of
the companies that were parties to the selected transactions analyzed, Lehman
Brothers believed that it was inappropriate to, and therefore did not, rely
solely on the quantitative results of the analysis, and accordingly also made
qualitative judgments concerning differences between the characteristics of
these transactions and the Merger that would affect the acquisition values of
Somatix and such acquired companies. In particular, Lehman Brothers considered
for each

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acquired company the quality and amount of corporate collaborations, the size
and desirability of the markets focused upon and the strengths of management.
Additionally, Lehman Brothers considered the strategic fit of the acquired
company with the acquiring company, the form of consideration offered to the
seller and the tax characteristics of the transaction. These qualitative
judgments did not lead to specific conclusions regarding the fairness of the
merger consideration, but rather were part of Lehman Brothers' evaluation of
the relevance of this comparative analysis under the particular circumstances
of the Merger.

Lehman Brothers is an internationally recognized investment banking firm
and, as part of its investment banking activities, is regularly engaged in the
evaluation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. The board of directors of Cell
Genesys selected Lehman Brothers because of its expertise, reputation and
familiarity with Cell Genesys and Somatix in particular and the biotechnology
industry in general and because its investment banking professionals have
substantial experience in transactions similar to the Merger.

As compensation for its services in connection with the Merger, Cell Genesys
has agreed to pay Lehman Brothers a fee, upon consummation of the Merger,
equal to approximately $1.69 million. In addition, Cell Genesys has agreed to
reimburse Lehman Brothers for reasonable out-of-pocket expenses incurred in
connection with the Merger and to indemnify Lehman Brothers for certain
liabilities that may arise out of its engagement by Cell Genesys and the
rendering of its opinion.

Lehman Brothers is acting as financial advisor to Cell Genesys in connection
with the Merger. Lehman Brothers has also performed various investment banking
services for Cell Genesys in the past and has received customary fees for such
services. In the ordinary course of its business, Lehman Brothers may actively
trade in the equity securities of Cell Genesys and Somatix for its own account
and for the accounts of its customers and, accordingly, may at any time hold a
long or short position in such securities.

OPINION OF SOMATIX' FINANCIAL ADVISOR

Somatix retained Donaldson, Lufkin & Jenrette to act as its financial
advisor in connection with the Merger. Donaldson, Lufkin & Jenrette was
selected by the board of directors of Somatix to act as Somatix' financial
advisor based on Donaldson, Lufkin & Jenrette's qualifications, expertise and
reputation, as well as Donaldson, Lufkin & Jenrette's investment banking
relationship and familiarity with Somatix.

Donaldson, Lufkin & Jenrette rendered to the board of directors of Somatix
at its meeting on January 12, 1997, Donaldson, Lufkin & Jenrette's written
opinion dated such date that, as of the date of such opinion, and based upon
and subject to the assumptions, limitations and qualifications set forth in
its opinion letter, the Common Exchange Ratio was fair to the holders of
Somatix Common Stock, the Series A Exchange Ratio was fair to the holders of
Series A Preferred Stock and the Series B Exchange Ratio was fair to the
holders of Series B Preferred Stock, in each case, from a financial point of
view.

THE FULL TEXT OF THE OPINION OF DONALDSON, LUFKIN & JENRETTE DATED JANUARY
12, 1997 IS ATTACHED TO THIS JOINT PROXY STATEMENT/PROSPECTUS AS APPENDIX C.
SOMATIX STOCKHOLDERS ARE URGED TO READ DONALDSON, LUFKIN & JENRETTE'S OPINION
CAREFULLY AND IN ITS ENTIRETY FOR A DESCRIPTION OF THE ASSUMPTIONS MADE,
PROCEDURES FOLLOWED AND OTHER MATTERS CONSIDERED AND THE LIMITS OF DONALDSON,
LUFKIN & JENRETTE'S REVIEW.

Donaldson, Lufkin & Jenrette's opinion was prepared for the board of
directors of Somatix and is directed only to the fairness of the Exchange
Ratios to stockholders of Somatix from a financial point of view and does not
constitute a recommendation to any stockholder of Somatix as to how such
stockholder should vote at the Somatix Special Meeting nor does it constitute
an opinion as to the price at which Cell Genesys Common Stock will actually
trade at any time. Donaldson, Lufkin & Jenrette was not requested to and did
not make any recommendation to the board of directors of Somatix as to the
form or amount of the consideration to be received by stockholders of Somatix
in the Merger, which was determined through arm's-length negotiations between
the

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parties. No restrictions or limitations were imposed by Somatix upon
Donaldson, Lufkin & Jenrette with respect to the investigations made or the
procedures followed by Donaldson, Lufkin & Jenrette in rendering its opinion.

In arriving at its opinion, Donaldson, Lufkin & Jenrette reviewed a draft of
the Merger Agreement and the exhibits thereto, including drafts of the Stock
Option Agreements, none of which differed materially from such agreements as
executed on January 12, 1997. Donaldson, Lufkin & Jenrette also reviewed the
terms of the Somatix Series A Preferred Stock, the Somatix Series B Preferred
Stock and the Fletcher Warrant and financial and other information that was
publicly available or furnished to it by or on behalf of Somatix and Cell
Genesys, including information provided during discussions with their
respective managements. Included in the information provided were certain
financial projections for Somatix prepared by the management of Somatix and
certain financial projections for Cell Genesys prepared by the management of
Cell Genesys. In addition, Donaldson, Lufkin & Jenrette compared certain
financial and securities data of Somatix and Cell Genesys with that of
selected biotechnology companies focused on gene therapy whose securities are
traded in public markets; reviewed the historical stock prices and trading
volumes of Somatix Common Stock and Cell Genesys Common Stock; reviewed prices
and premiums paid in certain other selected business combinations; and
conducted such other financial studies, analyses and investigations as
Donaldson, Lufkin & Jenrette deemed appropriate for purposes of rendering its
opinion.

In rendering its opinion, Donaldson, Lufkin & Jenrette relied upon and
assumed the accuracy and completeness of all of the financial and other
information that was available to it from public sources, that was provided to
it by Somatix and Cell Genesys or their respective representatives, or that it
otherwise reviewed. With respect to the financial projections supplied to it,
Donaldson, Lufkin & Jenrette assumed that they had been reasonably prepared on
a basis reflecting the best currently available estimates and judgments of the
management of Somatix and Cell Genesys as to the future operating and
financial performance of Somatix and Cell Genesys, respectively. With respect
to any potential liabilities of, or other impact on, Cell Genesys related to
the litigation in which Cell Genesys is involved, Donaldson, Lufkin & Jenrette
was not requested to and did not express any opinion regarding the financial
impact of such matters on Cell Genesys and the effect, if any, of such matters
on the fairness to the stockholders of Somatix from a financial point of view
of the Exchange Ratios. Donaldson, Lufkin & Jenrette did not assume any
responsibility for making any independent evaluation of Somatix' assets or
liabilities or for making an independent verification of any information
reviewed by it. Donaldson, Lufkin & Jenrette further assumed that the Merger
will qualify as a tax-free reorganization under the Code.

Donaldson, Lufkin & Jenrette's opinion is necessarily based on economic,
market, financial and other conditions as they existed on, and on the
information made available to it as of, the date of its opinion. It should be
understood that, although subsequent developments may have affected its
opinion, Donaldson, Lufkin & Jenrette is not obligated to update, review or
reaffirm its opinion.

The following is a summary of the presentation made by Donaldson, Lufkin &
Jenrette to the board of directors of Somatix at its January 12, 1997 board
meeting.

Funding Options. Donaldson, Lufkin & Jenrette reviewed Somatix' declining
historical and projected cash balances and liquidity, together with the other
possible options of Somatix for meeting future funding needs that had
previously been explored. See "--Background of the Merger."

Contribution Analysis. Donaldson, Lufkin & Jenrette analyzed Somatix' and
Cell Genesys' relative contribution to the Combined Company with respect to
certain financial results and positions, including total revenue, operating
loss and net loss for the 12 months ended September 30, 1996 and cash as
estimated as of December 31, 1996. Somatix' contribution to the Combined
Company's pro forma results for the 12 months ended September 30, 1996 was
zero percent of total revenue and approximately 66 percent of the operating
loss and 72 percent of net loss. Somatix' contribution to the estimated
Combined Company's cash on hand as of December 31, 1996 was approximately 10
percent.

Transaction Analysis. Donaldson, Lufkin & Jenrette reviewed publicly
available information for selected transactions completed since January 1994
involving the combination of biotechnology companies. The

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comparative transactions reviewed (the "Comparative Transactions") included
four public transactions that were proposed and completed during the period.
These transactions include the combination of North American Biologicals Inc.
and Univax Biologics Inc.; Chiron Corp. and Viagene Inc.; Ligand
Pharmaceuticals Inc. and Glycomed Inc.; and NeXagen Inc. and Vestar Inc. The
Comparative Transactions selected are not intended to represent a complete
list of biotechnology company transactions that have occurred since January
1994; rather, they include only transactions involving combinations of
companies with operating size or financial performance characteristics
believed to be comparable to Somatix' characteristics. Donaldson, Lufkin &
Jenrette did not believe that multiple analysis is relevant in the case of
this type of company because most of these companies did not anticipate
product revenues for at least five years from the merger announcement date.
Because none of these companies had any product revenue and since their
respective EBIT, EBITDA and net income were all negative at the time of
acquisition, a premiums paid analysis was presented. The premiums for the
Comparative Transactions over the trading prices one day, one month, three
months and six months prior to announcement dates ranged from 8.1 to 36.6
percent, 13.5 to 37.7 percent, 3.3 to 48.4 percent and (3.4) to 57.3 percent,
respectively. In light of the particular circumstances of Somatix (including,
among other things, its limited funding options), Donaldson, Lufkin & Jenrette
also presented an analysis of the 18 public transactions since January 1993 in
which stock was included in whole or in part as consideration and for which a
premium was not paid to the shareholders of the acquired company, as measured
either one day, one week or one month prior to announcement of such
transaction.

Discounted Cash Flow Analysis. Donaldson, Lufkin & Jenrette performed a
seven-year discounted cash flow analysis of Somatix' long-range projections
using a weighted average cost of capital approach. In conducting this
analysis, Donaldson, Lufkin & Jenrette relied on certain assumptions,
financial forecasts and other information provided by Somatix' management
which included one set of projections which assumes the GVAX(TM) program is
canceled and one set of projections which assumes the GVAX(TM) program is not
canceled. Donaldson, Lufkin & Jenrette informed the board of directors of
Somatix that any forecast in the biotechnology industry is subject to a number
of variables which present significant obstacles. These variables include the
ability to secure adequate funding to bring products to market, the
technological feasibility, market capacity and market acceptance of products
and the competitive risk presented by other biotechnology companies with
similar products and/or better resources.

Using the information set forth in Somatix' forecast, Donaldson, Lufkin &
Jenrette calculated the estimated "Free Cash Flow" based on projected
unleveraged net income adjusted for (i) certain projected non-cash items
(e.g., depreciation and amortization); (ii) projected changes in cash working
capital; and (iii) projected capital expenditures. Using the weighted average
cost of capital approach, Donaldson, Lufkin & Jenrette analyzed Somatix'
forecast and discounted the stream of Free Cash Flows from fiscal year 1997 to
fiscal year 2003 provided in such forecast back to June 30, 1996 using
discount rates ranging from 40 to 50 percent. Donaldson, Lufkin & Jenrette
believed that such discount rates were appropriate because of Somatix' high
cost of acquiring capital. To estimate the residual value of Somatix at the
end of the forecast period, Donaldson, Lufkin & Jenrette applied terminal
multiples of 20.0 to 40.0 times to the projected fiscal year 2003 Net Income
and discounted such value back to June 30, 1996 using discount rates ranging
from 40 to 50 percent. Donaldson, Lufkin & Jenrette then aggregated the
present value of the Free Cash Flows and the present value of the residual
value to derive a range of implied enterprise values for Somatix. The range of
implied enterprise values for Somatix was then adjusted for cash and cash
equivalents by adding $7.1 million to the implied enterprise values to yield
an implied equity value. This equated to a valuation range of $0.63 to $2.47
per share assuming Somatix cancels the GVAX(TM) program and a valuation range
of $1.77 to $6.99 per share assuming Somatix does not cancel the GVAX(TM)
program. Such discounted cash flow analysis, and the values derived therefrom
assume, however, that Somatix will obtain sufficient funding to meet its
projected research and development costs and other funding needs. The
underlying projections, however, do not anticipate such funding needs being
satisfied by cash flow from operations because Somatix is not expected to
generate cash flow from operations during the next several years.

In addition, Donaldson, Lufkin & Jenrette also reviewed other factors,
including the pro forma ownership of the Combined Company and the historical
trading prices of the Somatix Common Stock and Cell Genesys Common Stock in
relationship to each other.

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The summary of the Donaldson, Lufkin & Jenrette analyses set forth above
does not purport to be a complete description of the analysis performed by
Donaldson, Lufkin & Jenrette, but describes in summary form the principal
elements of the presentation made by Donaldson, Lufkin & Jenrette to the
Somatix board of directors on January 12, 1997. The preparation of a fairness
opinion involves various determinations as to the most appropriate and
relevant methods of financial analysis and the application of these methods to
the particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. Each of the analyses conducted by
Donaldson, Lufkin & Jenrette was carried out in order to provide a different
perspective on the transaction and add to the total mix of information
available. Donaldson, Lufkin & Jenrette did not form a conclusion as to
whether any individual analysis, considered in isolation, supported or failed
to support an opinion as to fairness from a financial point of view. Rather,
in reaching its conclusion, Donaldson, Lufkin & Jenrette considered the
results of the analyses in light of each other and ultimately reached its
opinion based on the results of all analyses taken as a whole. Donaldson,
Lufkin & Jenrette did not place particular reliance or weight on any
individual analysis, but instead concluded that its analyses, taken as whole,
supported its determination. Accordingly, notwithstanding the factors
suggested above, Donaldson, Lufkin & Jenrette believes that its analyses must
be considered as a whole and that selecting portions of its analyses or the
factors it considered, without considering all analyses and factors, could
create an incomplete view of the process underlying the analyses performed by
Donaldson, Lufkin & Jenrette in connection with the preparation of its
opinion. In performing its analyses, Donaldson, Lufkin & Jenrette made
numerous assumptions with respect to industry performance, business and
economic conditions and other matters. The analyses performed by Donaldson,
Lufkin & Jenrette are not necessarily indicative of actual values or future
results, which may be significantly more or less favorable than suggested by
such analyses.

Donaldson, Lufkin & Jenrette is an internationally recognized investment
banking and advisory firm. Donaldson, Lufkin & Jenrette, as part of its
investment banking business, is regularly engaged in the valuation of
businesses and their securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes.

Pursuant to the terms of an engagement letter dated July 23, 1996, Somatix
has agreed to pay Donaldson, Lufkin & Jenrette a retainer of $25,000 per
quarter, a fee of $450,000 upon the delivery of Donaldson, Lufkin & Jenrette's
opinion described above, irrespective of the conclusion reached therein (and
an additional fee of $100,000 for each update of such opinion) and an
additional fee to be paid upon consummation of the Merger equal to 1.5 percent
of the total consideration to be paid by an acquiror in connection with the
acquisition of Somatix (including the assumption or refinancing of any debt or
preferred stock), less the amounts paid with respect to the retainer and
fairness opinion fees. Somatix has also agreed to reimburse Donaldson, Lufkin
& Jenrette promptly for all out-of-pocket expenses (including the reasonable
fees and expenses of counsel) incurred by Donaldson, Lufkin & Jenrette in
connection with its engagement, and to indemnify Donaldson, Lufkin & Jenrette
and certain related persons against certain liabilities in connection with its
engagement, including liabilities under the federal securities laws.

In the ordinary course of business, Donaldson, Lufkin & Jenrette may
actively trade the securities of both Somatix and Cell Genesys for its own
account and for the accounts of its customers and, accordingly, may at any
time hold a long or short position in such securities.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

The following discussion summarizes the material federal income tax
consequences of the Merger to Somatix and holders of Somatix Capital Stock.
The discussion is based on current law. The discussion does not address
aspects of federal taxation other than income taxation, nor does it address
all aspects of federal income taxation including, without limitation, aspects
of federal income taxation that may be applicable to particular stockholders,
such as stockholders who are dealers in securities, foreign persons or those
who acquired their Somatix Capital Stock in a compensation transaction. The
discussion also does not address the federal income tax consequences of the
Merger to holders of options or warrants to purchase Somatix Capital Stock, or
to the holder(s) of the Fletcher Warrant. In addition, it does not address the
state, local or foreign tax consequences of the Merger, if any.

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HOLDERS OF SOMATIX CAPITAL STOCK ARE URGED TO CONSULT THEIR TAX ADVISORS
WITH RESPECT TO THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE
MERGER.

Assuming the Merger qualifies as a "reorganization" within the meaning of
Section 368 of the Code, the principal federal income tax consequences of the
Merger to Somatix and holders of Somatix Capital Stock will, in the opinion of
counsel to Cell Genesys and Somatix, respectively, be as follows: (i) no gain
or loss will be recognized by Somatix or Cell Genesys in the Merger; (ii) no
gain or loss will be recognized by holders of Somatix Capital Stock upon their
receipt of Cell Genesys Common Stock in exchange for their Somatix Capital
Stock, except that holders of Somatix Capital Stock who receive cash proceeds
in lieu of fractional shares of Cell Genesys Common Stock will recognize gain
or loss equal to the difference, if any, between such proceeds and the tax
basis of Somatix Capital Stock allocated to their fractional share interests;
(iii) such gain or loss, if any, will constitute capital gain or loss if the
fractional share interests exchanged are held as capital assets at the time of
the Merger; (iv) such capital gain or loss will be long-term capital gain or
loss if the holding period for the fractional share interests (including the
holding period of Somatix Capital Stock attributed thereto as described below)
exceeds one year; (v) the tax basis of Cell Genesys Common Stock received by
holders of Somatix Capital Stock will be the same as the tax basis of the
Somatix Capital Stock exchanged therefor less the tax basis, if any, allocated
to fractional share interests; and (vi) the holding period of Cell Genesys
Common Stock (including fractional share interests for which cash is received
in lieu thereof) in the hands of holders of Somatix Capital Stock will include
the holding period of their Somatix Capital Stock exchanged therefor; provided
that such Somatix Capital Stock is held as a capital asset at the time of the
Merger.

It is a condition to Cell Genesys' and Somatix' obligations to effect the
Merger that Cell Genesys and Somatix shall each have received opinions (the
"Tax Opinions") from their respective counsel, Shearman & Sterling and
Brobeck, Phleger & Harrison LLP, which Tax Opinions shall not have been
withdrawn or modified in any material respect, to the effect that, on the
basis of certain representations, and subject to certain assumptions and
limitations stated in the Tax Opinions, the Merger will qualify as a tax-free
reorganization under Section 368 of the Code and that each of Cell Genesys,
Merger Sub and Somatix will be a party to the reorganization within the
meaning of Section 368(b) of the Code.

No ruling has been or will be obtained from the Internal Revenue Service
with respect to the Merger. The Tax Opinions are not binding on the Internal
Revenue Service or the courts, and no assurance can be given that the Internal
Revenue Service would not be able to successfully challenge the conclusions
expressed in the Tax Opinions.

CERTAIN FEDERAL SECURITIES LAW CONSEQUENCES

All shares of Cell Genesys Common Stock received by Somatix stockholders in
the Merger will be freely transferable, except that shares of Cell Genesys
Common Stock received by persons who are deemed to be affiliates of Somatix
prior to the Merger may be resold by them only in transactions permitted by
the resale provisions of Rule 145 promulgated under the Securities Act (or
Rule 144 in the case of such persons who become affiliates of Cell Genesys) or
otherwise in compliance with (or pursuant to an exemption from) the
registration requirements of the Securities Act. Persons deemed to be
affiliates of Somatix or Cell Genesys are those individuals or entities that
control, are controlled by, or are under common control with, such party and
generally include executive officers and directors of such party as well as
certain principal stockholders of such party. The Merger Agreement requires
Somatix to use its best efforts to cause each of its affiliates to execute a
written agreement to the effect that such person will not offer or sell or
otherwise dispose of any of the shares of Cell Genesys Common Stock issued to
such person in or pursuant to the Merger except in compliance with the
Securities Act and the rules and regulations promulgated by the Commission
thereunder. This Joint Proxy Statement/Prospectus does not cover any resales
of Cell Genesys Common Stock received by affiliates of Somatix in the Merger.

ACCOUNTING TREATMENT

The Merger is expected to be accounted for as a purchase and substantially
all of the purchase price is expected to be allocated to in-process-acquired
technology and charged to expense in the quarter ending June 30, 1997.

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INTERESTS OF CERTAIN PERSONS IN THE MERGER

Employment Agreements. Each of David W. Carter, Edward O. Lanphier II,
Lawrence K. Cohen, Ph.D. and Joseph Rokovich are parties to employment
agreements with Somatix which are affected by a change in control of Somatix,
such as the Merger. These agreements provide that in the event the employee is
terminated after a change of control, such employee is entitled to certain
severance benefits. The value of such severance benefits for Messrs. Carter,
Lanphier, Cohen and Rokovich, which includes salary and other cash
compensation, is estimated to be approximately $390,072, $198,672, $182,552
and $130,870, respectively.

Stock Options. All options to purchase shares of Somatix Common Stock held
by such persons will become immediately exercisable upon such a change in
control and will thereafter remain exercisable for a period of three years,
whether or not the employment of such person continues following the change in
control. As of March 31, 1997, each of Messrs. Carter, Lanphier, Cohen and
Rokovich has unvested options to purchase Somatix Common Stock in the amount
of 131,250, 67,188, 95,250 and 63,875 shares, respectively. The exercise price
for such options ranges from $3.00 per share to $6.625 per share with a
weighted average exercise price of such options for Messrs. Carter, Lanphier,
Cohen and Rokovich of $3.75, $4.47, $5.09 and $4.03, respectively. Based upon
the current trading price of Somatix Common Stock, such options have no
immediate value. However, such options may realize value within the three-year
term of exercisability.

Management Incentive Bonuses. In December 1996, the Somatix board of
directors agreed that each of Messrs. Carter, Lanphier, Cohen and Rokovich
would be paid 100 percent of the available bonus under the fiscal year 1997
Management Incentive Plan established for such officers in the event of and at
the time of a change in control. The amount of such bonus payments, including
for this purpose amounts that nonetheless have become payable or would have
been paid to Messrs. Carter, Lanphier, Cohen and Rokovich subsequent to
Somatix' fiscal year end at June 30, 1997 is approximately $102,000, $57,330,
$52,494 and $32,238, respectively.

Split-Dollar Life Insurance. In connection with the Merger, the Somatix
board of directors waived collateral assignments for certain split-dollar life
insurance policies (which action has an estimated value to Messrs. Carter and
Lanphier of $483,785 and $55,530, respectively) and has granted certain tax
protection to Messrs. Carter and Lanphier with respect to tax consequences
arising from such assignments (which action has an estimated value to Messrs.
Carter and Lanphier of $368,661 and $42,315, respectively).

Director Option Grants. In connection with the Merger, and at the Effective
Time, Mr. Carter, chairman of the board of directors, president and chief
executive officer of Somatix and John T. Potts, Jr., M.D., Thomas E. Shenk,
Ph.D. and Inder M. Verma, Ph.D., all of whom currently serve as directors of
Somatix, will become, and James M. Gower, Raju S. Kucherlapati, Ph.D., Joseph
E. Maroun and Eugene L. Step, all of whom currently serve as directors of Cell
Genesys, will remain, directors of Cell Genesys. At such time, subject to the
approval of Cell Genesys' stockholders at the Cell Genesys Annual Meeting,
they will each receive a special grant of options to purchase 30,000 shares of
Cell Genesys Common Stock. See "Additional Matters Submitted to a Vote of Cell
Genesys Stockholders--Additional Proposal No. 2--Special Option Grant."

Indemnification; Insurance and Indemnification Agreements. Under the Merger
Agreement, Cell Genesys has agreed that the certificate of incorporation of
the Surviving Corporation in the Merger will contain the indemnification
provisions set forth in Somatix' certificate of incorporation and that such
provisions will not be amended, repealed or otherwise modified for a period of
six years from the Effective Time in any manner that would adversely affect
the rights thereunder of individuals who at the Effective Time were directors,
officers, employees or agents of Somatix. Cell Genesys has agreed to honor and
fulfill in all respects Somatix' obligations pursuant to such certificate of
incorporation. The Merger Agreement also provides that Cell Genesys and the
Surviving Corporation will honor and fulfill in all respects the obligations
of Somatix pursuant to indemnification agreements with Somatix' directors and
officers existing at or before the Effective Time.

Directors' and Officers' Liability Insurance. The Surviving Corporation is
obligated, for three years after the Effective Time, to use all commercially
reasonable efforts to maintain in effect directors' and officers' liability
insurance, if available, covering Somatix' current directors and officers on
terms comparable to the

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current insurance policies maintained by Somatix; provided, however, that in
no event will the Surviving Corporation be required to expend pursuant to the
Merger Agreement more than 125 percent of current annual premiums paid by
Somatix for such insurance.

REGULATORY MATTERS

APPRAISAL RIGHTS

Holders of Somatix Capital Stock are not entitled to appraisal rights under
Section 262 of the General Corporation Law in connection with the Merger
because the Somatix Common Stock was designated as a national market system
security on The Nasdaq National Market on the Somatix Record Date and the
shares of Cell Genesys Common Stock to be issued pursuant to the Merger will
be designated as national market system securities on The Nasdaq National
Market at the Effective Time. Holders of Cell Genesys Common Stock are not
entitled to appraisal rights under Section 262 of the General Corporation Law
in connection with the Merger because Cell Genesys is not a constituent
corporation in the Merger.

EXCHANGE OF SHARES

At or prior to the Effective Time, Cell Genesys will appoint, and will
retain for a period of at least six months after the Effective Time, an
exchange agent (the "Exchange Agent") to effect the exchange of shares of
Somatix Capital Stock for Cell Genesys Common Stock in connection with the
Merger. As soon as reasonably practicable after the Effective Time, the
Exchange Agent will mail to each holder of record of Somatix Capital Stock a
letter of transmittal containing instructions with respect to effecting the
surrender of certificates evidencing shares of Somatix Capital Stock in
exchange for certificates evidencing shares of Cell Genesys Common Stock.

Commencing immediately after the Effective Time and until the appointment of
the Exchange Agent is terminated, each holder of a certificate or certificates
theretofore evidencing shares of Somatix Capital Stock may surrender the same,
together with a duly executed letter of transmittal and such other customary
documents as Cell Genesys may reasonably require, to the Exchange Agent, and,
after the appointment of the Exchange Agent has been terminated, any such
holder may surrender any such certificate, letter of transmittal and other
documents to Cell Genesys. Such holder will be entitled upon such surrender to
receive in exchange therefor a certificate or certificates representing the
number of full shares of Cell Genesys Common Stock into which the shares of
Somatix Capital Stock theretofore represented by the certificate or
certificates so surrendered have been converted pursuant to the Merger,
together with a cash payment in lieu of fractional shares, if any, and all
such shares of Cell Genesys Common Stock will be deemed to have been issued at
the Effective Time. Until surrendered and exchanged, each outstanding
certificate which, prior to the Effective Time, represented issued and
outstanding shares of Somatix Capital Stock will be deemed for all corporate
purposes of Cell Genesys, other than the payment of dividends and other
distributions, if any, to evidence ownership of the number of full shares of
Cell Genesys Common Stock into which the shares of Somatix Capital Stock
theretofore represented thereby have been converted at the Effective Time.

Until certificates representing shares of Somatix Capital Stock are
surrendered, no dividend or other distribution, if any, payable to the holders
of record of Cell Genesys Common Stock as of any date subsequent to the
Effective Time will be paid to the holder of such certificate. Upon the
surrender of any such certificate representing shares of Somatix Capital
Stock, however, the record holder of the certificate or certificates
representing shares of Cell Genesys Common Stock issued in exchange therefor
will receive from the Exchange Agent or from Cell Genesys, as the case may be,
payment of the amount of dividends and other distributions, if any, which as
of any date subsequent to the Effective Time and until such surrender will
have become payable

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with respect to such number of shares of Cell Genesys Common Stock. No
interest will be payable with respect to the payment of any such presurrender
dividends upon the surrender of certificates theretofore representing shares
of Somatix Capital Stock.

No fractional share certificates for Cell Genesys Common Stock will be
issued upon the surrender for exchange of certificates evidencing shares of
Somatix Capital Stock. In lieu thereof, the Exchange Agent or Cell Genesys, as
the case may be, will pay each holder of Somatix Capital Stock an amount in
cash calculated as provided in the Merger Agreement.

Risk of loss and title to certificates representing shares of Somatix
Capital Stock will pass only upon proper delivery of such certificates to the
Exchange Agent.

At the Effective Time, the stock transfer books of Somatix with respect to
shares of Somatix Capital Stock will each be closed, and there will be no
further registration of transfers of shares of Somatix Capital Stock
thereafter on the records of any such stock transfer books. In the event of a
transfer of ownership of shares of Somatix Capital Stock that is not
registered in the stock transfer records of Somatix, at the Effective Time, a
certificate or certificates representing the number of full shares of Cell
Genesys Common Stock into which such shares of Somatix Capital Stock have been
converted will be issued to the transferee together with a cash payment in
lieu of fractional shares, if any, and a cash payment in the amount of any
presurrender dividends, if any, if the certificate or certificates
representing such shares of Somatix Capital Stock is or are properly
surrendered as described above, accompanied by all documents required to
evidence and effect such transfer and by evidence of payment of any applicable
stock transfer tax.

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THE MERGER AGREEMENT

The description of the Merger Agreement contained in this Joint Proxy
Statement/Prospectus is qualified in its entirety by reference to the complete
text of the Merger Agreement, a copy of which is attached hereto as Appendix A
and incorporated herein by reference.

EFFECTIVE TIME

The Merger will become effective by the filing of a certificate of merger
(the "Certificate of Merger") with the Secretary of State of the State of
Delaware. Cell Genesys and Somatix currently anticipate that the Effective
Time will occur on May 30, 1997. However, there can be no assurance that the
conditions to the Merger will be satisfied by such date, or at all, or that
the Merger Agreement will not be terminated.

CORPORATE MATTERS

At the Effective Time the certificate of incorporation and by-laws of Merger
Sub, as in effect immediately prior to the Effective Time, will become the
certificate of incorporation and by-laws of the Surviving Corporation, and the
officers and directors of Merger Sub immediately prior to the Effective Time
will become the initial officers and directors of the Surviving Corporation.

CONVERSION OF SECURITIES

At the Effective Time, by virtue of the Merger and without any action on the
part of Cell Genesys, Merger Sub, Somatix, the holders of Somatix Capital
Stock or the holders of common stock, par value $.01 per share, of Merger Sub,
(i) each share of Somatix Capital Stock issued and outstanding immediately
prior to the Effective Time will be converted into shares of Cell Genesys
Common Stock as described above under "The Merger-- Conversion of Somatix
Capital Stock" and (ii) each share of common stock, par value $.01 per share,
of Merger Sub issued and outstanding immediately prior to the Effective Time
and all rights in respect thereof will forthwith cease to exist and will be
converted into and become exchangeable for one newly and validly issued, fully
paid and nonassessable share of common stock of the Surviving Corporation.

OPTIONS AND WARRANTS TO PURCHASE SOMATIX COMMON STOCK

At the Effective Time, each option or warrant granted by Somatix to purchase
shares of Somatix Common Stock which is outstanding and unexercised
immediately prior to the Effective Time, will be assumed by Cell Genesys and
converted into an option or warrant to purchase shares of Cell Genesys Common
Stock in such number and at such exercise price as described below and
otherwise having the same terms and conditions as in effect immediately prior
to the Effective Time (except to the extent that such terms, conditions and
restrictions may be altered in accordance with their terms as a result of the
Merger). The number of shares of Cell Genesys Common Stock to be subject to
the new option or warrant will be equal to the product of (i) the number of
shares of Somatix Common Stock subject to the original option or warrant
multiplied by (ii) the Common Exchange Ratio. The exercise price per share of
Cell Genesys Common Stock under the new option or warrant will be equal to the
quotient of (i) the exercise price per share of Somatix Common Stock under the
original option or warrant divided by (ii) the Common Exchange Ratio. Upon
each exercise of options or warrants by a holder thereof, the aggregate number
of shares of Cell Genesys Common Stock deliverable upon such exercise will be
rounded down, if necessary, to the nearest whole share and the aggregate
exercise price will be rounded up, if necessary, to the nearest cent. As soon
as practicable after the Effective Time, Cell Genesys will file with the
Commission and use its best efforts to have declared effective a registration
statement on Form S-8 with respect to the shares of Cell Genesys Common Stock
issuable under any assumed Somatix stock option plans.

REPRESENTATIONS AND WARRANTIES

The Merger Agreement contains certain customary representations and
warranties on the part of Somatix, Cell Genesys and Merger Sub, including,
without limitation, representations and warranties as to (i) organization

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and qualification and subsidiaries; (ii) organizational documents; (iii)
capitalization; (iv) authority relative to the Merger Agreement and the Stock
Option Agreements; (v) no conflict and required filings and consents;
(vi) permits and compliance with laws; (vii) Commission filings and financial
statements; (viii) absence of certain changes or events since the end of the
previous fiscal year; (ix) employee benefit plans and labor matters; (x) tax
matters; (xi) contracts and debt instruments; (xii) litigation; (xiii)
environmental matters; (xiv) intellectual property; (xv) opinions of financial
advisors; (xvi) brokers; and (xvii) certain interests of officers and
directors in the constituent corporations.

The Merger Agreement contains certain additional representations and
warranties on the part of Somatix, including, without limitation,
representations and warranties as to projected balances of cash, cash
equivalents and marketable securities of Somatix (the "Projected Cash
Balances") and an operating budget for Somatix (the "Operating Budget") for
the period between execution of the Merger Agreement and August 31, 1997.

CONDUCT OF BUSINESS PENDING THE MERGER

The Merger Agreement provides that, between the date of the Merger Agreement
and the Effective Time, Somatix and Cell Genesys and their respective
subsidiaries must conduct their respective businesses in the ordinary course
consistent with past practice and use all reasonable efforts to preserve
substantially intact their respective business organizations. The Merger
Agreement further provides that neither Somatix nor Cell Genesys nor any of
their respective subsidiaries may, without the prior written consent of the
other party, between the date of the Merger Agreement and the Effective Time,
(i) amend its certificate of incorporation or by-laws; (ii) issue any shares
of capital stock, except for (A) issuances of common stock pursuant to options
and warrants thereon outstanding on the date of the Merger Agreement and
described therein, (B) issuances by Somatix of noncash dividends required to
be made under the terms of the certificate of designations of Somatix
applicable to the Somatix Series A Preferred Stock, (C) issuances by Cell
Genesys of options to new hires and (D) issuances by Cell Genesys of options
to employees, officers and directors consistent with past practice; (iii) sell
any property or assets, except, in the case of Cell Genesys, in the ordinary
course of business consistent with past practice or in an aggregate amount not
in excess of $10,000,000; (iv) acquire any interest in any person or any
division thereof or any assets, except, in the case of Cell Genesys, any
acquisition for consideration that is not, in the aggregate for all such
acquisitions, in excess of 10 percent of the market value of Cell Genesys; (v)
incur any indebtedness for borrowed money or issue any debt securities or
assume, guarantee or endorse the obligations of any person for borrowed money;
(vi) terminate, cancel or request any material change in, or agree to any
material change in, any material contract or enter into any corporate
partnering transaction or similar arrangement or any other agreement material
to its business; (vii) make or authorize any capital expenditure, except that
(A) Somatix may make capital expenditures not in excess of $5,000 individually
and $50,000 in the aggregate and (B) Cell Genesys may make capital
expenditures in the ordinary course of business consistent with past practice;
(viii) declare or pay any dividend or other distribution with respect to any
of its capital stock or, in the case of Somatix, the Fletcher Warrant, except
that Somatix may pay noncash dividends required to be made under the terms of
the certificate of designations of Somatix applicable to the Somatix Series A
Preferred Stock; (ix) reclassify, combine, split or subdivide or redeem,
purchase or otherwise acquire, directly or indirectly, any of its capital
stock; (x) increase the compensation payable to its officers, consultants or
employees, except, in the case of Cell Genesys, for increases in accordance
with past practice (including, without limitation, annual merit increases and
bonuses), or grant any rights to severance or termination pay to, or enter
into any employment or severance agreement which provides benefits upon a
change in control that would be triggered by the Merger with any of its
directors, officers, consultants or other employees, or establish or amend any
employee benefit plan, policy or arrangement for the benefit of any of its
directors, officers, consultants or other employees, except to the extent
required by applicable law or the terms of a collective bargaining agreement;
(xi) take any action with respect to accounting policies or procedures, other
than actions in the ordinary course of business consistent with past practice
or as required by United States generally accepted accounting principles;
(xii) make any tax election or settle or compromise any material income tax
liability, other than those made in the ordinary course of business consistent
with past practice and those for which specific reserves have been recorded on
its consolidated balance sheet included in its most recent annual report on
Form 10-K filed with the

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Commission, and only to the extent of such reserves; or (xiii) authorize or
enter into any formal or informal agreement or otherwise make any commitment
to do any of the foregoing.

COOPERATION; STEERING COMMITTEE

Pursuant to the Merger Agreement, Cell Genesys and Somatix established a
committee (the "Steering Committee") for the purpose of, to the extent
permitted by applicable law, facilitating the efficient transition and
combination of the respective businesses of Cell Genesys and Somatix as
promptly as practicable following the Effective Time. The Steering Committee
may consist of up to 10 individuals who will be designated from time to time
by the chairman of the board of directors of Cell Genesys in consultation with
the chairman of the board of directors of Somatix, and is chaired by Cell
Genesys.

NOTICES OF CERTAIN EVENTS

The Merger Agreement provides that each of Cell Genesys and Somatix must
give prompt notice to the other of (i) any notice or other communication from
any person alleging that the consent of such person is or may be required in
connection with the Merger; (ii) any notice or other communication from any
governmental entity in connection with the Merger; (iii) any actions, suits,
claims, investigations or proceedings commenced or, to its knowledge,
threatened against, relating to or involving or otherwise affecting Cell
Genesys, Somatix or their respective subsidiaries that relate to the
consummation of the Merger; (iv) the occurrence of a default or event that,
with the giving of notice or lapse of time or both, would become a default
under any material contract of such party; and (v) any change that could
reasonably be expected to have a material adverse effect on Somatix or Cell
Genesys or to delay or impede the ability of either Somatix or Cell Genesys to
perform its obligations pursuant to the Merger Agreement or the Stock Option
Agreements and to effect the consummation of the Merger.

ACCESS TO INFORMATION; CONFIDENTIALITY

The Merger Agreement provides that, from the date of the Merger Agreement to
the Effective Time, each of Cell Genesys and Somatix must (and must cause its
respective subsidiaries to) (i) provide to the other access at reasonable
times to its and its subsidiaries' officers, employees, agents, properties,
offices and other facilities and to the books and records thereof and (ii)
furnish promptly such information concerning its and its subsidiaries'
business, properties, contracts, assets, liabilities and personnel as the
other party may reasonably request. In addition, the obligations of Cell
Genesys and Somatix under the confidentiality agreement entered into between
them as of October 14, 1996 remain in effect.

NO SOLICITATION OF TRANSACTIONS

Pursuant to the Merger Agreement, neither Somatix nor Cell Genesys may,
directly or indirectly, solicit, initiate or knowingly encourage (including by
way of furnishing nonpublic information), or take any other action knowingly
to facilitate, any inquiries or the making of any proposal or offer
(including, without limitation, any proposal or offer to its stockholders)
that constitutes, or may reasonably be expected to lead to, any Competing
Transaction, or enter into or maintain or continue discussions or negotiate
with any person in furtherance of such inquiries or to obtain a Competing
Transaction, or agree to or endorse any Competing Transaction, or authorize or
permit any of the officers, directors or employees of such party or any of its
subsidiaries, or any investment banker, financial advisor, attorney,
accountant or other representative retained by such party or any of such
party's subsidiaries, to take any such action. However, the Merger Agreement
provides that the boards of directors of Cell Genesys and Somatix may (i)
comply with Rule 14e-2 promulgated under the Exchange Act with regard to a
tender or exchange offer and (ii) after receiving the advice of outside
counsel to the effect that such board of directors is required to do so in
order to discharge properly its fiduciary duties, consider, negotiate, approve
and recommend to its stockholders an unsolicited bona fide written acquisition
proposal which (A) was not received in violation of the Merger Agreement, (B)
if executed or consummated would be a Competing Transaction, (C) is not
subject to financing and (D) such board of directors determines in good faith,
after

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consultation with its financial advisors, would result in a transaction more
favorable to its stockholders than the transaction contemplated by the Merger
Agreement (any such acquisition proposal, a "Superior Proposal"). The Merger
Agreement requires that each party thereto must notify the other parties
thereto promptly if any proposal or offer, or any inquiry or contact with any
person with respect thereto, regarding such an acquisition proposal or a
Competing Transaction is made.

For purposes of the Merger Agreement, "Competing Transaction" means, with
respect to any person, (i) any merger, consolidation, share exchange, business
combination or other similar transaction involving such person; (ii) any sale,
lease, exchange, mortgage, pledge, transfer or other disposition of 15 percent
or more of the assets of such person and its subsidiaries, taken as a whole,
in a single transaction or series of transactions; (iii) any tender offer or
exchange offer for 25 percent or more of the outstanding voting securities of
such person or the filing of a registration statement under the Securities Act
in connection therewith; (iv) any person having acquired beneficial ownership
or the right to acquire beneficial ownership of, or any "group" (as such term
is defined under Section 13(d) of the Exchange Act) having been formed which
beneficially owns or has the right to acquire beneficial ownership of, 25
percent or more of the outstanding voting securities of such person; (v) any
solicitation by any person (A) proposing any transaction described in (i),
(ii), (iii) or (iv) above or (B) who is not a stockholder of such person on
that date of the Merger Agreement, in opposition to the approval of the Merger
Agreement by the stockholders of Cell Genesys or Somatix; or (vi) any public
announcement of a proposal, plan or intention to do any of the foregoing or
any agreement to engage in any of the foregoing.

PLAN OF REORGANIZATION

The Merger Agreement is intended to constitute a tax-free "plan of
reorganization" within the meaning of the income tax regulations promulgated
under the Code. Pursuant to the Merger Agreement, Somatix and Cell Genesys
have agreed that, from and after the date of the Merger Agreement, they will
use all reasonable efforts to cause the Merger to qualify, and will not
knowingly take any actions or cause any actions to be taken which could
reasonably be expected to prevent the Merger from qualifying, as a tax-free
reorganization under the Code. In the event that the Merger fails to qualify
as a tax-free reorganization under the Code, Somatix and Cell Genesys have
agreed to negotiate in good faith to restructure the Merger so that it will
qualify as a tax-free transaction under the Code.

FURTHER ACTION; CONSENTS; FILINGS

The Merger Agreement provides that each of Somatix and Cell Genesys must use
all reasonable efforts to (i) take, or cause to be taken, all appropriate
action, and do, or cause to be done, all things necessary, proper or advisable
under applicable law or otherwise to consummate and make effective the Merger,
(ii) obtain from governmental entities any consents, licenses, permits,
waivers, approvals, authorizations or orders required to be obtained or made
by Cell Genesys, Merger Sub, Somatix or the Surviving Corporation or any of
their respective subsidiaries in connection with the authorization, execution
and delivery of the Merger Agreement and the consummation of the Merger and
(iii) make all necessary filings, and thereafter make any other required or
appropriate submissions, with respect to the Merger Agreement and the Merger
required under the rules and regulations of the NASD, the Securities Act, the
Exchange Act and any other applicable federal or state securities laws and any
other applicable law.

OFFICERS AND DIRECTORS OF CELL GENESYS AFTER THE MERGER

At the Effective Time, subject to the certificate of incorporation and by-
laws of Cell Genesys, Stephen A. Sherwin, M.D. will continue to hold the
offices of Chairman of the Board, President and Chief Executive Officer of
Cell Genesys.

Immediately after the Effective Time, the total number of persons serving on
the board of directors of Cell Genesys will be nine and, subject to the
election at the Cell Genesys Annual Meeting of the Cell Genesys director

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nominees designated under "Additional Matters Submitted to a Vote of Cell
Genesys Stockholders--Additional Proposal No. 3--Election of Directors," will
consist of the following individuals:

David W. Carter
James M. Gower
Raju S. Kucherlapati, Ph.D.
Joseph E. Maroun
John T. Potts, Jr., M.D.
Thomas E. Shenk, Ph.D.
Stephen A. Sherwin, M.D.
Eugene L. Step
Inder M. Verma, Ph.D.

In the event that, prior to the Effective Time, any person so selected to
serve on the board of directors of Cell Genesys is unable or unwilling to
serve in such position, the party with which such person was affiliated prior
to that date of the Merger Agreement will designate another person to serve in
such person's stead in accordance with the provisions of the immediately
preceding sentence; provided that any such designee must be reasonably
satisfactory to each of Cell Genesys and Somatix. From and after the Effective
Time, the composition of the board of directors of Cell Genesys will be
determined in accordance with its certificate of incorporation and by-laws.

NASDAQ NATIONAL MARKET LISTING

Somatix and Cell Genesys have each agreed to use all reasonable efforts to
obtain, prior to the Effective Time, the approval for listing on The Nasdaq
National Market, effective upon official notice of issuance, of the shares of
Cell Genesys Common Stock into which the shares of Somatix Capital Stock will
be converted pursuant to the Merger.

BRIDGE FACILITY

Pursuant to the Merger Agreement, Somatix has agreed to use all reasonable
efforts to prevent the actual balances of cash, cash equivalents and
marketable securities held by Somatix on any date (the "Actual Balances") from
falling below $5,000,000. In connection therewith, the Merger Agreement
provides that during the term thereof Somatix must promptly notify Cell
Genesys if the Projected Cash Balances are (i) then forecast by senior
management of Somatix to fall below $5,000,000 within 30 days or (ii) then
below $5,000,000. The Merger Agreement further provides that, upon Somatix'
written request and so long as no Commitment Termination Event (as defined
below) has occurred which reduces the then available Bridge Facility amount to
$0.00 and certain customary conditions have been satisfied, Cell Genesys must
lend Somatix funds (the "Bridge Facility") upon the terms set forth in the
Merger Agreement and in the promissory note, dated January 12, 1997 (the
"Bridge Facility Promissory Note"), made by Somatix to the order of Cell
Genesys, in amounts sufficient to prevent the Projected Cash Balances from
falling below $5,000,000. All funds provided to Somatix under the Bridge
Facility must be used solely to fund ordinary and necessary operating expenses
in accordance with the then current Operating Budget.

For purposes of the Merger Agreement and the Bridge Facility Promissory
Note, "Commitment Termination Event" means any of (i) termination of the
Merger Agreement or the Bridge Facility Promissory Note for any reason
whatsoever; (ii) the occurrence of an event of default under the Bridge
Facility Promissory Note; and (iii) a material breach of the Merger Agreement
or the Bridge Facility Promissory Note.

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At Cell Genesys' request, Somatix must borrow under the Bridge Facility to
prevent the Actual Balances from falling below $5,000,000. Somatix will grant
Cell Genesys a security interest in certain Somatix intellectual property to
secure the indebtedness at any time outstanding under the Bridge Facility.

The Bridge Facility will mature and become due and payable in full on the
earliest to occur of (i) December 31, 1997; (ii) the 180th day after
termination of the Merger Agreement for any reason whatsoever; and
(iii) notwithstanding the immediately preceding clause (ii), the first
business day after termination of the Merger Agreement by Cell Genesys,
because (A) the board of directors of Somatix has withdrawn, modified or
changed its recommendation of the Merger Agreement, the Merger or the Somatix
Amendment in a manner adverse to Cell Genesys or its stockholders or resolved
to do so, (B) the board of directors of Somatix has recommended to the
stockholders of Somatix a Competing Transaction or resolved to do so or (C) a
tender offer or exchange offer for 15 percent or more of the outstanding
shares of capital stock of Somatix has been commenced and the board of
directors of Somatix has failed to recommend against acceptance of such tender
offer or exchange offer by its stockholders (including by taking no position
with respect to the acceptance of such tender offer or exchange offer by its
stockholders).

Somatix is obligated, in consultation with the Steering Committee, to revise
the Projected Cash Balances and the Operating Budget from time to time, but in
no event less frequently than monthly; provided, however, that, in the event
Somatix delivers to Cell Genesys a revised Operating Budget materially
adversely different than the Operating Budget delivered on the date of the
Merger Agreement without the prior written consent of Cell Genesys, Cell
Genesys' Obligations under the Bridge Facility will be suspended until such
time as the parties agree to a revised Operating Budget.

AUDITED FINANCIAL STATEMENTS

As soon as practicable after the date of the Merger Agreement or, in the
case of the fiscal quarter of Somatix ending March 31, 1997, as soon as
practicable after March 31, 1997 if Cell Genesys does not then reasonably
expect the Effective Time to occur within 45 days of such date, Somatix will
cause its independent auditors to conduct an audit of the balance sheets of
Somatix at and as of December 31, 1996 and March 31, 1997, respectively, and
related statements of operations, stockholders' equity and cash flows of
Somatix for the six-month period ended December 31, 1996 and the nine-month
period ending March 31, 1997, respectively, and to render its unqualified
report thereon. Within one business day of receipt of the above described
audited consolidated financial statements of Somatix, Somatix must deliver to
Cell Genesys true, complete and correct copies of such financial statements,
together with the auditors' report thereon.

PERMITTED FINANCINGS

Notwithstanding the restrictions contained elsewhere in the Merger Agreement
and the provisions of the Bridge Facility, Somatix may incur indebtedness in
addition to that in effect on that date of the Merger Agreement in a principal
amount not in excess of $2,000,000 (a "Permitted Financing") if, among other
things, such additional indebtedness is unsecured and any shares of Somatix
Capital Stock (or warrants, options or similar securities convertible into or
exchangeable for Somatix Capital Stock) issued in connection with such
additional indebtedness will, by their terms, be converted into shares of Cell
Genesys Common Stock pursuant to the Merger. In addition, the terms and
conditions of a Permitted Financing must be reasonably satisfactory to Cell
Genesys. All funds provided to Somatix under any Permitted Financing must be
used solely to fund ordinary and necessary operating expenses in accordance
with the then current Operating Budget.

DIRECTORS' AND OFFICERS' INDEMNIFICATION AND INSURANCE

The Merger Agreement requires that the certificate of incorporation and by-
laws of the Surviving Corporation contain provisions no less favorable with
respect to indemnification than are set forth in the certificate of
incorporation and by-laws of Somatix on the date of the Merger Agreement,
which provisions may not be amended, repealed or otherwise modified for a
period of six years from the Effective Time in any manner

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that would affect adversely the rights thereunder of individuals who at the
Effective Time were directors, officers, employees, fiduciaries or agents of
Somatix, unless such modification is required by law.

Pursuant to the Merger Agreement, Somatix must, to the fullest extent
permitted under applicable law and regardless of whether the Merger becomes
effective, indemnify and hold harmless, and, after the Effective Time, the
Surviving Corporation must, to the fullest extent permitted under applicable
law, indemnify and hold harmless, each present and former director, officer,
employee, fiduciary and agent of Somatix and each of its subsidiaries
(collectively, the "Indemnified Parties") against all costs and expenses
(including attorneys' fees), judgments, fines, losses, claims, damages,
liabilities and settlement amounts paid in connection with any claim, action,
suit, proceeding or investigation (whether arising before or after the
Effective Time), whether civil, criminal, administrative or investigative,
arising out of or pertaining to any action or omission in their capacity as an
officer, director, employee, fiduciary or agent, whether occurring before or
after the Effective Time, for a period of six years after the date of the
Merger Agreement.

The Merger Agreement provides that the Surviving Corporation must use all
reasonable efforts to maintain in effect for three years from the Effective
Time, if available, the current directors' and officers' liability insurance
policies maintained by Somatix (provided that the Surviving Corporation may
substitute therefor policies of at least the same coverage containing terms
and conditions which are not materially less favorable) with respect to
matters occurring prior to the Effective Time; provided, however, that in no
event will the Surviving Corporation be required to expend more than an amount
per year equal to 125 percent of current annual premiums paid by Somatix for
such insurance.

CONDITIONS TO THE MERGER

Conditions to the Obligations of Each Party. The obligations of both Cell
Genesys and Somatix to consummate the Merger are subject to the satisfaction
or waiver of certain conditions, including, without limitation, (i) the
continuing effectiveness of the Registration Statement; (ii) the approval of
the Merger Agreement and the Merger by the stockholders of each of Somatix and
Cell Genesys; (iii) the approval of the Cell Genesys Amendment by the
stockholders of Cell Genesys; (iv) the absence of any injunction or order
making the Merger illegal or otherwise prohibiting its consummation; (v) the
receipt of all material consents, approvals and authorizations legally
required to be obtained to consummate the Merger; and (vi) the authorization
for listing on The Nasdaq National Market, subject to official notice of
issuance, of the shares of Cell Genesys Common Stock into which shares of
Somatix Capital Stock will be converted pursuant to the Merger Agreement.

Conditions to the Obligations of Somatix. The obligations of Somatix to
consummate the Merger are subject to the satisfaction or waiver of certain
additional conditions, including, without limitation, (i) the accuracy at and
as of the Effective Time of each of the representations and warranties of Cell
Genesys contained in the Merger Agreement; (ii) the performance or compliance
by Cell Genesys with all material agreements and covenants required by the
Merger Agreement to be performed or complied with by it on or prior to the
Effective Time; and (iii) the receipt from Brobeck, Phleger & Harrison LLP,
special counsel to Somatix, of its opinion to the effect that the Merger will
be treated for federal income tax purposes as a tax-free reorganization. Each
of the foregoing conditions is in favor of Somatix only, which has no current
intention of waiving any such conditions. However, if Somatix were to elect to
waive any such conditions, assuming all other conditions to the Merger had
been satisfied, the Merger would be consummated without the waived conditions
having been satisfied.

Conditions to the Obligations of Cell Genesys. The obligations of Cell
Genesys to consummate the Merger are subject to the satisfaction or waiver of
certain additional conditions, including, without limitation, (i) the accuracy
at and as of the Effective Time of each of the representations and warranties
of Somatix contained in the Merger Agreement; (ii) the performance or
compliance by Somatix with all material agreements and covenants required by
the Merger Agreement to be performed or complied with by it on or prior to the
Effective Time; (iii) the receipt from Shearman & Sterling, special counsel to
Cell Genesys, of its opinion to the effect that the Merger will be treated for
federal income tax purposes as a tax-free reorganization; (iv) the approval of

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the Somatix Amendment by the stockholders of Somatix; and (v) the election by
the holder(s) of the Fletcher Warrant in accordance with the terms of the
Fletcher Warrant either (A) to resell the Fletcher Warrant to Somatix for cash
or (B) to permit Cell Genesys to assume the Fletcher Warrant pursuant to the
Merger Agreement. Each of the foregoing conditions is in favor of Cell Genesys
only, which has no current intention of waiving any such conditions. However,
if Cell Genesys were to elect to waive any such conditions, assuming all other
conditions to the Merger had been satisfied, the Merger would be consummated
without the waived conditions having been satisfied.

If any of the foregoing conditions applicable to such party's obligation to
consummate the Merger is waived by Cell Genesys or Somatix, and the board of
directors of Cell Genesys or Somatix, as the case may be, determines in the
exercise of its business judgment and upon the advice of counsel that such
condition is material, Cell Genesys or Somatix, as the case may be, will
resolicit proxies from its stockholders in connection with the Cell Genesys
Annual Meeting or the Somatix Special Meeting, as the case may be.

TERMINATION

The Merger Agreement provides that it may be terminated and the Merger
abandoned at any time prior to the Effective Time, notwithstanding the
adoption and approval of the Merger Agreement by the stockholders of Cell
Genesys and Somatix, (i) by mutual written consent duly authorized by the
boards of directors of each of Cell Genesys and Somatix; (ii) by either Cell
Genesys or Somatix, if the Effective Time does not occur on or before August
31, 1997; (iii) by either Cell Genesys or Somatix, if any governmental order,
writ, injunction or decree preventing the consummation of the Merger is
entered by any court of competent jurisdiction and becomes final and
nonappealable; (iv) by Cell Genesys, if (A) the board of directors of Somatix
withdraws, modifies or changes its recommendation of the Merger Agreement, the
Merger or the Somatix Amendment in a manner adverse to Cell Genesys or its
stockholders or resolves to do so, (B) the board of directors of Somatix
recommends to the stockholders of Somatix a Competing Transaction or resolves
to do so or (C) a tender offer or exchange offer for 15 percent or more of the
outstanding shares of capital stock of Somatix is commenced and the board of
directors of Somatix fails to recommend against acceptance of such tender
offer or exchange offer by its stockholders (including by taking no position
with respect to the acceptance of such tender offer or exchange offer by its
stockholders); (v) by Somatix, if (A) the board of directors of Cell Genesys
withdraws, modifies or changes its recommendation of the Merger Agreement or
the Merger in a manner adverse to Somatix or its stockholders or resolves to
do so, (B) the board of directors of Cell Genesys recommends to the
stockholders of Cell Genesys a Competing Transaction or resolves to do so or
(C) a tender offer or exchange offer for 15 percent or more of the outstanding
shares of capital stock of Cell Genesys is commenced and the board of
directors of Cell Genesys fails to recommend against acceptance of such tender
offer or exchange offer by its stockholders (including by taking no position
with respect to the acceptance of such tender offer or exchange offer by its
stockholders); (vi) by Cell Genesys or Somatix, if (A) the Merger Agreement
and the Merger fail to receive the requisite votes for approval at the Somatix
Special Meeting or any adjournment or postponement thereof or (B) if the
Merger Agreement and the Merger fail to receive the requisite votes for
approval at the Cell Genesys Annual Meeting or any adjournment or postponement
thereof; (vii) by Cell Genesys, upon a material uncured breach of any
representation, warranty, covenant or agreement on the part of Somatix set
forth in the Merger Agreement; (viii) by Somatix, upon a material uncured
breach of any representation, warranty, covenant or agreement on the part of
Cell Genesys set forth in the Merger Agreement; (ix) by Somatix, if (A) the
board of directors of Somatix resolves to accept, accepts or recommends to the
stockholders of Somatix a Superior Proposal and (B) Somatix pays to Cell
Genesys all termination fees and expenses owing by Somatix to Cell Genesys
pursuant to the Merger Agreement; and (x) by Cell Genesys, if (A) the board of
directors of Cell Genesys resolves to accept, accepts or recommends to the
stockholders of Cell Genesys a Superior Proposal and (B) Cell Genesys pays to
Somatix all termination fees and expenses owing by Cell Genesys to Somatix
pursuant to the Merger Agreement.

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TERMINATION FEES AND EXPENSES

The Merger Agreement provides that (i) if Cell Genesys terminates the Merger
Agreement pursuant to clause (iv), (vi)(A) or (vii) in the immediately
preceding paragraph or if Somatix terminates the Merger Agreement pursuant to
clause (vi)(A) or (ix) in the immediately preceding paragraph, then Somatix
must pay to Cell Genesys an amount equal to $3,000,000 plus all of Cell
Genesys' reasonable out-of-pocket expenses incurred in connection with the
Merger Agreement and the Merger and (ii) if Somatix terminates the Merger
Agreement pursuant to clause (v), (vi)(B) or (viii) in the immediately
preceding paragraph or Cell Genesys terminates the Merger Agreement pursuant
to clause (vi)(B) or (x) in the immediately preceding paragraph, then Cell
Genesys must pay to Somatix an amount equal to $3,000,000 plus all of Somatix'
reasonable out-of-pocket expenses incurred in connection with the Merger
Agreement and the Merger.

AMENDMENT AND WAIVER

The Merger Agreement may be amended by the parties thereto by action taken
by or on behalf of their respective boards of directors at any time prior to
the Effective Time; provided, however, that, after the approval of the Merger
Agreement by the stockholders of Somatix or Cell Genesys, as the case may be,
no amendment may be made, except such amendments as have received the
requisite stockholder approval and such amendments as are permitted to be made
without stockholder approval under the General Corporation Law. The Merger
Agreement may not be amended except by an instrument in writing signed by the
parties thereto.

At any time prior to the Effective Time, any party to the Merger Agreement
may (i) extend the time for or waive compliance with the performance of any
obligation or other act of any other party thereto or (ii) waive any
inaccuracy in the representations and warranties contained in the Merger
Agreement or in any document delivered pursuant thereto. Any such extension or
waiver will be valid if set forth in an instrument in writing signed by the
party or parties to be bound thereby.

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THE STOCK OPTION AGREEMENTS

GENERAL

Concurrent with the execution of the Merger Agreement and as an inducement
to the other party to enter into the Merger Agreement, Cell Genesys and
Somatix entered into stock option agreements, each dated as of January 12,
1997, pursuant to which (i) Somatix granted to Cell Genesys an option to
purchase up to 5,441,480 newly issued shares of Somatix Common Stock,
representing approximately 19.9 percent of the shares of the Somatix Common
Stock issued and outstanding on the date of grant, at a purchase price of
$3.51 per share and (ii) Cell Genesys granted to Somatix an option to purchase
up to 3,286,703 newly issued shares of Cell Genesys Common Stock, representing
approximately 19.9 percent of the shares of the Cell Genesys Common Stock
issued and outstanding on the date of grant, at a purchase price of $9.12 per
share.

The following descriptions of the Stock Option Agreements are qualified in
their entirety by reference to the complete text of the Somatix Stock Option
Agreement and the Cell Genesys Stock Option Agreement, copies of which are
attached as Exhibit 10.1 and Exhibit 10.2, respectively, to Cell Genesys'
Current Report on Form 8-K filed with the Commission on January 27, 1997 and
incorporated herein by reference. Copies of the Somatix Stock Option Agreement
and the Cell Genesys Stock Option Agreement are also attached as Exhibit 10.1
and Exhibit 10.2, respectively, to Somatix' Current Report on Form 8-K filed
with the Commission on January 27, 1997 and incorporated herein by reference.

THE CELL GENESYS STOCK OPTION AGREEMENT

Pursuant to the Cell Genesys Stock Option Agreement, Cell Genesys granted to
Somatix an option (the "Cell Genesys Stock Option") to purchase up to
3,286,703 newly issued shares of Cell Genesys Common Stock (the "Cell Genesys
Option Shares"), representing approximately 19.9 percent of the shares of the
Cell Genesys Common Stock issued and outstanding on the date of grant, at a
purchase price of $9.12 per share (the "Cell Genesys Purchase Price").

Somatix may exercise the Cell Genesys Stock Option, in whole or in part, at
any time or from time to time after the occurrence of any event or
circumstance which obligates Cell Genesys to pay to Somatix any fee or
expenses upon termination of the Merger Agreement and prior to the first to
occur of any of (i) the Effective Time, (ii) the termination of the Cell
Genesys Stock Option Agreement pursuant to its terms and (iii) the date which
is 90 days after the occurrence of any event triggering Somatix' right to
exercise the Cell Genesys Stock Option.

The Cell Genesys Stock Option Agreement provides that, in the event Somatix
wishes to exercise the Cell Genesys Stock Option, it must send a written
notice to Cell Genesys specifying (i)(A) the total number of Cell Genesys
Option Shares Somatix wishes to purchase and the denominations of the
certificate or certificates evidencing such Cell Genesys Option Shares which
Somatix wishes to receive or (B) the total number of Cell Genesys Option
Shares Somatix wishes to receive cash payment with respect to and (ii) a date
and place for the closing of such purchase or payment. Upon receipt of such an
exercise notice, Cell Genesys will be obligated to (i) deliver to Somatix a
certificate or certificates evidencing the number of Cell Genesys Option
Shares specified in such exercise notice or (ii) pay to Somatix an amount in
cash equal to (A) the excess, if any, over the Cell Genesys Purchase Price of
the higher of (1) if applicable, the highest price per share of Cell Genesys
Common Stock paid by any person in a Competing Transaction and (2) the closing
price of the shares of Cell Genesys Common Stock on The Nasdaq National Market
on the last trading day immediately prior to the date of the applicable
exercise notice, multiplied by (B) the number of Cell Genesys Option Shares
specified in such exercise notice. Notwithstanding the foregoing, Cell Genesys
may, by written notice to Somatix within three business days after receipt of
an exercise notice under the Cell Genesys Stock Option Agreement with respect
to the purchase of Cell Genesys Option Shares as described in clause (i) of
the preceding sentence, elect to pay to Somatix within 10 business days
following receipt of such exercise notice an amount in cash calculated as
described in clause (ii) of the preceding sentence. Furthermore, if, at the
time a cash payment elected by Somatix

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upon exercise of the Cell Genesys Stock Option is due, Cell Genesys has not
consummated a Competing Transaction, Cell Genesys may elect to make such
payment in cash or in shares of Cell Genesys Common Stock valued at the
closing price of shares of Cell Genesys Common Stock on The Nasdaq National
Market on the business day prior to such payment.

The Cell Genesys Stock Option Agreement provides for customary anti-dilution
adjustments in the event of any change in Cell Genesys Common Stock or in the
number of outstanding shares of Cell Genesys Common Stock by reason of a stock
dividend, split-up, recapitalization, combination, exchange of shares or
similar transaction or any other change in the corporate or capital structure
of Cell Genesys. The Cell Genesys Stock Option Agreement further provides
that, in the event that Cell Genesys enters into a merger agreement pursuant
to which it will not be the surviving corporation or pursuant to which a
change of control of Cell Genesys will occur or an agreement to sell or
otherwise transfer all or substantially all of its assets to any person other
than Somatix or any of its subsidiaries, then proper provision must be made in
the agreements governing such transaction so that Somatix will receive upon
exercise of the Cell Genesys Stock Option the number and class of shares or
other securities or property that Somatix would have received in respect of
Cell Genesys Common Stock if the Cell Genesys Stock Option had been exercised
immediately prior to such transaction, or on the record date therefor, as
applicable, and elected to the fullest extent it would have been permitted to
elect to receive such securities, cash or other property.

The Cell Genesys Stock Option Agreement contains certain customary
representations, warranties and covenants on the part of Cell Genesys and
Somatix, including covenants on the part of Cell Genesys with respect to the
listing of the Cell Genesys Option Shares for quotation on The Nasdaq National
Market and the registration of the Cell Genesys Option Shares under the
Securities Act and any applicable state securities laws.

The Cell Genesys Stock Option Agreement will terminate by its terms on
February 12, 1998.

THE SOMATIX STOCK OPTION AGREEMENT

Pursuant to the Somatix Stock Option Agreement, Somatix granted to Cell
Genesys an option (the "Somatix Stock Option") to purchase up to 5,441,480
newly issued shares of Somatix Common Stock (the "Somatix Option Shares"),
representing approximately 19.9 percent of the shares of the Somatix Common
Stock issued and outstanding on the date of grant, at a purchase price of
$3.51 per share (the "Somatix Purchase Price").

Cell Genesys may exercise the Somatix Stock Option, in whole or in part, at
any time or from time to time after the occurrence of any event or
circumstance which obligates Somatix to pay to Cell Genesys any fee or
expenses upon termination of the Merger Agreement and prior to the first to
occur of any of (i) the Effective Time, (ii) the termination of the Somatix
Stock Option Agreement pursuant to its terms and (iii) the date which is 90
days after the occurrence of any event triggering Cell Genesys' right to
exercise the Somatix Stock Option.

The Somatix Stock Option Agreement provides that, in the event Cell Genesys
wishes to exercise the Somatix Stock Option, it must send a written notice to
Somatix specifying (i)(A) the total number of Somatix Option Shares Cell
Genesys wishes to purchase and the denominations of the certificate or
certificates evidencing such Somatix Option Shares which Cell Genesys wishes
to receive or (B) the total number of Somatix Option Shares Cell Genesys
wishes to receive cash payment with respect to and (ii) a date and place for
the closing of such purchase or payment. Upon receipt of such an exercise
notice, Somatix will be obligated to (i) deliver to Cell Genesys a certificate
or certificates evidencing the number of Somatix Option Shares specified in
such exercise notice or (ii) pay to Cell Genesys an amount in cash equal to
(A) the excess, if any, over the Somatix Purchase Price of the higher of (1)
if applicable, the highest price per share of Somatix Common Stock paid by any
person in a Competing Transaction and (2) the closing price of the shares of
Somatix Common Stock on The Nasdaq National Market on the last trading day
immediately prior to the date of the applicable exercise notice, multiplied by
(B) the number of Somatix Option Shares specified in such exercise notice.
Notwithstanding the foregoing, Somatix may, by written notice to Cell Genesys
within three business days after receipt of an exercise notice under the
Somatix Stock Option Agreement with respect to the purchase of Somatix Option

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Shares as described in clause (i) of the preceding sentence, elect to pay to
Cell Genesys within 10 business days following receipt of such exercise notice
an amount in cash calculated as described in clause (ii) of the preceding
sentence. Furthermore, if, at the time a cash payment elected by Cell Genesys
upon exercise of the Somatix Stock Option is due, Somatix has not consummated
a Competing Transaction, Somatix may elect to make such payment in cash or in
shares of Somatix Common Stock valued at the closing price of shares of
Somatix Common Stock on The Nasdaq National Market on the business day prior
to such payment.

The Somatix Stock Option Agreement provides for customary anti-dilution
adjustments in the event of any change in Somatix Common Stock or in the
number of outstanding shares of Somatix Common Stock by reason of a stock
dividend, split-up, recapitalization, combination, exchange of shares or
similar transaction or any other change in the corporate or capital structure
of Somatix. The Somatix Stock Option Agreement further provides that, in the
event that Somatix enters into a merger agreement pursuant to which it will
not be the surviving corporation or pursuant to which a change of control of
Somatix will occur or an agreement to sell or otherwise transfer all or
substantially all of its assets to any person other than Cell Genesys or any
of its subsidiaries, then proper provision must be made in the agreements
governing such transaction so that Cell Genesys will receive upon exercise of
the Somatix Stock Option the number and class of shares or other securities or
property that Cell Genesys would have received in respect of Somatix Common
Stock if the Somatix Stock Option had been exercised immediately prior to such
transaction, or on the record date therefor, as applicable, and elected to the
fullest extent it would have been permitted to elect to receive such
securities, cash or other property.

The Somatix Stock Option Agreement contains certain customary
representations, warranties and covenants on the part of Somatix and Cell
Genesys, including covenants on the part of Somatix with respect to the
listing of the Somatix Option Shares for quotation on The Nasdaq National
Market and the registration of the Somatix Option Shares under the Securities
Act and any applicable state securities laws.

The Somatix Stock Option Agreement will terminate by its terms on February
12, 1998.

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CELL GENESYS

OVERVIEW

Since its inception in April 1988, Cell Genesys has focused its research and
product development efforts on human disease therapies which are based on
innovative gene modification technologies. Cell Genesys' strategic objective
is to develop and commercialize ex vivo and in vivo gene therapies to treat
major, life-threatening diseases and disorders. Cell Genesys' AIDS gene
therapy is in Phase II human clinical testing and is being developed through a
worldwide collaboration with Hoechst Marion Roussel. Cancer gene therapy, for
which Cell Genesys currently has worldwide rights, is in preclinical testing
for colon, ovarian and other specific types of cancer. These and other gene
therapy programs utilize proprietary, engineered genes and gene delivery
systems. During 1996, Cell Genesys established a subsidiary, Abgenix, to focus
on developing and commercializing antibody therapies for inflammation,
autoimmune disorders, cancer and other serious diseases.

Cell Genesys believes that it is likely that gene therapies will be
developed on a continuum, progressing from ex vivo (modification of cells
outside the patient's body) to in vivo (modification of cells within the
patient's body). Both approaches require the use of genes, which may be
engineered with specific therapeutic qualities, along with transport vehicles
called "vectors."

Cell Genesys' clinical and preclinical programs currently use engineered
genes and vectors ex vivo to impart new capabilities to certain of the
patient's immune cells, such as T cells and stem cells. This treatment
involves extracting the immune cells from the patient's blood through standard
blood bank procedures, purifying and genetically modifying the cells to target
disease, and expanding their numbers. The genetically modified cells are then
reinfused into the patient as therapy to specifically target and destroy
diseased cells.

Cell Genesys believes that in vivo gene therapy, which also is in research
at Cell Genesys, will offer the opportunity to ultimately provide "gene in a
bottle" products that will be able to be used much like any biopharmaceutical.
This approach involves transporting genes into the patient's body to
selectively modify certain cells or activate specific genetic functions,
providing new disease-fighting capabilities. Unlike cells used in ex vivo gene
therapy, target cells for in vivo gene therapy typically cannot be easily
removed for external processing. Cell Genesys' goal is to stimulate cells
inside the patient to produce a protein needed to normalize key biological
processes, inhibit specific disease mechanisms, or generate an immune response
against disease.

Successful gene therapy--whether ex vivo or in vivo--depends to a great
extent on vectors, the vehicles used to transport genes into cells. Multiple
types of vectors are needed, and the appropriateness of a specific vector is
based on the disease indication, safety considerations, production
efficiencies, disease site and other factors. Certain viruses, because of
their natural ability to insert genes into cellular DNA, have proven to be
particularly efficient vectors. Cell Genesys has engineered proprietary
retroviral and adenoviral vectors that have been modified with the goal of
eliminating disease properties and providing safe, efficient, long-term gene
expression.

To develop its technologies as broadly as possible, to fund product
development and to accelerate the commercialization of certain product
opportunities, Cell Genesys has and intends to continue to enter selectively
into strategic collaborative agreements with established pharmaceutical and
biotechnology companies. Such alliances are intended to provide financial
resources, research, development and manufacturing capabilities, and marketing
infrastructure to aid in the commercialization of potential disease therapies.
Cell Genesys also evaluates on an ongoing basis in-licensing or acquiring
genes and technologies that complement Cell Genesys' portfolio. There can be
no assurance that Cell Genesys will be able to enter into additional
collaborative relationships or obtain new genes and technologies on acceptable
terms, if at all, or that, if such actions occur, they will be successful.
Failure to enter new corporate relationships or expand Cell Genesys' product
and technological base may limit Cell Genesys' success unless alternative
avenues are available.

During 1996, Cell Genesys made progress in its research and development of
gene therapy. In AIDS gene therapy, Cell Genesys demonstrated safety in Phase
I/II human clinical studies and initiated Phase II efficacy

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studies on a patient-specific approach to treatment. In cancer gene therapy,
Cell Genesys initiated development of its lead therapeutic candidate,
conducted pre-investigational new drug application studies for the treatment
of colon and other cancers, and signed new agreements with the National Cancer
Institute, Dana-Farber Cancer Institute and Arizona Cancer Center at the
University of Arizona which provide certain genes that may be useful in
creating other specific cancer gene therapies.

Cell Genesys has maintained its financial strength through funding received
from its corporate partnerships, as well as through strategic management of
its resources. Cell Genesys reported a loss of $9.3 million for the fiscal
year ended December 31, 1996, and ended the year with $85.6 million in cash,
cash equivalents and short-term investments.

BACKGROUND

For many years the pharmaceutical industry has focused on developing
chemical compounds as pharmaceutical drugs and disease therapies. These
compounds are most often synthesized in the laboratory or derived from
substances found in nature. The therapeutic value of such compounds generally
depends on their ability to stimulate or inhibit physiological processes
related to disease, to interfere directly with infection or cancer, or to
correct various chemical imbalances. These traditional pharmaceutical products
include antibiotics, analgesics and compounds which treat inflammation,
cardiovascular diseases and cancer. However, traditional pharmaceutical
products are not always successful in treating many diseases for a variety of
reasons, including unwanted side effects and delivery of insufficient amounts
of the drug to the site of the disease. Equally important, traditional
pharmaceutical products may halt further damage from disease processes, but
generally cannot stimulate the regrowth of damaged cells or tissues.

Although the biotechnology industry has made significant advances over the
past 20 years, protein-based therapeutic products also may not adequately
treat diseases which involve the loss or dysfunction of particular cells in
the body. This may be true, for example, for diseases in which cell
populations are lost as a result of infection or malignancy. Examples include
AIDS, other viral infections and certain types of cancer. The use of chemical
compounds, therapeutic proteins or monoclonal antibodies to treat diseases of
this type has not been completely successful because such products cannot
replace the many complex biological functions of missing or damaged cells and
because it is often impossible to deliver such products in adequate
concentrations to the site of disease without unwanted side effects.
Therefore, an appropriate therapeutic strategy for diseases resulting from
cell loss or dysfunction may involve the transplantation of cells or cell
therapy. Cell Genesys believes that an important approach to cell therapy is
the genetic modification of cells, ex vivo or in vivo, to potentially provide
new or enhanced functions as a form of "gene therapy."

GENE THERAPY

At the core of gene therapy are genes, or pieces of DNA, which normally
exist in cells. These genes are engineered to make them suitable for medical
purposes and then inserted into the patient's cells to perform specific
therapeutic functions. Depending upon the choice of genetic material
delivered, gene therapy may be used to enhance normal cell activities or
enable cells to perform new roles. Certain forms of gene therapy involve "gene
correction," which introduces normal genes into patients with genetically
inherited diseases, or "vaccination," which uses genetic material or modified
cells to stimulate the patient's immune response. Cell Genesys' lead gene
therapy efforts are focused on expanding the capabilities of specific cells to
target and more effectively fight disease.

Another key component of gene therapy is the methodology used to introduce
therapeutic genes into cells. Whether ex vivo or in vivo, the insertion of
genes into cells can be accomplished using reagents known as vectors. There
are both viral and non-viral vectors. The appropriate vector system or other
delivery vehicle may vary depending on the disease indication. Viral vectors
take advantage of the natural ability of many viruses to insert their own
genetic material into the chromosomes of the infected cells at high
efficiency. Viruses used as vectors are genetically modified with the
objective that, once inserted into cells, infectious viruses cannot form from
these vectors.

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To date, Cell Genesys has focused on the development of proprietary viral
vectors such as retroviral and adenoviral vectors. Currently, retroviral
vectors are used in Cell Genesys' AIDS and cancer gene therapy. Cell Genesys
is using a retroviral vector system to insert genes ex vivo into a certain
type of immune white blood cells, known as killer T cells. The T cells are
genetically modified so that they can recognize and destroy HIV-infected
cells. Cell Genesys' Phase I/II human clinical trials to evaluate AIDS gene
therapy are currently under way. A similar approach is being used with Cell
Genesys' T cell gene therapies as potential treatment for specific cancers,
such as colon, breast and lung cancers and for which Cell Genesys expects to
initiate human clinical trials by mid-1997. Adenoviral vectors in research at
Cell Genesys easily infect certain cell types including lung cells, and do not
appear to insert permanently genetic material into the cell's genome. Cell
Genesys has engineered forms of the virus to deliver genes that it believes
are noninfectious. These novel adenoviral vectors appear to be capable of
long-term expression and can potentially avoid the toxicities seen with
earlier versions of the vectors.

Cell Genesys believes that gene therapy methodology will need to vary
depending upon the disease indication. The differences between ex vivo and in
vivo gene therapy and viral and non-viral vectors must be considered in the
context of the disease indication, safety factors, production efficiencies,
disease site and other factors.

PRODUCT DEVELOPMENT PROGRAMS

Cell Genesys' strategic objective is to develop and commercialize ex vivo
and in vivo gene therapies to treat major, life-threatening diseases and
disorders. Toward this end, Cell Genesys is focused on genetically modifying
selected cell types, using patient-specific or more broadly applicable
treatment approaches, to impart disease-fighting capabilities that are not
possible with conventional disease therapies.

Current development programs focus on the therapeutic use of white blood
cells, which are among the most powerful components of the human immune
system. White cells, such as T cells and stem cells, are naturally able to
seek out and destroy diseased cells and secrete an elaborate cascade of immune
hormones in response to disease-causing agents. Employing a unique gene
therapy strategy, Cell Genesys is genetically engineering T cells to target
and destroy virally-infected or cancer cells that otherwise overwhelm the
immune system or elude immune detection. Cell Genesys also is engineering bone
marrow stem cells, which give rise to all blood and immune cells and may thus
provide a self-renewing source of white blood cells.

T cells are a type of white blood cell found in the bloodstream and in other
tissues and are important components of the body's immune system. Killer T
cells directly attack infected or malignant cells through a precise and
controlled process that avoids damaging nearby healthy cells. More
specifically, killer T cells recognize disease cells by means of a complex
structure on the cell surface, referred to as a T cell receptor. Cell Genesys
is introducing into killer T cells novel disease-specific T cell receptors
that have the potential to recognize infected or malignant cells in multiple
patients with that particular disease.

Cancer Gene Therapies. To treat cancer, Cell Genesys' scientists are
engineering T cells to recognize and bind to cells exhibiting a specific
cancer-related protein. Since the normal action of T cells is to destroy
anything that it binds to, the introduction of these engineered cells into the
patient's body is expected to kill specific cancer cells. This approach may
prove particularly useful in treating patients whose immune systems are
impaired, such as those who have undergone radiation or chemotherapy.

Preclinical studies for Cell Genesys' lead cancer gene therapy are being
conducted in collaboration with the National Cancer Institute and target
multiple cancers, including colon, breast, lung, ovarian and prostate cancers.
These efforts utilize an antibody gene, CC49, to construct immune cells that
specifically bind TAG-72, a protein which is highly specific to and found on
the surface of various types of tumor cells. Preclinical laboratory studies
have demonstrated highly specific killing of colon tumor cells by these
engineered immune cells in vitro. Additional preclinical studies should
provide the basis for an investigational new drug application with the FDA and
human clinical studies which are currently planned for mid-1997.

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Cell Genesys initiated a research collaboration in 1995 with the Ludwig
Institute for Cancer Research and the Sloan-Kettering Institute for Cancer
Research which has provided a portfolio of reagents for use in developing T
cell gene therapies for specific types of cancers, including breast, colon and
lung cancers. In 1996, through new agreements established with the National
Cancer Institute, Dana-Farber Cancer Institute and Arizona Cancer Center at
the University of Arizona, Cell Genesys expanded the portfolio of genes it has
the right to engineer and will generate preclinical data for multiple cancer
indications. Cell Genesys' objective is to develop cancer gene therapies that
represent highly targeted treatment approaches that can selectively destroy
tumor cells while leaving healthy cells unharmed.

AIDS Gene Therapy. HIV infection is the cause of AIDS. The Centers for
Disease Control estimates that over 600,000-900,000 Americans are infected
with HIV and that more than 450,000 persons in the United States have been
afflicted with AIDS. It is estimated that during the next 10 years there will
be approximately 50,000 new cases of AIDS each year. A number of antiviral
drugs for the treatment of HIV infection have been approved by the FDA. These
drugs, including the new protease inhibitors, inhibit virus replication in
individuals already infected with HIV. However, they do not kill HIV-infected
cells or eliminate persistent sites of infection. Virus replication is only
temporarily inhibited and, therefore, the virus quickly reappears when
medication is discontinued. Furthermore, patients on long-term drug therapy
may become resistant to treatment and must switch to other drugs, until all
options have been exhausted.

Cell Genesys' AIDS gene therapy, by targeting and destroying HIV-infected
cells that are the reservoir for the virus, offers a different but highly
compatible treatment strategy. Studies published in the scientific literature
suggest that T cells may play an important role in attacking HIV-infected
cells. Over time, however, it appears that the patient's T cells lose their
ability to fight HIV, and the virus infection increases, often with fatal
consequences. Cell Genesys has developed a method for arming T cells with the
ability to recognize and destroy HIV-infected cells. Specifically, a new
targeting mechanism is introduced into killer T cells--genetically engineered
receptors--that enable the T cell to recognize viral proteins (antigens) that
appear on the surface of an HIV-infected cell. The modified killer T cells can
then bind to the infected cell and destroy it. To increase the specificity of
anti-HIV T cells and to attempt to overcome the virus' tendency to become
resistant to antiviral drugs, Cell Genesys has constructed a genetically
engineered receptor that targets the part of the virus that is involved in
binding to healthy cells during infection. A proprietary gene for the new
receptor, which can potentially function in multiple patients with HIV
infection, is introduced into killer T cells using Cell Genesys' high
efficiency gene transfer technology. This proprietary methodology increases
the ability to generate larger numbers of modified T cells for patient
therapy.

Two Phase II human clinical studies are currently under way using Cell
Genesys' ex vivo gene therapy. The initial proof-of-principle study for AIDS
gene therapy is being conducted by Drs. Robert Walker and H. Clifford Lane,
two AIDS researchers at the National Institute of Allergy and Infectious
Diseases in Bethesda, Maryland. This trial is designed to determine the
efficacy of repeated doses of Cell Genesys' T cell gene therapy over an
extended period. Approximately 30 pairs of identical twins, one HIV-positive,
the other not, are participating in the Phase II portion of the study, in
which T cells are obtained from the healthy twin, modified by inserting the
CD4-zeta gene which should enable them to recognize and destroy HIV-infected
cells, expanded in number and then infused into the HIV-positive twin as
therapy. To date, Cell Genesys has evaluated over 100 treatment cycles of this
proof-of-principle AIDS gene therapy, and has observed no significant
treatment-related safety problems associated with this therapy. In addition,
six-month data have demonstrated that the genetically modified killer T cells
continue to persist in the patient's circulatory system.

Cell Genesys' patient-specific treatment intended for commercialization is
currently undergoing a series of Phase II pilot studies designed to evaluate
various treatment protocols, including combination therapy with antiviral
drugs. Initiated in June 1996, this effort involves genetically engineering
the patient's own T cells to recognize and destroy HIV-infected cells. Leading
clinical investigators in the AIDS field--Drs. Steven Deeks and Paul
Volberding of the University of California, San Francisco and San Francisco
General Hospital, respectively, Drs. Elizabeth Connick and Robert Schooley of
the University of Colorado Health Sciences Center,

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Drs. Bruce Walker and David Scudder of Massachusetts General Hospital, and Dr.
Ronald Mitsayasu of the University of California, Los Angeles--are conducting
these studies. Initial clinical findings confirm earlier safety results and
cell persistence data. Additional clinical trials of Cell Genesys' AIDS gene
therapy will be conducted during 1997. These include an evaluation of an
improved manufacturing process involving the genetic modification of both
killer T cells and helper T cells as well as a reduction in cell processing
time to less than three weeks. In addition, a new pilot study is planned by
Cell Genesys to evaluate whether the combination of AIDS gene therapy and
antiviral drugs can delay the recurrence of HIV infection, which has been
generally observed in patients who stop their antiviral drug therapy. This
pilot study will help determine whether the gene therapy can reduce the
requirement for long-term treatment with combinations of three or more
antiviral drugs. The company anticipates efficacy data from certain of these
trials at the end of 1997. Cell Genesys' T cell gene therapy is a novel
therapy which must undergo rigorous human testing regulated by the FDA. There
is no assurance that the therapy will be proven safe or efficacious or, if
approved, that the therapy can be successfully commercialized. Although
preliminary results of Cell Genesys' Phase I/II clinical testing in AIDS gene
therapy reported to date have shown no significant treatment-related safety
problems, there can be no assurance that this therapy will be tolerated over
an extended period of time or that the clinical efficacy of this therapy will
be demonstrated.

In October 1995, Cell Genesys signed a worldwide agreement with Hoechst
Marion Roussel for the development and commercialization of Cell Genesys' AIDS
gene therapy program. The agreement could provide more than $160 million in
funding for this program, including $50 million in committed funding and
$100 million in progress-dependent funding for research and development costs
in North America, plus a $10 million warrant for future equity. The committed
funding included a $20 million equity investment in Cell Genesys Common Stock,
representing approximately 12 percent of the outstanding Cell Genesys Common
Stock as of January 31, 1997. Under the agreement, Cell Genesys is leading
product development in North America and providing worldwide manufacturing
services. Hoechst Marion Roussel has worldwide marketing rights to AIDS gene
therapy. In North America, Cell Genesys will participate in profit sharing and
has retained a copromotion option. Elsewhere in the world, Cell Genesys will
receive royalties. Cell Genesys has retained worldwide rights for cancer gene
therapy. In addition to AIDS gene therapy, Hoechst Marion Roussel also has a
first right to negotiate on up to two additional T cell gene therapy product
candidates that, if exercised, would result in additional payments to Cell
Genesys. The collaboration also provides for consolidation of intellectual
property related to Cell Genesys' gene therapy technology through a cross-
licensing agreement among Cell Genesys, Hoechst Marion Roussel and its
licensor in this field, Massachusetts General Hospital. Through December 1996,
Cell Genesys has received approximately $50 million under its agreement with
Hoechst Marion Roussel. There can be no assurance that Cell Genesys will
receive any further progress-dependent funding from Hoechst Marion Roussel
pursuant to this arrangement, or that Hoechst Marion Roussel will exercise its
warrant to purchase additional shares of Cell Genesys' capital stock.

In December 1996, Cell Genesys also agreed to establish a licensing
agreement with Hoechst Marion Roussel for use of its gene activation
technology in the production of erythropoietin and a second undisclosed
protein. The agreement provides for up to $26 million in milestone payments
and fees, in addition to royalties on future sales of these two gene-activated
protein products. Cell Genesys received $4 million upon execution of the
letter of intent in December 1996 and executed a definitive agreement in the
first quarter of 1997.

Cell Processing Capabilities. To commercialize its first gene therapies,
Cell Genesys intends to operate cell processing centers at regional sites
around the United States. This centralization of specialist services is
similar to the centralization of blood processing, in which blood is drawn
from patients at blood banks and processed elsewhere to control the cost,
quality and efficiency of service. Cell Genesys currently provides all cell
processing for its patient-specific AIDS gene therapy clinical trial. Cell
Genesys is currently expanding its cell processing capacity in preparation for
cancer gene therapy clinical studies.

In Vivo Gene Therapy. The accessibility of cardiovascular and inflammatory
conditions through the bloodstream has led Cell Genesys to explore a variety
of new opportunities for gene therapy. Most recently,

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through a collaboration with Duke University, Cell Genesys' proprietary
adenoviral vectors are being used as ex vivo and in vivo gene delivery systems
to evaluate the potential of cardiovascular gene therapy. One potential
treatment target is inhibition of restenosis, a potentially damaging blockage
of blood flow that may occur after arteries are unblocked through coronary
angioplasty or heart surgery.

In 1997, Cell Genesys' goal is to generate preclinical data to support a
product development decision for an in vivo gene therapy. A number of
opportunities are under evaluation to in-license specific genes for such an in
vivo gene therapy application.

Stem Cell Gene Therapy. Cell Genesys' scientists are also engineering bone
marrow stem cells for potential use in the treatment of cancer and AIDS. Stem
cells give rise to all blood and immune cells. As such, they offer a self-
renewing source of white blood cells, including T cells, and might therefore
involve less frequent treatment than T cell gene therapy. Research results to
date show that the use of tumor-specific stem cells engineered by Cell
Genesys' scientists and introduced into laboratory mice prevented the
occurrence of fatal cancers in 80% of the treated animals.

"Universal Donor" Cells. Cell Genesys is conducting longer-term research on
universal donor T cells which could be administered to multiple patients
without tissue rejection. Universal donor T cells will require additional
genetic engineering to eliminate or suppress the immunologic fingerprint that
is present on every cell in the body. Tissue rejection occurs when the
recipient's immune system recognizes the unique immunologic fingerprint of a
transplanted cell as foreign.

GOVERNMENT REGULATION

FDA Regulation. The activities required before a pharmaceutical agent may be
marketed in the United States begin with preclinical testing. Preclinical
tests include laboratory evaluation of potential products and animal studies
to assess the potential safety and efficacy of the product and its
formulations. The results of these studies and other information must be
submitted to the FDA as part of an investigational new drug application, which
must be reviewed and approved by the FDA before proposed clinical testing can
begin. Clinical trials involve the administration of the investigational new
drug to healthy volunteers or to patients under the supervision of a qualified
principal investigator. Clinical trials are conducted in accordance with Good
Clinical Practices under protocols that detail the objectives of the study,
the parameters to be used to monitor safety and the efficacy criteria to be
evaluated. Each protocol must be submitted to the FDA as part of the
investigational new drug application. Further, each clinical study must be
conducted under the auspices of an independent institutional review board at
the institution at which the study will be conducted. The institutional review
board will consider, among other things, ethical factors and the safety of
human subjects. In addition, certain protocols involving the use of
genetically modified human cells must also be reviewed by the Recombinant
Advisory Committee of the National Institutes of Health.

Typically, clinical testing involves a three-phase process. In Phase I,
clinical trials are conducted with a small number of subjects to determine the
early safety profile and pharmacology of the new therapy. Although the
preliminary Phase I/II clinical testing results to date of Cell Genesys' AIDS
gene therapy have shown no significant treatment-related safety problems,
there can be no assurance that such therapy or product will be tolerated at
higher doses or that the clinical efficacy of such therapy or product will be
demonstrated. In Phase II, clinical trials are conducted with groups of
patients afflicted with a specific disease in order to determine preliminary
efficacy, optimal dosages and expanded evidence of safety. In Phase III, large
scale, multicenter, comparative clinical trials are conducted with patients
afflicted with a target disease in order to provide enough data for the
statistical proof of efficacy and safety required by the FDA and others. In
the case of products for life-threatening diseases, the initial human testing
is generally done with diseased patients rather than with healthy volunteers.
Since these patients are already afflicted with the target disease, it is
possible that such studies may provide results traditionally obtained in Phase
II trials. These trials are frequently referred to as Phase I/II trials.

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The results of the preclinical and clinical testing, together with chemistry
and manufacturing information, are submitted to the FDA in the form of a new
drug application for a pharmaceutical product, and in the form of a product
license application for a biological product, for approval to commence
commercial sales. In responding to a new drug application or a product license
application, the FDA may grant marketing approvals, request additional
information or further research, or deny the application if it determines that
the application does not satisfy its regulatory approval criteria. Approvals
may not be granted on a timely basis, if at all, or if granted may not cover
all the clinical indications for which Cell Genesys is seeking approval or may
contain significant limitations in the form of warnings, precautions or
contraindications with respect to conditions of use.

Other Government Regulation. In addition to laws and regulations enforced by
the FDA, Cell Genesys is also subject to regulation under the Occupational
Safety and Health Act, the Environmental Protection Act, the Toxic Substances
Control Act, the Resource Conservation and Recovery Act and other present and
potential future federal, state or local laws and regulations as Cell Genesys
research and development involves the controlled use of hazardous materials,
chemicals, viruses and various radioactive compounds.

Cell Genesys' manufacturing facility for production of clinical quantities
of its products was licensed in 1994 by the California Department of Health
Services. The California Department of Health Services may inspect the
facility annually. Manufacture of clinical quantities of Cell Genesys'
products does not require an FDA license, although the FDA may at any time
inspect the facility. The continued operation of this facility requires
compliance with FDA standards for this type of manufacturing. A separate
license from the FDA is required for commercial manufacturing of any products.
For Cell Genesys' clinical trial of AIDS gene therapy in twins, Cell Genesys
uses a contract facility for cell processing activities which are required for
the manufacture of clinical materials. The cell processing activities of this
contractor are subject to the above laws and regulations. During 1995, Cell
Genesys completed construction of its clinical scale cell processing facility.
This facility is being used to process cells for Cell Genesys' patient-
specific (autologous) AIDS gene therapy Phase II clinical testing which was
initiated in 1996. The facility is currently being expanded for Cell Genesys'
cancer gene therapy clinical trial planned for 1997. Cell Genesys will
consider contract manufacturing for commercial scale requirements in the
future to the extent possible, or expansion of its own facilities if
necessary.

OTHER ASSETS OF CELL GENESYS

Gene Activation Technology. Separate from gene therapy, Cell Genesys has
developed a novel and proprietary method for protein production referred to as
"gene activation." Gene activation involves the insertion of genetic
regulatory elements at specific sites in chromosomes in proximity to a human
gene responsible for the production ("expression") of a therapeutic protein.
Subsequently, the gene-activated protein could be produced in a cell-based
production system. Gene activation, which may be applied to therapeutic
proteins such as follicle-stimulating hormone or erythropoietin, eliminates
the sometimes difficult and time-consuming process of cloning entire human
genes. For companies engaged in protein manufacturing, this technology may
offer certain production advantages.

In December 1996, Cell Genesys agreed to establish a licensing agreement
with Hoechst Marion Roussel for erythropoietin and a second undisclosed
protein. The agreement provides for up to $26 million in milestone payments
and fees, in addition to royalties on future sales of these two gene-activated
protein products. Cell Genesys received $4 million upon execution of the
letter of intent in December 1996 and executed a definitive agreement for the
license in February 1997.

In February 1994, Cell Genesys signed a licensing agreement with Theriak
A.G., a subsidiary of Akzo Nobel N.V. ("Akzo Nobel"), to develop and market
Cell Genesys' therapeutic protein product, gene-activated follicle stimulating
hormone ("FSH") for the treatment of infertility. Akzo Nobel was granted
worldwide rights to develop and market gene-activated FSH in exchange for
licensing fees, royalties and other payments to Cell Genesys. Akzo Nobel
currently markets a urine-purified form of FSH, and has also developed a
recombinant

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form of FSH. During 1995, Akzo Nobel settled a patent dispute with another
party related to recombinant FSH and plans to market this form of FSH subject
to regulatory approval. Pursuant to an amendment to the 1994 agreement made in
November 1996, Cell Genesys expects to receive $5 million in license fees from
Akzo Nobel.

Abgenix. While Cell Genesys is focused on the commercialization of gene
therapy, Cell Genesys' Abgenix subsidiary is focused on the commercialization
of antibody therapies for inflammation/autoimmune disease, cancer and other
serious illnesses. Cell Genesys formed Abgenix as a separate business
subsidiary in June 1996, contributing $10 million in cash and providing a $4
million convertible loan to the newly formed company. Cell Genesys also
contributed research, development and manufacturing technology, as well as
patents and other intellectual property specific to the antibody therapy
programs. Approximately 40 Cell Genesys employees were transferred to Abgenix,
including employees of Cell Genesys' former Xenotech Division and other Cell
Genesys employees who were primarily involved with the antibody program. R.
Scott Greer, who served for over five years at Cell Genesys and was most
recently Senior Vice President of Corporate Development, was named chief
executive officer of Abgenix. Abgenix expects in the future to independently
finance its research and corporate development programs through licensing,
corporate partnerships and capital markets.

The formation of Abgenix was accompanied by a new agreement with Cell
Genesys' development partner, Japan Tobacco, expanding commercialization
rights. Under the terms of various agreements, Abgenix and Japan Tobacco are
each selecting and developing product candidates based on the transgenic
technology developed through a joint venture with JT Immunotech USA Inc. ("JT
Immunotech"), a medical subsidiary of Japan Tobacco. For products pursued
separately by Abgenix, Abgenix has the opportunity to obtain worldwide rights,
opening up prospects for additional corporate alliances and licensing
agreements. Abgenix also has options to the rights in North America on a
select number of Japan Tobacco's products. Rights to jointly targeted products
will be licensed to Abgenix in North America, to Japan Tobacco in Japan,
Taiwan and Korea, and co-exclusively to both Abgenix and Japan Tobacco
elsewhere in the world. Included in this latter arrangement is anti-IL-8
antibody developed through the partnership and expected to enter human testing
during the second half of 1997.

Cell Genesys' relationship with Japan Tobacco was established in July 1991,
when Cell Genesys formed an equally owned worldwide joint venture with JT
Immunotech. Through the former Xenotech Division of Cell Genesys, this venture
focused on developing strains of transgenic mice capable of producing fully
human monoclonal antibodies and conducting preclinical studies with initial
antibodies. Through 1996, Cell Genesys has received approximately
$39.9 million in funding through the joint venture, including an equity
investment in Cell Genesys Common Stock representing approximately six percent
of the outstanding Cell Genesys Common Stock as of April 22, 1997. Committed
funding from Japan Tobacco is expected to be completed in 1997.

GENE THERAPY PATENTS AND TRADE SECRETS

Cell Genesys' success will depend in part on its ability to obtain patent
protection for its products both in the United States and other countries.
Cell Genesys has filed applications for a number of United States and foreign
patents, and has licenses or license options to patents or patent
applications. In 1994, Cell Genesys was issued a United States patent for the
disease-specific receptor technology underlying its T cell and stem cell gene
therapy program. In 1995, Cell Genesys received two United States patents for
gene-modified cells related to universal donor cell modifications and a notice
of allowance for a European patent on transgenic technology for the production
of human antibodies. In 1996, Cell Genesys received two United States
patents--one related to gene activation technology, and the other related to
Cell Genesys' universal donor program. Also in 1996, Cell Genesys received two
European patents--one related to the production of proteins through the use of
gene activation technology, and the other related to disease-specific receptor
technology which could be utilized in multiple therapeutic applications and
underlies Cell Genesys' programs in T cell and stem cell gene therapy. Cell
Genesys expects to continue to actively pursue patent prosecution in support
of its technological and scientific innovation in order to develop and
maintain its competitive position. In addition, Cell Genesys relies on
unpatented trade secrets and improvements, unpatented know-how and continuing
technological innovation to develop and maintain its competitive position.

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HUMAN RESOURCES

As of March 31, 1997, Cell Genesys employed 155 persons of whom 25 hold
Ph.D. degrees and three hold M.D. degrees. Approximately 117 employees are
engaged in research and development, and 38 support business development,
intellectual property, finance and other administrative functions. Cell
Genesys' senior management and directors have had prior product development
experience in the biotechnology and pharmaceutical industries. Included in the
figures above are 43 persons employed by Cell Genesys' Abgenix subsidiary. See
"Other Information Regarding Cell Genesys--Directors and Officers."

Cell Genesys' success will depend in large part upon its ability to attract
and retain employees. Cell Genesys faces competition in this regard from other
companies, research and academic institutions, government entities and other
organizations. Cell Genesys believes that it maintains good relations with its
employees.

FACILITIES

Cell Genesys occupies administrative offices and research laboratories
covering approximately 107,000 square feet of space in a research and
development office park located in Foster City, California. Cell Genesys'
lease of these facilities expires in 1998, with an option to renew the lease
for two additional four-year terms. Cell Genesys' laboratories are equipped
for biochemical and tissue culture research and development. Additionally,
Cell Genesys has constructed a facility licensed for Good Manufacturing
Practices manufacturing of clinical quantities of Cell Genesys' products.

In February 1997, Cell Genesys' Abgenix subsidiary moved into newly
constructed facilities in Fremont, California. These new facilities consist of
approximately 52,000 square feet of offices and laboratory facilities which
are leased through 2006, with an option to renew the lease for three
additional three-year terms.

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SOMATIX

OVERVIEW

Somatix is focused on the development and commercialization of proprietary
processes for the genetic modification of cells and their use in the treatment
of human disease. Somatix was formed through the merger and/or acquisition of
four companies since 1990--Hana Biologics, Inc., Somatix Corporation, GeneSys
Therapeutics Corporation and Merlin Pharmaceutical Corporation. Through the
combination of these four companies and its internal development programs,
Somatix has established a substantial scientific and intellectual property
position in the technology of gene transfer. Somatix is pursuing the research
and development of gene transfer and human gene therapy utilizing retroviral,
lentiviral, adenoviral, adeno-associated viral and synthetic vector systems.
See "Cell Genesys--Gene Therapy." Somatix is applying its core scientific
expertise to the development of novel treatments for cancer, neurological
diseases and genetic diseases.

In August 1995, Bristol-Myers Squibb made an initial $10 million investment
in Somatix in return for certain rights, including a right of first offer in
Somatix' internally initiated oncology development programs. In May 1996,
Bristol-Myers Squibb made a second $10 million investment after Somatix
achieved a contractual clinical development milestone in oncology. Pursuant to
the terms of the Bristol-Myers Squibb agreement, once Somatix decides to
license any of its internally initiated oncology development programs to a
third party, it must first give Bristol-Myers Squibb 90 days to review and
meet Somatix' terms of such a license. In February 1996, Somatix made a
proposal to Bristol-Myers Squibb regarding its GVAX(TM) cancer vaccine
programs. At the end of the 90-day period, Bristol-Myers Squibb requested and
was granted an extension to continue its evaluation of the GVAX(TM) cancer
vaccine program. In November 1996, Bristol-Myers Squibb concluded that the
GVAX(TM) cancer vaccine program was not consistent with its long-term
strategic product development focus in oncology. Consummation of the Merger
will not affect the terms of the Bristol-Myers Squibb agreement.

With the exception of fiscal year 1990, when Somatix sold its cell biology
and diagnostic product lines, Somatix' operations have been unprofitable since
its inception, and will continue to be so in the foreseeable future, as
Somatix' research and development programs expand into preclinical studies and
clinical trials.

PLATFORM TECHNOLOGY

Through a strategy of mergers, acquisitions and internal development,
Somatix has built a broad-based research and development capability across
multiple gene transfer systems. Somatix has research and development programs
in retroviral, lentiviral, adenoviral, adeno-associated viral, and synthetic
vector systems, as well as hematopoietic stem cell gene transfer.

Retroviral and Lentiviral Vectors. The retroviral vector is the most
advanced system for the efficient, ex vivo genetic modification of dividing
human cells, and is the vector Somatix is utilizing for the modification of
tumor cells, fibroblasts and hematopoietic stem cells. In addition, Somatix is
working on a second-generation retroviral vector (i.e., lentiviral vector)
that will allow the in vivo delivery of therapeutic genes into nondividing
cells. In support of this effort, Somatix obtained an exclusive, worldwide
license to a lentiviral vector developed by Inder M. Verma, Ph.D. and
colleagues at The Salk Institute in July 1996. The lentiviral vector should
eventually allow therapeutic gene transfer into cells, such as neurons, which
are clinically relevant but normally do not divide. Coincident with the
licensing of the lentiviral technology from The Salk Institute, Dr. Verma was
nominated to Somatix' board of directors.

Adenoviral Vectors. With the acquisition of Merlin Pharmaceutical
Corporation in February 1995, Somatix brought Thomas Shenk, Ph.D., to Somatix
as a director and member of its scientific advisory board. Somatix has since
expanded its program in the research and development of adenoviral vectors,
which are highly efficient in the short-term genetic modification of
nondividing human cells and have the capacity to carry long segments of
genetic information. Somatix is developing a granulocyte-macrophage colony-
stimulating factor encoding adenovirus that it believes will be able to
rapidly modify a wide spectrum of tumor cells, which may result in faster
"turnaround" of the autologous cancer vaccine and potentially lower
manufacturing costs. In addition, Somatix is developing a proprietary
adenovirus which may avoid the cellular immune responses triggered by the

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in vivo administration of first generation adenoviral vectors. This latter
adenovirus is being further modified to allow chromosomal integration and
control of gene expression via the delivery of oral agents.

Adeno-Associated Viral Vectors. In addition to Dr. Shenk, the acquisition of
Merlin Pharmaceutical Corporation brought Richard Samulski, Ph.D. to Somatix'
scientific advisory board and augmented Somatix' research efforts in adeno-
associated viral vectors. The adeno-associated viral vector is an important
gene transfer tool because it can efficiently and stably insert its genetic
information into the chromosomes of nondividing target cells. Somatix has
developed a number of adeno-associated viral vectors for the in vivo genetic
modification of neurons, muscle cells and liver cells, and has detected gene
expression for up to 12 months in animal model systems. Somatix is conducting
experiments to define the immunogenicity of adeno-associated viral vectors, to
determine the extent of vector diffusion after injection into the brain and
other tissues, and to design a system of transgene regulation which can be
controlled through the oral administration of certain well-tolerated agents.
In addition, Somatix is developing a manufacturing process for the production
of clinical grade adeno-associated viral vectors.

Synthetic Vectors. Somatix' synthetic vector program is focused on the
development of lipid and polymer-mediated gene transfer systems for the in
vivo delivery of genetic information to cells via intravenous administration.
The near-term goal of the synthetic vector program is the targeted, nonviral
delivery of therapeutic gene sequences to cells in vivo. Longer-term goals
include the incorporation of viral proteins and genetic elements into these
vectors that should enhance the level and duration of transgene expression
while avoiding the immunogenicity and other limitations of current-generation
viral vectors.

Stem Cell Gene Therapy. Somatix is focusing on the genetic modification of
hematopoietic stem cells as a key strategy for the long-term gene therapy of
chronic disease. Hematopoietic stem cells are the precursor cell population
from which the human body's entire complement of blood cells is continuously
replenished. Genetically modified hematopoietic stem cells, therefore, are
seen as an ideal cell type for the long-term, sustained delivery of
therapeutic proteins (e.g., factors VIII and IX for the treatment of
hemophilia). Furthermore, there are numerous genetic diseases which result in
a deficiency of proteins required for metabolic activities (e.g., Gaucher's
disease, chronic granulomatous disease, etc.). These diseases are also good
candidates for stem cell gene transfer, and will likely provide the initial
"proof of concept" for stem cell gene therapy. Consequently, Somatix' stem
cell gene transfer group is evaluating several of Somatix' proprietary
technologies for use in genetic modification of hematopoietic stem cells. The
most advanced effort in this area is gene therapy of chronic granulomatous
disease.

PRODUCT DEVELOPMENT PROGRAMS

Cancer, the second leading cause of death in the United States, is a disease
in which certain cells grow uncontrolled by the body's normal self-regulatory
mechanisms. Over 1.2 million new cases of cancer are diagnosed each year in
the United States. While there are several dozen forms of cancer, Somatix'
initial targets are melanoma, renal cell carcinoma, prostate and colorectal
cancers. Hundreds of thousands of patients are newly diagnosed with these
cancers each year in the United States, with a large percentage suffering a
recurrence of their disease one to five years after initial treatment.

The Autologous GVAX(TM) Cancer Vaccine. Somatix' most advanced therapeutic
program is the GM-CSF transduced autologous tumor cell vaccine, or Autologous
GVAX(TM) Cancer Vaccine. The vaccine is composed of the patient's own
(autologous) tumor cells which have been genetically modified to secrete the
immune-stimulating protein granulocyte-macrophage colony-stimulating factor
("GM-CSF").

The initial preclinical observations suggesting the potential efficacy of a
GM-CSF transduced tumor cell vaccine published in a report in 1993 by Glenn
Dranoff and coworkers. While several cytokine gene-modified tumor cell
vaccines had shown antitumor activity in murine cancer models, the Dranoff
study showed the GM-CSF gene-modified tumor cell vaccine to be a more potent
inducer of systemic antitumor immunity than those vaccines secreting other
effector molecules (e.g., IL-2, IL-4, gamma-IFN, etc.). The wide applicability
of the

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GVAX(TM) cancer vaccine to multiple tumor types was supported by data from
several murine tumor models including the colon carcinoma CT-26, renal
carcinoma RENCA, fibrosarcoma CMS-5, Lewis lung carcinoma, and the Dunning rat
model of prostate carcinoma. GM-CSF secreting tumor cells were more potent
inducers of antitumor immunity than unmodified tumor cells in every model
tested.

The Autologous GVAX(TM) Cancer Vaccine began Phase I/II clinical testing in
patients with renal cell carcinoma at The Johns Hopkins Oncology Center in
December 1993. This study was completed in 1995. In May 1994, a Phase I/II
clinical trial started at the Netherlands Cancer Institute testing the
GVAX(TM) cancer vaccine in patients with advanced melanoma. A Phase I/II
advanced melanoma study at the Dana Farber Cancer Institute started in early
1995. The treatment phases of both Phase I/II melanoma studies are expected to
be completed in the first quarter of 1997. Somatix has also started a Phase
I/II trial of the Autologous GVAX(TM) Cancer Vaccine in prostate cancer
patients at The Johns Hopkins Oncology Center.

The principal end points of these initial Autologous GVAX(TM) Cancer Vaccine
clinical trials are related to safety and tolerability. To date, Phase I/II
investigators have administered approximately 300 vaccinations of the
Autologous GVAX(TM) Cancer Vaccine in over 75 patients. The vaccine has proven
to be safe; adverse events have generally been confined to redness and
swelling at the vaccination site and minor flu-like symptoms of short
duration.

Preliminary indications of therapeutic activity include a marked
infiltration of white blood cells at the vaccination site, as well as cellular
activity at metastatic sites distant from the site of vaccine injection. This
cellular activity has been associated, in some patients, with a reduction in
metastatic tumor size at residual tumor sites. The Phase I/II data suggest
that the injection of irradiated, GM-CSF secreting autologous tumor cells can
trigger a systemic antitumor response in some patients with metastatic
disease. However, the critical efficacy endpoint of any therapeutic
investigation in cancer is patient survival, and the autologous vaccine will
require further clinical testing to prove whether or not it can affect this
endpoint in a statistically significant way.

The Allogeneic GVAX(TM) Cancer Vaccine. Somatix is now engaged in the
development of a second generation, genetically modified tumor cell vaccine.
The Allogeneic GVAX(TM) Cancer Vaccine is composed of lethally irradiated, GM-
CSF secreting tumor cells derived from tumor cell lines which are not patient-
specific and can therefore be manufactured at large scale. The vaccine can
thus be produced, tested, distributed and administered without first obtaining
autologous tissue from the cancer patient, reducing manufacturing costs and
promoting ease of use. Somatix intends to file an investigational new drug
application with the FDA in 1997 for the initial clinical evaluation of the
allogeneic vaccine in prostate cancer. Somatix is considering additional
allogeneic vaccine development for malignant melanoma and breast, colorectal
and ovarian cancers.

Chronic Granulomatous Disease. Somatix' initial clinical evaluation of stem
cell gene therapy is in the treatment of chronic granulomatous disease, an
immunodeficiency that compromises the ability of white blood cells to
eradicate bacterial and fungal infections. In collaboration with Harry Malech,
M.D. at the National Institutes of Health, Somatix is evaluating the use of
gene therapy to treat this inherited genetic disease. Dr. Malech has completed
a Phase I clinical trial in which patients received autologous hematopoietic
stem cells genetically modified to produce the p47phox protein. The study
showed that the p47phox-modified stem cells can be safely administered to
humans and successfully generate functional white blood cells in chronic
granulomatous disease patients. Somatix is continuing to develop this product
using a primate model system to further optimize both stem cell gene transfer
and engraftment of genetically modified HSCs.

Gene Therapy of Neurologic Diseases. Diseases of the central nervous system
are important targets for new drug development. Pharmaceuticals to treat
central nervous system diseases are the second largest drug expenditure
category behind cardiovascular drugs. However, the brain is one of the most
difficult organs to treat with drugs since the blood-brain barrier prevents
many small molecules and most proteins from passing out of the blood stream
into target areas for treatment. Additionally, the brain is a highly complex,
inaccessible organ which operates as many distinct regions. Thus, systemically
administered drugs often affect multiple systems in the brain, increasing
their toxicity. Therefore, it may be a significant advantage to deliver drugs
locally to the specific region of the brain requiring therapy in order to
avoid debilitating side effects.

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Gene therapy, in particular, appears to offer promise because it may be used
to promote cell-based delivery of therapeutic proteins (i) to specific regions
of the brain; (ii) from inside the blood brain barrier; (iii) in a continuous
fashion; and (iv) for long periods of time. The lack of adequate drug therapy
for major neurodegenerative diseases such as Alzheimer's disease and
Parkinson's disease and the discovery of a number of neuronal growth factors
("neurotrophic factors") that could retard degeneration and perhaps revitalize
damaged neurons make gene therapy an attractive experimental approach to these
diseases. Gene therapy of Parkinson's disease is Somatix' most advanced
central nervous system program.

Although the neurodegeneration that leads to Parkinson's disease is not well
understood, it is known that the loss of dopamine-producing cells causes the
debilitating movement symptoms of Parkinson's disease. Dopamine levels can be
restored through the oral administration of L-dopa, a precursor that is
converted to dopamine, and significantly alleviates the symptoms of
Parkinson's disease. However, the clinical benefit of
L-dopa is attenuated after an average of five years in a majority of patients.
This is due to side effects of the drug relating to global exposure of the
brain to L-dopa, and the increased dosing required to overcome continued
degeneration of dopaminergic neurons.

Somatix is evaluating the use of gene therapy to produce a continuous and
efficacious supply of L-dopa in the brain. Several therapeutic genes may
ultimately be required to treat the disease; however, one key transgene
encodes the rate limiting enzyme in the biosynthesis of L-dopa, tyrosine
hydroxylase. Additionally, scientists believe that administration of
neurotrophic factors to the region of the brain containing dopaminergic
neurons may retard their degeneration and keep natural dopamine production at
levels sufficient for normal motor function for a significantly longer period
of time. Recent preclinical data have suggested that neurotrophic factors may
act on such dopaminergic neurons in a potent and specific way. Eventually,
Somatix may introduce a Parkinson's disease therapy combining neurotrophic
factors with tyrosine hydroxylase gene delivery. Somatix may have to license
certain genes for these factors in order to fully exploit a combination
therapy.

Central Nervous System Program Results and Progress. Somatix has conducted
extensive studies of ex vivo and in vivo gene therapy of the central nervous
system in rodent and nonhuman primate models over the past three years. Ex
vivo studies have centered on the striatal implantation of autologous
fibroblasts genetically modified, via retroviral vectors, to produce tyrosine
hydroxylase. The fibroblasts are derived from skin biopsies of the animals and
are genetically modified in Somatix' gene transfer laboratories. In vivo
experiments have focused on adeno-associated viral vectors encoding the
tyrosine hydroxylase and GTP cyclohydrolase ("GTP-CHI") enzymes, which are
injected directly into the brain where target cells are genetically modified
in situ. For either strategy, the required stereotaxic surgery has been
reduced to a routine clinical procedure and does not represent a significant
technical barrier.

In late 1995, Somatix undertook a large ex vivo preclinical study involving
24 Parkinsonian, nonhuman primates. The study was designed to measure the
longevity of gene expression and, secondarily, the behavioral effect of
implanting tyrosine hydroxylase-modified fibroblasts. Certain primates
received the genetically modified cells while others served as untreated
controls. The experiment was completed after six months, and postmortems have
been conducted. While evidence of transgene expression was observed at the
longest time point studied to date--four months--the fibroblast grafts were
shown not to contain sufficient cells for a rigorous efficacy evaluation of
the ex vivo strategy. Experiments are planned to address the technical issues
raised by this study. In 1995 and 1996, Somatix expanded its focus on ex vivo
gene delivery to the central nervous system to include in vivo gene transfer
using both adeno-associated viral vectors and lentiviral vectors. Research
efforts have centered on further development of the delivery technology and
continued demonstration of the potential of delivering both neurotransmitters
and neurotrophic factors via direct gene transfer systems. Rodent and primate
experiments characterizing gene transfer efficiency, cell-type specificity,
the localization of infection and duration of expression were undertaken.
Additionally, animal experiments designed to assess adeno-associated viral
vectors' long-term gene expression demonstrated prolonged delivery of
proteins--in excess of six months--as well as selective infection of neurons.

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PATENTS, PROPRIETARY RIGHTS AND LICENSES

Somatix' proprietary position includes rights under patents and patent
applications covering genetically modified cells, gene transfer vectors for
and methods of transferring foreign genes into such cells, and the use of
these genetically modified cells to treat certain diseases. Somatix' policy is
to file, where appropriate, patent applications based on its own research to
protect technology, inventions, and improvements that are important to the
development of its business. Somatix also relies upon trade secrets,
expertise, continuing technological innovations, and licensing opportunities
to develop and maintain its competitive position. Somatix plans to
aggressively pursue patent applications to issuance and to defend its patents
against third parties. To date, Somatix' proprietary position also includes
patents and patent applications licensed from academic institutions and a
corporation. Somatix' proprietary position is as follows:

Gene Transfer Methodology. Somatix has exclusively licensed from The
Whitehead Institute patent applications that have been filed in the United
States, Europe, Japan, Canada, and several other countries. These applications
cover vectors that Somatix is developing in its gene therapy programs.

Somatix also has an exclusive license from The Whitehead Institute to patent
applications in the United States, Europe, and Japan that covers packaging
cell lines used to produce vectors, methods of construction, and methods of
use for introducing DNA into cells.

In connection with its acquisition of Merlin Pharmaceutical Corporation in
February 1995, Somatix acquired rights to novel adeno-associated virus vector
methodology, including licenses from DNX, Inc., the University of
Pittsburgh and the State University of New York. Under such licenses, Somatix
has exclusive rights to several important inventions and patent applications
for adeno-associated viral vectors, and to the production of those vectors for
gene therapy applications.

In July 1996, Somatix licensed a new gene transfer technology from The Salk
Institute. This technology, based on lentiviral vectors, appears to be a
highly efficient method of introducing genes into non-dividing cells.

Somatix is also developing adenovirus and non-viral, synthetic vectors for
use in gene therapy, expanding its technology platform to five distinct types
of gene transfer system. Somatix has filed, and will continue to file, patent
applications on technology developed internally, where appropriate.

Cell Types. Somatix has an exclusive license from The Whitehead Institute to
two United States patents, and a pending United States patent application,
covering genetically modified epithelial cells and methods for creating them;
a European patent has also been issued. Somatix also has an exclusive,
worldwide license from The Whitehead Institute to a United States patent, and
to a United States patent application and a related European patent, covering
genetically modified fibroblasts fixed in an extracellular matrix for
implantation in patients.

Somatix also has an exclusive, worldwide license from The Whitehead
Institute to patent applications for genetically modified hepatocytes and
endothelial cells, as well as methods for their creation and use in gene
therapy. A European patent has been issued on the creation and use of
genetically modified endothelial cells.

Gene Therapy Applications. Somatix has an exclusive, worldwide license from
the University of California to an issued patent and a United States patent
application covering methods for treating diseases of the central nervous
system using genetically modified cells. Somatix also has an exclusive license
to a patent application covering the genetic modification of cells to express
GTP cyclohydrolase, which may be useful for the gene therapy treatment of
Parkinson's disease.

Somatix also has an exclusive, worldwide license from The Johns Hopkins
University and the University of Texas to a patent application, and an issued
European patent, for the use of genetically modified cells for cancer
vaccines. Somatix also has an exclusive, worldwide license from The Whitehead
Institute to their interest in a patent application for the use of genetically
modified tumor cells expressing GM-CSF for use as cancer vaccines.

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Additionally, Somatix is currently negotiating or has obtained exclusive
rights to patents and patent applications covering the use of adeno-associated
viral vectors for gene therapy via muscle tissue, cardiac tissue, the central
nervous system, and the gut, which may be useful in Somatix' programs.

Somatix has acquired significant proprietary rights under license agreements
that permit the licensors to terminate those agreements in the event of
certain material breaches by Somatix. Although Somatix has no reason to
believe it is currently in default under any of these agreements, there can be
no assurance that such defaults will not occur in the future. Should a default
occur, and should any of those agreements be terminated in the future, Somatix
could lose the right to continue to develop one or more of these potential
products. Patent prosecution involves collaboration between Somatix' in-house
patent counsel and outside intellectual property counsel.

GOVERNMENT REGULATION

Somatix is subject to regulation by the FDA and other government agencies
and regulators in the same manner as Cell Genesys. See "Cell Genesys--
Government Regulation." Somatix' manufacturing facility for production of
clinical quantities of its products was licensed in 1993 by the California
Department of Health Services. The California Department of Health Services
may inspect the facility annually. Manufacture of clinical quantities of
Somatix' products does not require an FDA license, although the FDA may at any
time inspect the facility. The continued operation of this facility requires
compliance with FDA standards for this type of manufacturing. A separate
license from the FDA is required for commercial manufacturing of any products.
During 1995 and 1996, Somatix completed construction of its clinical scale
cell processing facility. This facility was expanded in anticipation of a
large efficacy trial of the GVAX(TM) cancer vaccine.

HUMAN RESOURCES

As of March 31, 1997, Somatix employed 81 individuals full-time, of whom 15
hold Ph.D. degrees and seven hold M.D. degrees. Of these employees, 48 were
engaged in research, 22 in gene therapy development, and 11 in finance and
administration. None of Somatix' employees is represented by a labor union or
is the subject of a collective bargaining agreement. Somatix has never
experienced a work stoppage and believes that it maintains good relations with
its employees.

FACILITIES

Somatix operates a laboratory facility in Alameda, California. This facility
houses the research and development staff and laboratories of Somatix. Somatix
has occupied this facility since March 1987 and believes that it is well
maintained and generally adequate for Somatix' present needs and intended
uses. The facility is located in a building of approximately 40,000 square
feet at 850 Marina Village Parkway, Alameda, California. The facility is
leased through February 2007, at an approximate annual rent of $633,000. In
addition, on July 1, 1994 Somatix leased approximately 16,000 square feet of
office space for the corporate headquarters and administrative staff at 950
Marina Village Parkway, Alameda, California and on March 1, 1994 leased 26,000
square feet of shell space at 2060 Challenger Drive, Alameda, California for a
prospective manufacturing site which has been subleased for the balance of the
lease. The approximate annual rents are $237,000 and $425,000, respectively,
through February 2004. Somatix has a one-time option to terminate these leases
after five years. On January 25, 1996, Somatix leased approximately 13,000
square feet for an animal facility at 2061 Challenger Drive, Alameda,
California through February 2007 at an approximate annual rent of $197,000.
Office space at 1301 Marina Village Parkway, Alameda, California, consisting
of 13,000 square feet, leased at an approximate annual rent of $211,000 until
September 1993 and $277,000 per year thereafter through November 1997 has been
subleased for the remainder of the lease.

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THE COMBINED COMPANY

This section contains forward-looking statements which involve risks and
uncertainties. Other than statements of historical fact, statements contained
in this section, including statements as to the benefits expected to be
realized as a result of the Merger and as to future financial performance
constitute forward-looking statements. The Combined Company's actual results
may differ significantly from the results discussed in the forward-looking
statements contained in this section. Holders of Somatix Capital Stock and
Cell Genesys Common Stock are cautioned not to place undue reliance on the
forward-looking statements contained in this section, which speak only as of
the date hereof. Neither Cell Genesys nor Somatix undertakes any obligation to
release publicly the results of any revisions to such forward-looking
statements that may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events. See "Risk
Factors."

OVERVIEW

Gene therapy offers opportunities to intervene at the most basic levels of
the disease process and apply increasing knowledge of the relationship of
genes to disease. See "Cell Genesys--Gene Therapy." To succeed in this
innovative field of medical research, however, a company needs very broad
capabilities in gene delivery technologies, as well as a portfolio of product
development programs and a strong intellectual property position. The ability
to establish strategic alliances with major corporations and research
institutes is also essential to commercial success.

Cell Genesys and Somatix each expects that the Merger will create a leading
gene therapy company with the critical mass of technologies, products,
intellectual property and scientific talent necessary to commercialize both ex
vivo and in vivo gene therapies. The research and development programs of the
two companies are highly complementary, with Cell Genesys focused on the
treatment of AIDS and cancer, and Somatix focused on cancer, central nervous
system diseases and other disorders. The Combined Company will have a broad
portfolio of gene delivery technologies, which are expected to attract new
corporate partners and increase access to genes from genomic companies and
research institutes needed to create new gene therapy products. The Combined
Company's patent estate is expected to be the largest in gene therapy and
covers therapeutic applications, gene delivery systems, and a wide variety of
cell types. See "Cell Genesys--Gene Therapy Patents and Trade Secrets" and
"Somatix--Patents, Proprietary Rights and Licenses."

GENE THERAPY

Gene therapy allows the introduction of new genetic material into cells for
therapeutic purposes. This genetic material contains pieces of DNA that guide
a specific cell function. Depending upon the choice of material delivered,
gene therapy may be used to enhance normal cell activities or enable cells to
perform new roles. Certain forms of gene therapy involve "gene correction,"
which introduces normal genes into patients with genetically inherited
diseases, or "vaccination," which uses genetic material or modified cells to
simulate the patients' immune responses. Gene therapy also is used to expand
the capabilities of specific immune cells, such as T cells and stem cells, to
target and more effectively fight disease.

Product development programs at Cell Genesys and Somatix include ex vivo
gene therapy, which involves the use of cells modified outside the patients'
bodies, and in vivo gene therapy, which involves the modification of cells
within the patients' bodies. Both approaches require the use of genes, which
may be engineered with specific therapeutic qualities, along with transport
vehicles called "vectors." See "Cell Genesys--Gene Therapy," "--Product
Development Programs," "Somatix--Platform Technology" and "--Product
Development."

STRATEGY FOR THE COMBINED COMPANY

Cell Genesys and Somatix have developed a preliminary research and
development plan for the Combined Company. While this plan is preliminary,
will necessarily evolve over time and is subject to many forces outside the
control of either Cell Genesys or Somatix, the plan seeks to capitalize on the
strengths of each company and to take advantage of synergies both in terms of
technologies and products. The purpose of the plan is to

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significantly strengthen key research and development programs, create
additional opportunities to develop forms of gene therapies, and expand
corporate partnering opportunities.

A key driver in research and development efforts will be the ability to
finance the Combined Company's gene therapy programs through corporate
partners. According to the current preliminary plan, Cell Genesys' programs
will continue in AIDS gene therapy, which is currently supported through a
worldwide collaboration with Hoechst Marion Roussel, and in cancer gene
therapy. A new configuration of Somatix' autologous GVAX(TM) cancer vaccine
involving adenoviral vectors is expected to begin clinical trials in lung and
melanoma cancer in 1997, with the goal of developing a more attractive
economic profile for this product candidate. In addition, another
configuration of the GVAX(TM) cancer vaccine involving an allogenic (not
patient-specific) product is expected to begin clinical trials in prostate
cancer in 1997. While efficacy data from recently completed clinical trials of
the current GVAX(TM) product configuration will continue to be evaluated, no
additional trials, including a potential Phase III trial for melanoma, are
expected to be initiated. With respect to Somatix' central nervous system
program, a strategy will be evaluated to build value for this asset through
out-licensing, a joint venture arrangement or other arrangements. The Cell
Genesys and Somatix stem cell programs will be combined into a broader
research effort focused on major unmet medical needs, including AIDS and
cancer, while Somatix' stem cell trial for chronic granulomatous disease will
be phased out.

Limited rationalization is anticipated in research because the gene delivery
programs of Cell Genesys and Somatix are highly complementary. The adeno-
associated viral and lentiviral vector programs of Somatix represent new and
important technologies for Cell Genesys. Synergies in the retroviral and
adenoviral vector programs broaden both companies' established gene delivery
capabilities and the two companies' resources will be consolidated in these
programs. In addition, an earlier research effort is under way in synthetic,
or nonviral, vectors.

Prior to and after the Effective Time, these plans will be refined,
partnering opportunities for various programs will be evaluated, and the
research and development strategy will be further developed.

PRODUCT DEVELOPMENT PROGRAMS

By capitalizing on the synergies between Cell Genesys and Somatix, and by
rationalizing the businesses, the Combined Company expects to be able to build
a strong product portfolio with significant commercial potential. Resources
will be focused on proprietary research and development programs that have the
most scientific merit and the greatest probability of corporate partnering.

Each of the following product development programs involves novel gene
therapies that must undergo rigorous human testing regulated by the FDA. There
is no assurance that these therapies will be proven safe or efficacious or, if
approved, that these therapies can be successfully commercialized.

Cancer Gene Therapies

T Cell Cancer Gene Therapy. To treat cancer, Cell Genesys' scientists are
engineering T cells to recognize and bind to cells exhibiting a specific
cancer-related protein. The introduction of these engineered cells into the
patient's body is expected to kill cancer cells. This approach may prove
particularly useful in treating patients whose immune systems are impaired,
such as those who have undergone radiation or chemotherapy.

Preclinical studies for Cell Genesys' lead cancer gene therapy are being
conducted in collaboration with the National Cancer Institute and target
multiple cancers, including colon, breast, lung, ovarian and prostate cancers.
These efforts utilize an antibody gene, CC49, to construct immune cells that
specifically bind TAG-72, a protein found on various types of tumor cells.
Preclinical laboratory studies have demonstrated highly specific killing of
colon tumor cells by these engineered immune cells in vitro. Additional
preclinical studies should provide the basis for an investigational new drug
application with the FDA and human clinical studies are currently planned for
mid-1997.

In the Combined Company, there will be an increasing emphasis on the
treatment of cancer. Cell Genesys initiated a research collaboration in 1995
with the Ludwig Institute for Cancer Research and the Sloan-Kettering

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Institute for Cancer Research that has provided a portfolio of reagents for use
in developing T cell gene therapies for specific types of cancer, including
breast, colon and lung cancer. In 1996, through new agreements entered into
with the National Cancer Institute, Dana-Farber Cancer Institute and Arizona
Cancer Center at the University of Arizona, Cell Genesys expanded the portfolio
of genes that it has the right to engineer and will generate preclinical data
for multiple cancer indications. The objective is to develop highly targeted
cancer gene therapies that can selectively destroy tumor cells while leaving
healthy cells unharmed. Through Cell Genesys' collaborations with academic and
cancer research institutes, additional T cell gene therapies are currently
under evaluation for the treatment of cancer. Also in 1997, Cell Genesys' goal
is to secure a corporate partner for its cancer gene therapy program. See "Cell
Genesys--Product Development Programs."

GVAX(TM) Cancer Vaccine. Somatix is currently engaged in the development of a
genetically modified tumor cell vaccine for use in the treatment of cancer.
This vaccine is composed of tumor cells that have been genetically modified to
secrete the immune-stimulating protein granulocyte-macrophage colony-
stimulating factor. Phase I/II human clinical studies using a vaccine based on
the patient's own tumor cells provided evidence of a systemic immune response
to the vaccine. Adverse events were generally confined to redness and swelling
at the vaccination site and minor flu-like symptoms of short duration. Evidence
of immune response included a marked infiltration of white blood cells at the
vaccination site, as well as immune cell infiltration at metastatic sites
distant from the site of vaccine injection. However, while the data are
encouraging, this configuration of the vaccine may be too costly and time-
consuming for commercialization. See "Somatix--Product Development Programs."

A second generation GVAX(TM) cancer vaccine is now under active development
and may provide a more attractive economic profile for this product. This new
vaccine is based on autologous cells which are genetically modified to secrete
granulocyte-macrophage colony-stimulating factor utilizing an adenoviral
vector. The use of an adenoviral vector system should significantly reduce the
cell processing time involved in producing this gene therapy. The Combined
Company is expected to initiate a Phase I human clinical trial for this newly
configured product in lung and melanoma cancer in 1997. In addition, another
configuration of the GVAX(TM) cancer vaccine involving an allogenic (not
patient-specific) product is expected to begin clinical trials in prostate
cancer in 1997. See "Somatix--Product Development Programs."

AIDS Gene Therapy

Currently available drugs, including the new protease inhibitors, inhibit
replication of HIV, the AIDS-causing virus. However, these drugs do not kill
HIV-infected cells or eliminate persistent sites of infection. Furthermore,
patients on long-term drug therapy tend to become resistant to treatment and
may need to switch to other drugs, until all options have been exhausted. Cell
Genesys' AIDS gene therapy, by targeting and destroying HIV-infected cells that
are the reservoir for the virus, offers a different but highly compatible
treatment strategy. To accomplish this goal, Cell Genesys has developed a
method for arming the patient's T cells with the ability to recognize and
destroy HIV-infected cells.

The ongoing proof-of-principle study for AIDS gene therapy involves pairs of
identical twins, one HIV-positive, the other not. In the Phase II portion of
the study, T cells are obtained from the healthy twin, modified to recognize
and destroy HIV-infected cells, expanded in number and then infused into the
HIV-positive twin as therapy. To date, Cell Genesys has observed no significant
treatment-related safety problems associated with this therapy. In addition,
six-month data have demonstrated that the genetically modified T cells continue
to persist in the patient's circulatory system.

Cell Genesys' patient-specific AIDS gene therapy, which is intended for
commercialization, is currently undergoing a series of Phase II pilot studies
designed to evaluate various treatment protocols, including combination therapy
with antiviral drugs. Initiated in June 1996, this effort involves genetically
engineering the patient's own T cells to recognize and destroy HIV-infected
cells. Initial clinical findings confirm earlier safety results and cell
persistence data in twins. Cell Genesys expects to complete these pilot studies
during 1997 and, based on efficacy data, develop a plan to expand into Phase
II/III studies. Although preliminary results of the Cell Genesys' Phase I/II
clinical testing in AIDS gene therapy to date have shown no significant
treatment-

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related safety problems, there can be no assurance that this therapy will be
tolerated over an extended period of time or that the clinical efficacy of
this therapy will be demonstrated. See "Cell Genesys--Product Development
Programs--AIDS Gene Therapy."

Central Nervous System Gene Therapy

There is currently a lack of adequate drug therapy for major
neurodegenerative diseases such as Alzheimer's disease and Parkinson's
disease, and biological conditions affecting the blood-brain interface present
significant difficulties for future drug therapies. Seeking an alternative,
Somatix has developed a strategy using gene therapy for such central nervous
system diseases. With the discovery of a number of neuronal growth factors
("neurotrophic factors") that could retard degeneration and perhaps revitalize
damaged neurons, Somatix' approach has medical and commercial potential. The
Combined Company plans to outlicense this program or establish a joint venture
or other arrangement in order to realize the potential value of this program.

The treatment of central nervous system diseases is also expected to present
new opportunities for the Combined Company. To treat Parkinson's disease, for
example, Somatix is evaluating the use of gene therapy to produce a continuous
and efficacious supply of L-dopa in the brain. Several therapeutic genes may
ultimately be required to treat the disease; however, one key transgene
encodes the rate limiting enzyme, tyrosine hydroxylase, in the biosynthesis of
L-dopa. Additionally, scientists believe that administration of neurotrophic
factors to the region of the brain containing dopaminergic neurons may retard
their degeneration and keep natural dopamine production at levels sufficient
for normal motor function for a significantly longer period of time. Gene
therapy could potentially combine neurotrophic factors with tyrosine
hydroxylase gene delivery.

Over the past three years, Somatix has conducted extensive preclinical
studies using ex vivo and in vivo gene therapy of Parkinson's disease in
animal models. Ex vivo studies have centered on the striatal implantation of
autologous fibroblasts genetically modified, via retroviral vector, to produce
tyrosine hydroxylase. In vivo experiments have focused on adeno-associated
viral vectors encoding the tyrosine hydroxylase and GTP cyclohydrolase
enzymes, which are injected directly into the brain where target cells are
genetically modified in situ. For either strategy, the required stereotaxic
surgery has been reduced to a routine clinical procedure and does not
represent a significant technical barrier. Future research efforts may center
on further development of the delivery technology and continued demonstration
of the potential of delivering both neurotransmitters and neurotrophic factors
via direct gene transfer systems.

PROPRIETARY TECHNOLOGIES

Vectors. The methodology used to introduce therapeutic genes into cells is a
key component of gene therapy. The Merger will bring together a number of gene
delivery technologies involving both viral and nonviral vectors. Cell Genesys
and Somatix currently expect that the Combined Company will use this "toolbox"
to create multiple new product development opportunities by matching specific
therapeutic genes to the appropriate gene delivery system.

The appropriateness of a specific vector is based on the disease indication,
safety considerations, production efficiencies, disease site and other
factors. Certain viruses, because of their natural ability to insert genes
into cellular DNA, have proven to be particularly efficient vectors. Modified
to eliminate disease properties, they will include the Combined Company's
proprietary retroviral, adenoviral, adeno-associated viral and lentiviral
vectors, which have been engineered to provide efficient, long-term gene
expression. Synthetic, or nonviral, vectors in earlier-stage research also may
prove useful in gene delivery. See "Cell Genesys--Gene Therapy" and "Somatix--
Platform Technology."

Somatix' extensive vector and intellectual property portfolios could
position the Combined Company as an attractive partner for academic
institutions and genomics companies as well as for biotechnology and
pharmaceutical companies that have genes that they want to use
therapeutically. This technology also could enhance the Combined Company's
ability to access genes for its own product development through potential

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genomics and other collaborations. See "Cell Genesys--Gene Therapy Patents and
Trade Secrets" and "Somatix--Patents, Proprietary Rights and Licenses."

Genes. Key elements of gene therapy are the genes, or pieces of DNA, that
normally exist in cells. These genes may be identified in nature or engineered
to make them suitable for medical purposes and then inserted, using vectors,
into the patient's cells to perform specific therapeutic functions.

Depending upon the choice of genetic material delivered, gene therapy may be
used to enhance normal cell activities or enable cells to perform new roles.
Certain forms of gene therapy involve "gene correction," which introduces
normal genes into patients with genetically inherited diseases, or
"vaccination," which uses genetic material or modified cells to stimulate the
patient's immune response.

The Combined Company is expected to focus research and development on gene
therapy with proprietary genes. The Combined Company's lead efforts in HIV and
cancer are expected to be focused on expanding the capabilities of specific
cells to target and more effectively fight disease. This is accomplished by
constructing proprietary genes. When these genes are inserted into immune
cells, such as T cells, they express a disease-specific receptor enabling the
cells to target and destroy a specific disease cell in HIV or cancer. Cell
Genesys has constructed genes and the consequent genetically modified T cells
to target and destroy HIV-infected cells as well as other specifically
modified T cells that target and destroy cancer cells.

The Combined Company is also expected to enter collaborations with genomics
companies, other biotechnology and pharmaceutical companies and academic
institutions to license specific genes for the Combined Company's product
development. In particular, the Combined Company is expected to focus its gene
licensing efforts in the areas of cancer, cardiovascular disease and
inflammation.

OTHER ASSETS OF THE COMBINED COMPANY

Gene Activation Technology. Separate from gene therapy, Cell Genesys has
developed a novel and proprietary method for protein production referred to as
"gene activation." Gene activation involves the insertion of genetic
regulatory elements at specific sites in chromosomes in proximity to a human
gene responsible for the expression of a therapeutic protein. Subsequently,
the gene-activated protein could be produced in a cell-based production
system. Gene activation, which may be applied to therapeutic proteins such as
follicle-stimulating hormone, or erythropoietin, eliminates the sometimes
difficult and time-consuming process of cloning entire human genes. For
companies engaged in protein manufacturing, this technology may offer certain
production advantages.

In December 1996, Cell Genesys agreed to establish a licensing agreement
with Hoechst Marion Roussel for erythropoietin and a second, undisclosed,
protein. The agreement provides for up to $26 million in milestone payments
and fees, in addition to royalties on future sales of these two gene-activated
protein products. Cell Genesys received $4 million upon execution of the
letter of intent in December 1996 and executed a definitive agreement for the
license in February 1997.

In February 1994, Cell Genesys signed a licensing agreement with Akzo Nobel
to develop and market Cell Genesys' therapeutic protein product, gene-
activated FSH for the treatment of infertility. Akzo Nobel was granted
worldwide rights to develop and market gene-activated FSH in exchange for
licensing fees, royalties and other payments to Cell Genesys. Akzo Nobel
currently markets a urine-purified form of FSH, and has also developed a
recombinant form of FSH. During 1995, Akzo Nobel settled a patent dispute with
another party related to recombinant FSH and plans to market this form of FSH
subject to regulatory approval. Following the renegotiation of the 1994
agreement in November 1996, Cell Genesys expects to receive $5 million in
license fees under such agreement. See "Cell Genesys--Other Assets of Cell
Genesys--Gene Activation Technology."

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Abgenix. While Cell Genesys is focused on the commercialization of gene
therapy, Cell Genesys' Abgenix subsidiary is focused on the commercialization
of antibody therapies for inflammation/autoimmune disease, cancer and other
serious illnesses. Cell Genesys formed Abgenix as a separate business
subsidiary in June 1996, contributing $10 million in cash and providing a $4
million convertible loan to the newly formed company. Cell Genesys also
contributed research, development and manufacturing technology, as well as
patents and other intellectual property specific to the antibody therapy
programs. Approximately 40 Cell Genesys employees were transferred to Abgenix,
including employees of Cell Genesys' former Xenotech Division and other Cell
Genesys employees who were primarily involved with the antibody program. R.
Scott Greer, who served for over five years at Cell Genesys and was most
recently Senior Vice President of Corporate Development, was named chief
executive officer of Abgenix. See "Cell Genesys--Other Assets of Cell
Genesys--Abgenix."

The formation of Abgenix was accompanied by a new agreement with Cell
Genesys' development partner, Japan Tobacco, expanding commercialization
rights. Under the terms of various agreements, Abgenix and Japan Tobacco are
each selecting and developing product candidates based on the transgenic
technology developed through a joint venture with JT Immunotech USA Inc., a
medical subsidiary of Japan Tobacco. For products pursued separately by
Abgenix, Abgenix has the opportunity to obtain worldwide rights, opening up
prospects for additional corporate alliances and licensing agreements. Abgenix
also has options to the rights in North America on a select number of Japan
Tobacco's products. Rights to jointly targeted products will be licensed to
Abgenix in North America, to Japan Tobacco in Japan, Taiwan and Korea, and co-
exclusively to both Abgenix and Japan Tobacco elsewhere in the world. Included
in this latter arrangement is the anti-IL-8 antibody developed through the
partnership and expected to enter human testing during the second half of
1997.

Cell Genesys' relationship with Japan Tobacco was established in July 1991,
when Cell Genesys formed an equally owned worldwide joint venture with JT
Immunotech USA. Through the former Xenotech Division of Cell Genesys, this
venture focused on developing strains of transgenic mice capable of producing
fully human monoclonal antibodies and conducting preclinical studies with
initial antibodies. Through 1996, Cell Genesys has received approximately
$39.9 million in funding through the joint venture, including an equity
investment in Cell Genesys Common Stock representing approximately six percent
of the outstanding Cell Genesys Common Stock as of April 22, 1997. Committed
funding is expected to be completed in 1997.

CORPORATE RELATIONSHIPS

Hoechst Marion Roussel. In October 1995, Cell Genesys signed a worldwide
agreement with Hoechst Marion Roussel for the development and
commercialization of Cell Genesys' AIDS gene therapy program. The agreement
could provide more than $160 million in funding for this program, including
$50 million in committed funding and $100 million in progress-dependent
funding for research and development costs, plus a $10 million warrant for
future equity. The committed funding included a $20 million equity investment
in Cell Genesys Common Stock, representing approximately 12 percent of the
outstanding Cell Genesys Common Stock as of January 31, 1997. Under the
agreement, Cell Genesys is leading product development in North America and
providing worldwide manufacturing services. Hoechst Marion Roussel has
worldwide marketing rights to AIDS gene therapy. In North America, Cell
Genesys will participate in profit sharing and has retained a co-promotion
option. Elsewhere in the world, Cell Genesys will receive royalties. Cell
Genesys has retained worldwide rights for cancer gene therapy. In addition to
AIDS gene therapy, Hoechst Marion Roussel also has a first right to negotiate
on up to two additional T cell gene therapy product candidates that, if
exercised, would result in additional payments to Cell Genesys. The
collaboration also provides for consolidation of intellectual property related
to Cell Genesys' gene therapy technology through a cross-licensing agreement
among Cell Genesys, Hoechst Marion Roussel and its licensor in this field,
Massachusetts General Hospital. Through December 1996, Cell Genesys has
received approximately $50 million under its agreement with Hoechst Marion
Roussel. There can be no assurance that Cell Genesys will receive any further
progress-dependent funding from Hoechst Marion Roussel pursuant to this
arrangement, or that Hoechst Marion Roussel will exercise its warrant to
purchase additional shares of Cell Genesys' capital stock.

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<PAGE>

In December 1996, Cell Genesys also agreed to establish a licensing
agreement with Hoechst Marion Roussel for use of its gene activation
technology in the production of erythropoietin and a second, undisclosed,
protein. The agreement provides for up to $26 million in milestone payments
and fees, in addition to royalties on future sales of these two gene-activated
protein products. Cell Genesys received $4 million upon execution of the
letter of intent in December 1996 and executed a definitive agreement for the
license, in February 1997.

Japan Tobacco. Cell Genesys' relationship with Japan Tobacco was established
in July 1991, when Cell Genesys formed an equally owned worldwide joint
venture with JT Immunotech. Through the former Xenotech Division of Cell
Genesys, this venture has focused on developing strains of transgenic mice
capable of producing fully human monoclonal antibodies and conducting
preclinical studies with initial antibodies. Through 1996, Cell Genesys has
received approximately $39.9 million in funding through the joint venture,
including an equity investment in Cell Genesys Common Stock representing
approximately six percent of the outstanding Cell Genesys Common Stock as of
April 22, 1997. Committed funding from Japan Tobacco is expected to be
completed in 1997.

Bristol-Myers Squibb. In August 1995, Bristol-Myers Squibb made an initial
$10 million investment in Somatix in return for certain rights, including a
right of first offer in Somatix' internally initiated oncology development
programs. In May 1996, Bristol-Myers Squibb made a second $10 million
investment after Somatix achieved a contractual clinical development milestone
in oncology. Bristol-Myers Squibb has no further obligation to invest in or
make payments to Somatix. Pursuant to the terms of the Bristol-Myers Squibb
agreement, once Somatix decides to license any of its internally initiated
oncology development programs to a third party, it must first give Bristol-
Myers Squibb 90 days to review and meet Somatix' terms of such a license. In
February 1996, Somatix made a proposal to Bristol-Myers Squibb regarding its
GVAX(TM) cancer vaccine programs. At the end of the 90-day period, Bristol-
Myers Squibb requested and was granted an extension to continue its evaluation
of the GVAX(TM) cancer vaccine program. In November 1996, Bristol-Myers Squibb
concluded that the GVAX(TM) cancer vaccine program was not consistent with its
long-term strategic product development focus in oncology. Cell Genesys has
discussed with Bristol-Myers Squibb potential future collaborations between
the Combined Company and Bristol-Myers Squibb in the field of gene therapy.
Consummation of the Merger will not affect the terms of the Bristol-Myers
Squibb agreement.

INTELLECTUAL PROPERTY POSITION

Cell Genesys and Somatix each believes that their respective approaches to
gene therapy will be supported by a substantial gene therapy patent portfolio
in the Combined Company. The Combined Company's proprietary position will
include rights under patents and patent applications covering genetically
modified cells (epithelial, endothelial, hepatocyte, fibroblast and central
nervous system), viral and nonviral gene transfer vectors for and methods of
transferring foreign genes into such cells, and the use of genetically
modified cells and genes to treat certain diseases. It is the policy of both
Cell Genesys and Somatix to file, where appropriate, patent applications based
on company research to protect technology, inventions, and improvements that
are important to the development of their businesses. Cell Genesys and Somatix
both expect the Combined Company to continue this policy. The Combined
Company's proprietary position will also include patents and patent
applications licensed from academic institutions and corporations. In
addition, the Combined Company will continue to rely upon trade secrets,
expertise, continuing technological innovations and licensing opportunities to
develop and maintain its competitive position. The Combined Company is
expected to protect and defend this intellectual property against third
parties and to pursue aggressively additional patent applications to issuance.
See "Risk Factors--Risks Relating to Somatix, Cell Genesys and the Combined
Company--Legal Proceedings," "Cell Genesys--Gene Therapy Patents and Trade
Secrets" and "Somatix--Patents, Proprietary Rights and Licenses."

FACILITIES AND PERSONNEL

The Combined Company will be located at existing Cell Genesys facilities in
Foster City, California. Somatix' Alameda, California sites will be closed as
soon as practicable after the Effective Time, which should lead to a
significant reduction in costs for the Combined Company and, most importantly,
allow the Combined

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<PAGE>

Company to integrate operations quickly and more completely. A layoff of
approximately 20 percent of the total workforce--approximately 40 to 50
employees--is expected, largely due to the closure of the Alameda, California
sites, but also as a consequence of research and development program
decisions.

MANAGEMENT AND DIRECTORS

At the Effective Time, subject to the certificate of incorporation and by-
laws of Cell Genesys, Stephen A. Sherwin, M.D. will continue to hold the
offices of chairman of the board of directors, president and chief executive
officer of Cell Genesys. See "The Merger Agreement--Officers and Directors of
Cell Genesys After the Merger." Cell Genesys' other executive officers will
serve in their current capacities as the management team of the Combined
Company, except for Daniel F. Hoth, M.D., who will no longer be a full-time
employee of Cell Genesys effective June 30, 1997, but will continue as a part-
time consultant under an exclusive consulting agreement in the fields of gene
therapy and cell therapy that was executed in March 1997. See "Other
Information Regarding Cell Genesys--Directors and Officers." A number of
executive officers of Somatix are expected to continue in a transition
capacity during the first year of combined operations.

Immediately after the Effective Time, the total number of persons serving on
the board of directors of Cell Genesys will be nine, and, subject to the
election at the Cell Genesys Annual Meeting of the Cell Genesys director
nominees designated under "Additional Matters Submitted to a Vote of Cell
Genesys Stockholders--Additional Proposal No. 3--Election of Directors," will
consist of Stephen A. Sherwin, M.D., who is currently chairman of the board of
directors, president and chief executive officer of Cell Genesys, and David W.
Carter, who is currently chairman of the board of directors, president and
chief executive officer of Somatix, as well as James M. Gower, Raju S.
Kucherlapati, Ph.D., Joseph E. Maroun and Eugene L. Step, all of whom
currently serve as directors of Cell Genesys and are nominees for election to
the board of directors of Cell Genesys at the Cell Genesys Annual Meeting, and
John T. Potts, Jr., M.D., Thomas E. Shenk, Ph.D. and Inder M. Verma, Ph.D.,
all of whom currently serve as directors of Somatix. See "The Merger
Agreement--Officers and Directors of Cell Genesys After the Merger,"
"Additional Matters Submitted to a Vote of Cell Genesys Stockholders--
Additional Proposal No. 3--Election of Directors," "Other Information
Regarding Cell Genesys--Directors and Officers" and "Other Information
Regarding Somatix--Directors and Officers."

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<PAGE>

SCIENTIFIC ADVISORY BOARD

Somatix has created a prominent scientific advisory board that includes
several leaders in the gene therapy field. Certain of these individuals,
together with certain scientific advisors of Cell Genesys, are expected to
join a new scientific advisory board that will assist the Combined Company in
developing and implementing its research and development strategy. The
following individuals are expected to join the new scientific advisory board:

<TABLE>
<CAPTION>
NAME SCIENTIFIC POSITION
---- -------------------
<C> <S>
J. Michael Bishop, M.D........... Professor of Microbiology Immunology,
Biochemistry and Biophysics
Director, The G. W. Hooper Research
Foundation
University of California, San Francisco
Ronald Germain, M.D., Ph.D. ..... Senior Investigator
National Institute of Allergy and
Infectious Diseases
National Institute of Health
Jerome Groopman, M.D. ........... Chief, Division of Experimental Medicine
Beth Israel Deaconess Medical Center
Harvard Institutes of Medicine
Jordan U. Gutterman, M.D. ....... Professor of Medicine, University of Texas
M. D. Anderson Cancer Center
Philip Hieter, Ph.D. ............ Associate Professor of Molecular Biology &
Genetics
The Johns Hopkins University
Raju S. Kucherlapati, Ph.D. ..... Chairman of the Department of Molecular
Genetics
Albert Einstein College of Medicine
Richard Mulligan, Ph.D........... Investigator, Howard Hughes Medical
Institute
Children's Hospital
Mallinckrodt Professor of Genetics
Harvard Medical School
John T. Potts, Jr., M.D. ........ Director of Research
Massachusetts General Hospital
Physician-in-Chief Emeritus
Jackson Distinguished Professor of Clinical
Medicine
Harvard Medical School
Richard Samulski, Ph.D. ......... Director of Gene Therapy Center
University of North Carolina, Chapel Hill
Thomas E. Shenk, Ph.D............ Investigator, Howard Hughes Medical
Institute
Professor, Princeton University
Inder M. Verma, Ph.D............. Professor of Molecular Biology and Virology
The Salk Institute
Arthur Weiss, M.D., Ph.D......... Chief, Rheumatology Division
Investigator, Howard Hughes Medical
Institute
University of California, San Francisco
</TABLE>

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<PAGE>

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

The following unaudited pro forma condensed combined financial statements
give effect to the Merger and the Cross-License and Settlement. The unaudited
pro forma condensed combined balance sheet gives effect to the Merger and the
Cross-License and Settlement as if each had occurred on December 31, 1996. The
unaudited pro forma condensed combined statement of operations gives effect to
the Merger and the Cross-License and Settlement as if each had occurred on
January 1, 1996.

The pro forma condensed combined financial statements are based on the
historical financial statements of Cell Genesys and Somatix, giving effect to
the Merger applying the purchase method of accounting and the assumptions and
adjustments as discussed in the accompanying notes to the pro forma condensed
consolidated financial statements, and giving effect to the Cross-License and
Settlement. These pro forma condensed combined financial statements have been
prepared by Cell Genesys management based upon the audited consolidated
financial statements of Cell Genesys as of December 31, 1996 and for the year
then ended, the unaudited financial statements of Somatix as of December 31,
1996 and for the six months then ended, the audited statement of operations of
Somatix for the year ended June 30, 1996, and the unaudited statement of
operations of Somatix for the six months ended December 31, 1995. The pro
forma adjustments have been applied to the financial information derived from
the financial statements of Cell Genesys and Somatix to account for the Merger
as a purchase; accordingly, assets acquired and liabilities assumed are
reflected at their estimated fair values which are subject to further
refinement, including appraisals and other analysis, with appropriate
recognition given to the effect of current interest rates and income taxes.

The Merger will be accounted for using the purchase method of accounting.
The unaudited pro forma condensed combined financial information has been
prepared on the basis of assumptions described in the notes thereto and
includes assumptions relating to the allocation of the consideration paid for
the assets and liabilities of Somatix based on preliminary estimates of their
fair value. The actual allocation of such consideration may differ from that
reflected in the unaudited pro forma condensed combined financial information
after valuations and other procedures to be performed after the closing of the
Merger. Cell Genesys does not expect that the final allocation of the
aggregate purchase price for the Merger will differ materially from the
preliminary allocations. In the opinion of Cell Genesys, all adjustments
necessary to present fairly such unaudited pro forma condensed combined
financial information have been made based on the proposed terms and structure
of the Merger.

As a result of the Merger, Cell Genesys expects to record nonrecurring
charges to operations consisting of (i) a charge for acquired in-process
technology estimated at $95 million and (ii) a restructuring charge estimated
in the range of $5 to $10 million, including severance costs and costs
associated with elimination of redundant facilities and assets. The charge for
acquired in-process technology has been reflected in the unaudited pro forma
condensed combined balance sheet, but excluded from the unaudited pro forma
condensed combined statement of operations, because the charge are
nonrecurring. Estimated restructuring charges have not been included.
Amortization of capitalized assembled work force has not been reflected due to
immateriality.

The pro forma information is presented for illustrative purposes only and is
not necessarily indicative of the operating results or financial position that
would have occurred if the Merger or the Cross-License and Settlement had been
consummated on January 1, 1996 or December 31, 1996, respectively, nor is it
necessarily indicative of future operating results or financial position.

These pro forma condensed combined financial statements should be read in
conjunction with the historical consolidated financial statements and the
related notes thereto of Cell Genesys and Somatix incorporated by reference
herein.

84
<PAGE>

UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
DECEMBER 31, 1996
(IN THOUSANDS)

<TABLE>
<CAPTION>
PRO FORMA
CROSS- COMBINED
LICENSE REFLECTING
AND MERGER AND
MERGER PRO FORMA SETTLEMENT CROSS-
RELATED COMBINED RELATED LICENSE
CELL PRO FORMA REFLECTING PRO FORMA AND
GENESYS SOMATIX ADJUSTMENTS NOTE 3 MERGER ADJUSTMENTS SETTLEMENT
-------- --------- ----------- ------ ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
------
Current assets:
Cash and cash
equivalents.......... $ 20,935 $ 5,786 $ -- $ 26,721 $ -- $ 26,721
Marketable securities. 64,649 3,905 -- 68,554 -- 68,554
Other current assets.. 1,165 998 -- 2,163 -- 2,163
-------- --------- -------- --------- --------
Total current
assets............. 86,749 10,689 -- 97,438 -- 97,438
Equipment and
improvements........... 12,485 2,016 -- 14,501 -- 14,501
Other assets............ 575 813 500 (ii) 1,888 -- 1,888
-------- --------- -------- --------- --------
$ 99,809 $ 13,518 $ 500 $ 113,827 $ -- $113,827
======== ========= ======== ========= ========
<CAPTION>
LIABILITIES AND
STOCKHOLDERS' EQUITY
--------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Current liabilities:
Accounts payable...... $ 1,669 $ 2,095 $ -- $ 3,764 $ -- $ 3,764
Accrued compensation
and benefits......... 1,414 801 -- 2,215 -- 2,215
Deferred revenue from
related parties...... 12,164 -- -- 12,164 -- 12,164
Accrued construction
costs................ 2,118 -- -- 2,118 -- 2,118
Accrued legal
expenses............. 1,986 -- -- 1,986 -- 1,986
Other accrued
expenses............. 439 1,335 4,611 (iii) 6,385 -- 6,385
Current portion of
property and
equipment financing.. 2,822 983 -- 3,805 -- 3,805
-------- --------- -------- --------- --------
Total current
liabilities........ 22,612 5,214 4,611 32,437 -- 32,437
Noncurrent portion of
property and equipment
financing.............. 6,133 992 -- 7,125 -- 7,125
Other long-term
liabilities............ 712 -- 712 15,000 15,712
Stockholders' equity:
Preferred stock....... -- 3 (3) (iv) -- -- --
Common stock.......... 16 245 (234) (iv)(v) 27 -- 27
Additional paid-in
capital.............. 127,318 187,401 (89,988) (iv)(v) 224,731 -- 224,731
Accumulated deficit... (56,270) (181,049) 86,114 (i)(iv) (151,205) (15,000) (166,205)
-------- --------- -------- --------- ------- --------
Total stockholders'
equity............. 71,064 6,600 (4,111) 73,553 (15,000) 58,553
-------- --------- -------- --------- --------
$ 99,809 $ 13,518 $ 500 $ 113,827 $ -- $113,827
======== ========= ======== ========= ========
</TABLE>

85
<PAGE>

UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
COMBINED COMBINED
CELL PRO FORMA REFLECTING PRO FORMA REFLECTING
GENESYS SOMATIX ADJUSTMENTS MERGER ADJUSTMENTS NOTE MERGER
-------- -------- ----------- ---------- ----------- ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue................. $ 22,505 $ -- $ -- $ 22,505 $ -- $ 22,505
Operating expenses:
Research and
development.......... 27,587 17,017 -- 44,604 -- 44,604
General and
administrative....... 7,469 4,768 -- 12,237 -- 12,237
Restructuring charges. -- 1,060 -- 1,060 -- 1,060
-------- -------- ------ -------- ------- --------
Total operating
expenses........... 35,056 22,845 -- 57,901 -- 57,901
-------- -------- ------ -------- ------- --------
Operating loss.......... (12,551) (22,845) -- (35,396) -- (35,396)
Interest income......... 4,446 950 -- 5,396 -- 5,396
Interest expense........ (1,169) -- -- (1,169) (1,050) 2 (2,219)
-------- -------- ------ -------- ------- --------
Net loss................ $ (9,274) $(21,895) $ -- $(31,169) $(1,050) $(32,219)
======== ======== ====== ======== ======= ========
Net loss per share...... $ (0.57) $ (0.91) $ (1.16) $ (1.20)
======== ======== ======== ========
Shares used in computing
net loss per share..... 16,373 23,974 26,940 26,940
======== ======== ======== ========
</TABLE>

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<PAGE>

NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.

The pro forma condensed consolidated financial statements reflect the
conversion of all of the outstanding shares of Somatix Capital Stock into
approximately 10,567,000 shares of Cell Genesys Common Stock pursuant to the
Merger. This calculation is based on Somatix' capitalization at December 31,
1996 and assumes that the average closing bid price per share of Cell Genesys
Common Stock for the 30-day period ending three days prior to the Effective
Date equals $9.125, the closing bid price per share of Cell Genesys Common
Stock on The Nasdaq National Market on January 10, 1997, the last full trading
day prior to the public announcement of the execution of the Merger Agreement.
Certain options and warrants to purchase approximately 5,625,000 shares of
Somatix Common Stock will be assumed by Cell Genesys pursuant to the Merger
and converted into options or warrants to purchase approximately 2,165,000
shares of Cell Genesys Common Stock. The total cost of the proposed Merger is
estimated to be approximately $102 million, including transaction costs. In
addition, based upon a preliminary valuation of tangible and intangible
assets, Cell Genesys has assigned substantially all of the purchase price to
in-process technology. Cell Genesys expects to record a charge to operations
for the amount of the in-process technology acquired immediately following the
Effective Time. None of the above charges have been reflected in the pro forma
condensed consolidated statement of operations for the year ended December 31,
1996, as they are nonrecurring charges.

NOTE 2.

The pro forma condensed financial statements also reflect the effects of the
Cross-License and Settlement, which included the issuance of a $15 million
convertible note due September 1998 bearing interest at a rate of seven
percent per annum. It is anticipated that a substantial portion of the $15
million will be assigned to in-process technology and charged to operations.
Pending the completion of a thorough valuation analysis, for purposes of these
pro forma condensed financial statements, it is assumed that the entire amount
is in-process technology and charged to operations in the first quarter of
1997. Such amount has not been reflected in the pro forma condensed statement
of operations for the year ended December 31,1996 as it is a nonrecurring
charge. However, interest on the $15 million note has been included in such
statement as though the Cross-License and Settlement had occurred on January
1, 1996.

NOTE 3.

The pro forma condensed combined balance sheet includes the adjustments
necessary to give effect to the Merger and the Cross-License and Settlement as
if each had occurred on December 31, 1996, and to reflect the allocation of
the proposed acquisition to the fair value of tangible and intangible assets
acquired, including the charge to operations for in-process technology
acquired and the elimination of Somatix' equity accounts. Also included is the
estimated charge to operations associated with in-process technology acquired
in the Cross-License and Settlement. Excluded from the statement are
transaction costs, including payments to financial advisors, independent
accountants, attorneys and others. Also excluded are Merger related costs,
including severance costs, and other costs associated with the elimination of
redundant facilities and assets. The total of these is currently estimated to
be in the range of $5 to $10 million. Adjustments included in the pro forma
condensed consolidated balance sheet are summarized as follows:

(i) Charge to operations for in-process technology, $94,935,000;

(ii) Valuation of assembled work force, $500,000;

(iii) Transaction costs of approximately $4,611,000; and

(iv) Elimination of Somatix equity accounts.

(v) Issuance of Cell Genesys Common Stock, $0.001 par value, and
options and warrants to
purchase common stock, as discussed in Note 1. The value of the Cell
Genesys Common Stock is equal to the product of 10,567,000 shares
multiplied by approximately $9.13 per share, while the options and warrants
have been assigned a value of approximately $1 million.

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<PAGE>

NOTE 4.

The net loss per share and shares used in computing the net loss per share
for the year ended December 31, 1996 are based upon the historical weighted
average common shares outstanding adjusted to reflect the issuance, as of
January 1, 1996, of approximately 10,567,000 shares of Cell Genesys Common
Stock as described in Note 1. Options and warrants to purchase approximately
5,625,000 shares of Somatix Common Stock will be assumed by Cell Genesys
pursuant to the Merger and converted into options or warrants to purchase
approximately 2,165,000 shares of Cell Genesys Common Stock. The Cell Genesys
Common Stock issuable upon exercise of the stock options and warrants to be
assumed in the Merger have been excluded as the effect would be anti-dilutive.

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<PAGE>

DESCRIPTION OF CELL GENESYS CAPITAL STOCK

Pursuant to its certificate of incorporation, Cell Genesys is authorized to
issue a total of 30,000,000 shares, consisting of 25,000,000 shares of common
stock, par value $.001 per share, and 5,000,000 shares of preferred stock, par
value $.001 per share.

CELL GENESYS COMMON STOCK

As of April 22, 1997, there were 16,566,348 outstanding shares of Cell
Genesys Common Stock held by approximately 249 holders of record. The holders
of Cell Genesys Common Stock are entitled to one vote for each share on all
matters submitted to a vote of stockholders and are entitled to cumulate votes
in all elections of directors. The holders of Cell Genesys Common Stock are
entitled to share ratably in all assets of Cell Genesys that are legally
available for distribution, after payment of all debts and other liabilities
and subject to the prior rights of any holders of preferred stock of Cell
Genesys then outstanding. The holders of Cell Genesys Common Stock have no
preemptive, subscription, redemption or conversion rights. The outstanding
shares of Cell Genesys Common Stock are fully paid and nonassessable. The
rights, preferences and privileges of holders of Cell Genesys Common Stock are
subject to the rights of the holders of shares of any series of preferred
stock that Cell Genesys may issue in the future. Cell Genesys has never paid
cash dividends on the Cell Genesys Common Stock. Cell Genesys presently
intends to retain earnings for use in the operation and expansion of its
business and therefore does not anticipate paying any cash dividends in the
foreseeable future.

CELL GENESYS PREFERRED STOCK

Cell Genesys may issue preferred stock from time to time in one or more
series and the board of directors of Cell Genesys, without further approval of
its stockholders, is authorized to fix the dividend rights and terms,
conversion rights, voting rights, redemption rights and terms, liquidation
preferences, sinking funds and any other rights, preferences, privileges and
restrictions applicable to each such series of preferred stock. The purpose of
authorizing the board of directors of Cell Genesys to determine such rights
and preferences is to eliminate delays associated with a stockholder vote on
specific issuances. The issuance of preferred stock, while providing
flexibility in connection with possible acquisitions and other corporate
purposes, could, among other things, adversely affect the voting power of
holders of Cell Genesys Common Stock and, under certain circumstances, make it
more difficult for a third party to gain control of Cell Genesys. As of
January 31, 1997, there were no outstanding shares of preferred stock of Cell
Genesys and, other than the Cell Genesys Series A Preferred Stock discussed
below under "--Cell Genesys Rights Plan," no designated series of preferred
stock.

CELL GENESYS RIGHTS PLAN

Pursuant to the preferred shares rights agreement, dated July 28, 1995 (the
"Cell Genesys Rights Agreement"), between Cell Genesys and the First National
Bank of Boston, as rights agent (the "Rights Agent"), the board of directors
of Cell Genesys declared a dividend of one right (a "Cell Genesys Right") to
purchase one one-hundredth of a share of series A participating preferred
stock of Cell Genesys (the "Cell Genesys Series A Preferred Stock") for each
outstanding share of Cell Genesys Common Stock. Each Cell Genesys Right
entitles the registered holder to purchase from Cell Genesys one one-hundredth
of a share of Cell Genesys Series A Preferred Stock at an exercise price of
$45.00 (the "Rights Purchase Price"), subject to adjustment.

The Cell Genesys Rights will separate from the shares of Cell Genesys Common
Stock, certificates evidencing the Cell Genesys Rights will be issued and the
Cell Genesys Rights will become exercisable upon the earlier of (i) 20 days
(or such later date as may be determined by a majority of the members (the
"Continuing Directors") of the board of directors of Cell Genesys, excluding
directors affiliated with an Acquiring Person (as defined below)) following
the first date of public announcement (the "Shares Acquisition Date") that a
person or group of affiliated or associated persons (an "Acquiring Person")
has acquired, or obtained the right to acquire, beneficial ownership of 20
percent or more of the outstanding shares of Cell Genesys Common Stock,

89
<PAGE>

and (ii) 20 days (or such later date as may be determined by a majority of the
Continuing Directors) following the commencement of, or announcement of an
intention to make, a tender offer or exchange offer the consummation of which
would result in a beneficial ownership by a person or group of 20 percent or
more of the outstanding shares of Cell Genesys Common Stock (the earlier of
such dates, the "Distribution Date").

Following the Distribution Date, and until one of the further events
described below, holders of the Cell Genesys Rights will be entitled to
receive, upon execution and the payment of $45.00 per Cell Genesys Right, one
one-hundredth of a share of the Cell Genesys Series A Preferred Stock. In the
event that Cell Genesys does not have sufficient Cell Genesys Series A
Preferred Stock available for all Cell Genesys Rights to be exercised, or the
board of directors of Cell Genesys decides that such action is necessary and
not contrary to the interests of Cell Genesys Rights holders, Cell Genesys may
instead substitute cash, assets or other securities for the Cell Genesys
Series A Preferred Stock for which the Cell Genesys Rights would have been
exercisable under this provision or as described below.

Unless the Cell Genesys Rights are earlier redeemed, in the event that an
Acquiring Person becomes the beneficial owner of 20 percent or more of the
then outstanding shares of Cell Genesys Common Stock (other than pursuant to a
tender offer for all outstanding shares of Cell Genesys Common Stock made in
the manner prescribed by Section 14(d) of the Exchange Act that occurs at a
time when Continuing Directors are in office and a majority of the Continuing
Directors then in office has determined that the offer is both adequate and
otherwise in the best interests of Cell Genesys and its stockholders (a
"Permitted Offer")), then proper provisions will be made so that each holder
of a Cell Genesys Right that has not theretofore been exercised (other than
Cell Genesys Rights beneficially owned by the Acquiring Person, which will
thereafter be void) will thereafter have the right to receive, upon exercise,
shares of Cell Genesys Common Stock (or, in certain circumstances as
determined by the board of directors, cash, other property or other
securities) having a value equal to two times the Rights Purchase Price. Cell
Genesys Rights are not exercisable following the occurrence of an event as
described above until such time as the Cell Genesys Rights are no longer
redeemable by Cell Genesys as set forth below.

Similarly, unless the Cell Genesys Rights are earlier redeemed, in the event
that, after the Shares Acquisition Date, (i) Cell Genesys is acquired in a
merger or other business transaction, or (ii) 50 percent or more of Cell
Genesys' assets or earning power are sold (other than in transactions in the
ordinary course of business), proper provisions must be made so that each
holder of a Cell Genesys Right that has not theretofore been exercised (other
than Cell Genesys Rights beneficially owned by the Acquiring Person, which
will thereafter be void) will thereafter have the right to receive, upon
exercise, shares of common stock of the acquiring company having a value equal
to two times the Rights Purchase Price (unless the transaction satisfies
certain conditions and is consummated with a person who acquired shares
pursuant to a Permitted Offer, in which case the Cell Genesys Rights will
expire).

A Permitted Offer means a tender offer for all outstanding shares of Cell
Genesys Common Stock that has been determined by a majority of the Continuing
Directors to be adequate and otherwise in the best interests of Cell Genesys
and its Stockholders. Where the board of directors has determined that a
tender offer constitutes a Permitted Offer, the Cell Genesys Rights will not
become exercisable for shares of Cell Genesys Common Stock or shares of the
acquiring company, as the case may be, at the discounted price described
above.

At any time after the acquisition by an Acquiring Person of 20 percent or
more of Cell Genesys' outstanding shares of Cell Genesys Common Stock and
prior to the acquisition by such Acquiring Person of 50 percent or more of
Cell Genesys' outstanding shares of Cell Genesys Common Stock, the board of
directors of Cell Genesys may exchange the Cell Genesys Rights (other than the
Cell Genesys Rights owned by the Acquiring Person), in whole or in part, at an
exchange ratio of one Common Share per Cell Genesys Right.

At any time on or prior to the close of business on the earlier of (i) the
20th day following the Shares Acquisition Date or such later date as may be
determined by a majority of the Continuing Directors and publicly announced by
Cell Genesys, or (ii) the Final Expiration Date, Cell Genesys may redeem the
Cell Genesys Rights in whole, but not in part, at a price of $0.001 per Cell
Genesys Right.

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The Rights Purchase Price payable, the number of Cell Genesys Rights, and
the amount or number of Cell Genesys Series A Preferred Stock or shares of
Cell Genesys Common Stock or other securities or property issuable upon
exercise of the Cell Genesys Rights are subject to adjustment from time to
time in connection with dilutive issuances by Cell Genesys as set forth in the
Cell Genesys Rights Agreement. With certain exceptions, no adjustment in the
Rights Purchase Price will be required until cumulative adjustments require an
adjustment of at least one percent in such Rights Purchase Price.

Until a Cell Genesys Right is exercised, the holder thereof, as such, will
have no rights as a stockholder of Cell Genesys (other than the rights
resulting from such holder's ownership of shares of Cell Genesys Common
Stock), including, without limitation, the right to vote or to receive
dividends.

The provisions of the Cell Genesys Rights Agreement may be supplemented or
amended by the board of directors in any manner prior to the close of business
on the Distribution Date without the approval of Cell Genesys Rights holders.
After the Distribution Date, the provisions of the Cell Genesys Rights
Agreement may be amended by the board of directors of Cell Genesys in order to
cure any ambiguity, defect or inconsistency, to make changes which do not
adversely affect the interests of holders of Cell Genesys Rights (excluding
the interests of any Acquiring Person), or to shorten or lengthen any time
period under the Cell Genesys Rights Agreement; provided, however, that no
amendment to adjust the time period governing redemption may be made at such
time as the Cell Genesys Rights are not redeemable.

The Cell Genesys Rights will expire on the earliest of (i) July 28, 2005
(the "Final Expiration Date"), (ii) redemption or exchange of the Cell Genesys
Rights as described below and (iii) the consummation of an acquisition of Cell
Genesys satisfying certain conditions by a person who acquired shares pursuant
to a Permitted Offer as described below.

The Cell Genesys Rights may be redeemed by Cell Genesys at $0.001 per Cell
Genesys Right within 20 days (or such later date as may be determined by a
majority of the board of directors, excluding directors affiliated with an
Acquiring Person) after the accumulation of 20 percent or more of Cell
Genesys' shares by a single acquiror or group.

The Cell Genesys Rights may have the effect of rendering more difficult or
discouraging an acquisition of Cell Genesys deemed undesirable by the board of
directors. The Cell Genesys Rights may cause substantial dilution to a person
or group that attempts to acquire Cell Genesys on terms or in a manner not
approved by Cell Genesys' board of directors, except pursuant to an offer
conditioned upon the negation, purchase or redemption of the Cell Genesys
Rights. The Cell Genesys Rights should not, however, affect any prospective
offeror willing to make an offer for all outstanding shares of Cell Genesys
Common Stock at a fair price and otherwise in the best interests of Cell
Genesys and its stockholders as determined by the board of directors of Cell
Genesys, or affect any prospective offeror willing to negotiate with the board
of directors of Cell Genesys.

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COMPARISON OF STOCKHOLDER RIGHTS

Since both Cell Genesys and Somatix are incorporated under the laws of the
State of Delaware, the rights and privileges of stockholders of Cell Genesys
and Somatix, respectively, which rights and privileges are governed by the
General Corporation Law, are identical, except (i) to the extent that their
respective certificates of incorporation and by-laws differ and (ii) for the
rights and privileges of the holders of Cell Genesys Common Stock arising
under the Cell Genesys Rights Agreement. Upon consummation of the Merger,
holders of Somatix Capital Stock will become holders of Cell Genesys Common
Stock and, as such, their rights will be governed by the Cell Genesys
certificate of incorporation and by-laws. Although it is not practical to
compare all the differences among the Somatix certificate of incorporation and
by-laws and the Cell Genesys certificate of incorporation and by-laws, the
following is a summary of certain material differences that may significantly
affect the rights of Somatix stockholders. This summary is qualified in its
entirety by reference to the full text of such documents, copies of which are
incorporated by reference in this Joint Proxy Statement/Prospectus.

SPECIAL MEETINGS OF STOCKHOLDERS

Under the General Corporation Law, special meetings of stockholders may be
called by the board of directors and by such other person or persons
authorized to do so by the corporation's certificate of incorporation or by-
laws. If an annual meeting is not held within 30 days of the designated date
and time for such a meeting, or is not held for a period of 13 months after
the last annual meeting, the Delaware Court of Chancery may summarily order a
meeting to be held upon the application of any stockholder or director. Cell
Genesys' by-laws provide that special stockholder meetings may be called for
any purpose at any time by Cell Genesys' board of directors, chairman of the
board, the president or any other officer or director of Cell Genesys duly
designated by the board of directors. Stockholders of Cell Genesys do not have
the right to call special meetings of stockholders or to require Cell Genesys'
board of directors to call such meetings. Somatix' by-laws provide that
special meetings of stockholders may be called by the chief executive officer
or the president of Somatix, and must be called by the chief executive
officer, the president or the secretary of Somatix at the request in writing
of the board of directors or stockholders owning a majority of the entire
issued and outstanding capital stock of Somatix.

STOCKHOLDER RIGHTS PLANS

The Cell Genesys Rights Agreement and the Cell Genesys Rights issued or
issuable thereunder are described above under "Description of Cell Genesys
Capital Stock--Cell Genesys Rights Plan." Somatix does not have a stockholder
rights plan.

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ADDITIONAL MATTERS SUBMITTED TO A VOTE OF CELL GENESYS STOCKHOLDERS

ADDITIONAL PROPOSAL NO. 1--AMENDMENT TO CERTIFICATE OF INCORPORATION

The Cell Genesys Amendment. At the meeting of the board of directors of Cell
Genesys on January 12, 1997, the board of directors approved an amendment to
the certificate of incorporation of Cell Genesys that would increase the
authorized Cell Genesys Common Stock from 30,000,000 shares to 80,000,000
shares. At the Cell Genesys Annual Meeting, the stockholders of Cell Genesys
will be asked to consider and vote upon a proposal to approve and adopt the
following resolution with respect to such amendment to the certificate of
incorporation of Cell Genesys:

RESOLVED, that the first paragraph of Article 4 of the certificate of
incorporation be, and it hereby is, amended and restated in its entirety to
be and read as follows:

The total number of shares of stock which the Corporation shall have
authority to issue is 80,000,000, of which 75,000,000 shares, having a
par value of $.001 each, shall be designated as "Common Stock," and of
which 5,000,000 shares, having a par value of $.001 each, shall be
designated as "Preferred Stock," or "Preferred."

Reasons for the Cell Genesys Amendment. In order to issue the number of
shares of Cell Genesys Common Stock issuable upon conversion of Somatix
Capital Stock pursuant to the Merger and upon exercise of the options and
warrants to purchase Somatix Common Stock assumed pursuant to the Merger, the
number of shares of authorized Cell Genesys Common Stock must be increased to
not fewer than 33,300,000. In addition, the board of directors of Cell Genesys
believes that it is desirable for Cell Genesys to have additional authorized
but unissued shares of Cell Genesys Common Stock so as to provide flexibility
to act promptly with respect to acquisitions, public and private financings,
stock dividends and other appropriate purposes. Approval of the increase now
will eliminate the delays and expense that otherwise would be incurred if
stockholder approval were required to increase the authorized number of shares
of Cell Genesys Common Stock for possible future transactions involving the
issuance of additional shares.

Effect of the Cell Genesys Amendment. Additional shares of Cell Genesys
Common Stock authorized pursuant to the Cell Genesys Amendment may be issued,
subject to certain exceptions, by the board of directors of Cell Genesys at
such times, in such amounts and upon such terms as the board of directors of
Cell Genesys may determine, without further approval of the stockholders of
Cell Genesys. Any such issuance could reduce the current stockholders'
proportionate interests in Cell Genesys, depending on the number of shares
issued and the purpose, terms and conditions of the issuance. Cell Genesys
stockholders have no preemptive rights to subscribe to additional shares when
issued.

Required Vote. The affirmative vote of a majority of the outstanding shares
of Cell Genesys Common Stock is required to approve and adopt the Cell Genesys
Amendment.

THE BOARD OF DIRECTORS OF CELL GENESYS UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS OF CELL GENESYS VOTE FOR THE APPROVAL AND ADOPTION OF THE CELL
GENESYS AMENDMENT.

ADDITIONAL PROPOSAL NO. 2--SPECIAL OPTION GRANT

The Special Option Grant. At a meeting of the board of directors of Cell
Genesys on February 13, 1997, the board of directors approved a special grant
of an option to purchase 30,000 shares of Cell Genesys Common Stock at an
exercise price equal to the fair market value of the Cell Genesys Common Stock
on the effective date of such grant, effective as of the Effective Time, to
each of the eight independent directors of the Combined Company as of the
Effective Time.

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Reasons for the Special Option Grant. In recognition of the new and expanded
duties which will be imposed on board of directors of the Combined Company as
a result of, among other things, the greater number of research and corporate
development programs, employees and facilities that will be managed under its
direction, and in order to provide appropriate incentives to the board of
directors of the Combined Company and to align its interests with the
interests of the stockholders of the Combined Company, the board of directors
of Cell Genesys determined to approve the Special Option Grant.

Required Vote. The affirmative vote of a majority of the shares of Cell
Genesys Common Stock present in person or represented by properly executed
proxy at the Cell Genesys Annual Meeting is required to approve the Special
Option Grant.

THE BOARD OF DIRECTORS OF CELL GENESYS UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS OF CELL GENESYS VOTE FOR THE APPROVAL OF THE SPECIAL OPTION
GRANT.

ADDITIONAL PROPOSAL NO. 3--ELECTION OF DIRECTORS

Nominees. Six directors are to be elected at the Cell Genesys Annual
Meeting. Unless otherwise instructed, the proxy holders will vote the proxies
received by them for Cell Genesys' six nominees named below, all of whom are
presently directors of Cell Genesys. Notwithstanding the election of directors
of Cell Genesys at the Cell Genesys Annual Meeting, if the Merger is approved
by the stockholders of Cell Genesys and Somatix and is consummated, the number
of directors comprising the entire board of directors of Cell Genesys will be
increased to nine and the directors immediately after the Effective Time will
include five of the six Cell Genesys director nominees named below, with Mr.
Hutt stepping down as a director, and four individuals who are currently
directors of Somatix--David W. Carter, John T. Potts, Jr., M.D., Thomas E.
Shenk, Ph.D. and Inder M. Verma, Ph.D.--being appointed by the remaining Cell
Genesys Directors. See "The Merger Agreement--Officers and Directors of Cell
Genesys After the Merger." If any nominee of Cell Genesys is unable or
declines to serve as a director at the time of the Cell Genesys Annual
Meeting, the proxies will be voted for any nominee designated by the present
board of directors of Cell Genesys to fill the vacancy. If additional persons
are nominated for election as directors, the proxy holders intend to vote all
proxies received by them in such a manner in accordance with cumulative voting
(if applicable) as will assure the election of as many of the nominees listed
below as possible, and, in such event, the specific nominees to be voted for
will be determined by the proxy holders. Cell Genesys is not presently aware
of any nominee who will be unable or will decline to serve as a director. The
term of office of each person elected as a director will continue until the
next annual meeting of stockholders of Cell Genesys or until a successor has
been elected and qualified.

The names of the nominees, and certain information about them as of the Cell
Genesys Record Date, are set forth below:

<TABLE>
<CAPTION>
DIRECTOR
NAME AGE PRINCIPAL OCCUPATIONS SINCE
---- --- --------------------- --------
<C> <C> <S> <C>
Stephen A. Sherwin, M.D. .... 48 Chairman of the Board, President 1990
and Chief Executive Officer of
Cell Genesys
James M. Gower............... 48 Chairman and Chief Executive 1996
Officer of Rigel Inc.
Peter Barton Hutt............ 62 Senior Partner, Covington & 1990
Burling
Raju S. Kucherlapati, Ph.D. . 54 Chairman, Department of Molecular 1988
Genetics, Albert Einstein
College of Medicine
Joseph E. Maroun............. 67 Retired Senior Vice President, 1995
President--International Group,
Bristol-Myers Squibb Company
Eugene L. Step............... 68 Retired Executive Vice President, 1993
President-- Pharmaceutical
Division, Eli Lilly & Company
</TABLE>

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Dr. Sherwin has served as the president and chief executive officer and a
director of Cell Genesys since March 1990. In March 1994, Dr. Sherwin was
elected to the additional position of chairman of the board of directors of
Cell Genesys. From 1983 to 1990, Dr. Sherwin held various positions at
Genentech, Inc., a biotechnology company, most recently as vice president of
clinical research. Prior to 1983, Dr. Sherwin held various positions on the
staff of the National Cancer Institute. Dr. Sherwin also currently serves as
an associate clinical professor of medicine at the University of California,
San Francisco, a position he has held since 1986, and he is currently a
director of the California Healthcare Institute, a non-profit institution. Dr.
Sherwin holds a B.A. in biology from Yale University and an M.D. from Harvard
Medical School.

Mr. Gower has served as a director of Cell Genesys since July 1996. In 1996,
Mr. Gower became chairman and chief executive officer of Rigel, Inc. Mr. Gower
served as president and chief executive officer of Tularik, Inc. from 1992 to
1996. From 1981 to 1990, he was with Genentech, Inc., most recently as senior
vice president responsible for sales, marketing, business development and
product planning. From 1972 to 1981, Mr. Gower served in a variety of
positions in sales and marketing at American Hospital Supply Corporation,
including as vice president of marketing in the latter four years. Mr. Gower
also is a director of Terrapin, Inc., a privately held biotechnology company.
Mr. Gower received a B.S. degree in operations research and an M.B.A. from the
University of Tennessee.

Mr. Hutt has served as a director of Cell Genesys since August 1990. Mr.
Hutt has been a partner of the law firm of Covington & Burling since 1975.
From 1971 to 1975, Mr. Hutt served as Chief Counsel of the United States Food
and Drug Administration. Mr. Hutt is a director of IDEC Pharmaceuticals
Corporation, Emisphere Technologies, Inc., Interneuron Pharmaceuticals, Inc.,
VIVUS, Inc., Sparta Pharmaceuticals, Inc. and Parexel International
Corporation. Mr. Hutt received an A.B. from Yale University in political
science and economics, an L.L.B. from Harvard University and an L.L.M. from
New York University.

Dr. Kucherlapati, a founder of Cell Genesys, has served as a director of
Cell Genesys since its inception in 1988 and serves as a scientific advisor to
Cell Genesys. Since 1989, he has been the Saul and Lola Kramer Professor and
the Chairman of the Department of Molecular Genetics at the Albert Einstein
College of Medicine, New York, New York. From 1982 to 1989, Dr. Kucherlapati
was a professor at the University of Illinois College of Medicine. Dr.
Kucherlapati is a director of Millenium Pharmaceuticals, Inc and another
privately held biotechnology company. Dr. Kucherlapati received a B.S. in
biology from Andhra University in India and a Ph.D. in genetics from the
University of Illinois, Urbana.

Mr. Maroun has served as a director of Cell Genesys since June 1995. Mr.
Maroun spent 30 years with Bristol-Myers Squibb Company, serving until his
retirement in 1990, when he was senior vice president of Bristol-Myers Squibb
Company, a member of its policy committee and president of its International
Group. He has also previously managed operations for Bristol-Myers Squibb
Company in Latin America, Canada, Japan, the Far East and Europe. In addition,
Mr. Maroun was chairman of the International Section of the Pharmaceutical
Manufacturers Association, and chaired various administrative and executive
committees. He also headed the U.S.-Japan Pharmaceutical Advisory Group. Mr.
Maroun received a B.A. from the University of the Witwatersrand, Johannesburg,
South Africa.

Mr. Step has served as a director of Cell Genesys since March 1993. From
1973 to 1992, Mr. Step served in various positions in senior management at Eli
Lilly & Company, most recently as executive vice president, president of its
Pharmaceutical Division and a member of its board of directors and the
executive committee of the board of directors. Mr. Step is a past chairman of
the board of the Pharmaceutical Manufacturers Association and a past president
of the International Federation of Pharmaceutical Manufacturers Association.
Mr. Step is also a director of Scios Nova, Inc., Medco, Inc., Guidant
Corporation, Pathogenesis Corporation and GMIS Inc. Mr. Step received a B.A.
in economics from the University of Nebraska and an M.S. in finance and
accounting from the University of Illinois.

There are no family relationships between directors or executive officers of
Cell Genesys.

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Required Vote. The six nominees receiving the highest number of affirmative
votes of the shares of Cell Genesys Common Stock present in person or
represented by properly executed proxy at the Cell Genesys Annual Meeting and
entitled to vote therefor will be elected as directors of Cell Genesys.

THE BOARD OF DIRECTORS OF CELL GENESYS UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS OF CELL GENESYS VOTE FOR THE ELECTION OF THE DIRECTOR NOMINEES
NAMED ABOVE.

Board Meetings and Committees. The board of directors of Cell Genesys held a
total of 10 meetings during the fiscal year ended December 31, 1996. Each
director attended at least three-quarters of the meetings of the board of
directors and each committee on which he or she served during 1996.

The board of directors of Cell Genesys has an audit committee and a
compensation committee. It does not have a nominating committee or a committee
performing the functions of a nominating committee.

The audit committee of the board of directors of Cell Genesys, which
consisted of Messrs. Hutt and Step, met two times during fiscal year 1996. The
audit committee recommends engagement of Cell Genesys' independent auditors,
and is primarily responsible for reviewing and approving the scope of the
audit and other services performed by Cell Genesys' independent auditors and
for reviewing and evaluating Cell Genesys' accounting principles and its
systems of internal accounting controls.

The compensation committee of the board of directors of Cell Genesys, which
consisted of Messrs. Gower and Step, met seven times during fiscal year 1996.
The compensation committee reviews and approves Cell Genesys' compensation
policies as well as the compensation of, and grant of stock options to, the
executive officers.

Compensation of Directors. During 1996, non-employee directors were eligible
to receive for their services as directors of Cell Genesys a $15,000 annual
retainer and $1,000 fee per board of directors meeting attended, as well as
reimbursement of expenses incurred in attending such meetings. In addition,
Cell Genesys' 1989 Incentive Stock Plan, as amended, provides for the
automatic grant of options to purchase 30,000 shares of Cell Genesys Common
Stock to each non-employee director every four years on the day following the
annual stockholders' meeting, beginning with the 1995 annual meeting. Such
options vest ratably over 48 months and have exercise prices equal to the fair
market value of Cell Genesys Common Stock at the time of grant.

ADDITIONAL PROPOSAL NO. 4--AMENDMENT TO 1989 INCENTIVE STOCK PLAN

General. The Cell Genesys Incentive Plan was adopted by Cell Genesys' board
of directors and initially approved by Cell Genesys' stockholders in September
1989. The Cell Genesys Incentive Plan will terminate by its own terms in 1999.

Options granted under the Cell Genesys Incentive Plan may be either
incentive stock options, within the meaning of Section 422 of the Code, or
nonstatutory options. In addition, the Cell Genesys Incentive Plan provides
for the grant of stock purchase rights. The Cell Genesys Incentive Plan also
provides for automatic grants of nonstatutory stock options to directors who
are not employees of Cell Genesys. The Cell Genesys Incentive Plan is not a
qualified deferred compensation plan under Section 401(a) of the Code and is
not subject to the provisions of the Employee Retirement Income Security Act
of 1974.

The Incentive Plan Amendment. At the meeting of the board of directors of
Cell Genesys on February 13, 1997, the board of directors approved an
amendment to the Cell Genesys Incentive Plan that would increase the number of
shares of Cell Genesys Common Stock reserved for future issuance under the
Cell Genesys Incentive Plan by 1,750,000 shares, to a total of 5,445,000
shares. At the Cell Genesys Annual Meeting, the stockholders of Cell Genesys
will be asked to consider and vote upon a proposal to approve such amendment
to the Cell Genesys Incentive Plan.

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As of December 31, 1996, options to purchase 1,253,228 shares of Cell
Genesys Common Stock had been exercised, options to purchase 2,364,646 shares
of Cell Genesys Common Stock were outstanding with a weighted average exercise
price of $6.36, and options to purchase 1,358,642 shares of Cell Genesys
Common Stock remained available for future grant. The closing bid price per
share of Cell Genesys Common Stock on December 31, 1996 was $9.13.

Summary of the Incentive Plan Amendment

Purposes of the Plan. The purposes of the Cell Genesys Incentive Plan are to
attract and retain the best available personnel, to provide additional long-
term incentives to employees and directors of Cell Genesys and to promote the
success of Cell Genesys' business.

Administration; Limits on Grants. The Cell Genesys Incentive Plan is
administered by the Cell Genesys board of directors or by the compensation
committee of Cell Genesys' board of directors (the "Cell Genesys Compensation
Committee"), which is comprised of two non-employee directors. The Cell
Genesys Compensation Committee approves the grant of stock options to Cell
Genesys' executive officers. Cell Genesys' board of directors has sole
discretion to interpret any provision of the Cell Genesys Incentive Plan. This
determination is final and conclusive.

The Cell Genesys Incentive Plan limits the discretion of the board of
directors or the Cell Genesys Compensation Committee in granting options and
stock purchase rights to employees. The limitation is intended to preserve
Cell Genesys' ability to deduct for federal income tax purposes the
compensation expense relating to options and stock purchase rights granted to
certain executive officers under the Cell Genesys Incentive Plan. This
limitation provides that an employee may be granted in any one fiscal year no
more than 250,000 shares through stock options or purchase rights under the
Cell Genesys Incentive Plan; provided that this limitation may be increased by
up to an additional 250,000 shares granted in connection with the initial
employment of an employee, or by up to an additional 250,000 shares granted to
an employee in connection with a sale or change in control of Cell Genesys.
Without this limitation, certain federal tax legislation enacted in August
1993 might prohibit Cell Genesys from deducting such compensation expense. See
"--Tax Information." Since the limitation has been included solely to preserve
Cell Genesys' ability to deduct such compensation, Cell Genesys' board of
directors may modify or eliminate this limitation if it is not required to
preserve the deductibility of such compensation.

In addition to the foregoing limitation on discretion for certain options
and stock purchase rights, there is a limit on the aggregate market value of
shares subject to all incentive stock options held by an optionee that may
vest during any calendar year. See "--Tax Information--Incentive Stock
Options."

Eligibility. The Cell Genesys Incentive Plan provides that options and stock
purchase rights may be granted to Cell Genesys' employees and consultants, and
to directors of Cell Genesys who are not employed by Cell Genesys and to
employees of and consultants to Cell Genesys' majority-owned subsidiaries.
Only employees may be granted "incentive stock options" as defined in Section
422 of the Code. Only employees or consultants may be granted "stock purchase
rights." Cell Genesys' board of directors and/or the Cell Genesys Compensation
Committee selects the optionees and determines the number of shares to be
subject to each option. In the case of non-employee directors, options may be
granted only pursuant to a nondiscretionary automatic grant mechanism. Under
the Cell Genesys' automatic grant program, each non-employee director
automatically receives an option to purchase 30,000 shares of Cell Genesys
Common Stock once every four years on the day following the annual meeting of
stockholders. Such option vests ratably over 48 months, has a term of 10 years
from the date of grant and has an exercise price equal to the fair market
value of the Cell Genesys Common Stock on the date of grant.

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Terms of Options. Each option granted under the Cell Genesys Incentive Plan
is evidenced by a written stock option agreement between Cell Genesys and the
optionee and is subject to the following additional terms and conditions:

Duration and Termination of Options. Options granted under the Cell
Genesys Incentive Plan have a maximum term of 10 years from the date of
grant. An option granted to a person who, immediately before the grant of
such option, actually or constructively owns more than 10 percent of the
voting power or value of all classes of stock of Cell Genesys may not have
a term of more than five years. No option may be exercised after the
expiration of its term.

Exercise of Options. Cell Genesys' board of directors, upon
recommendation of the Cell Genesys Compensation Committee, determines on
the date of grant of each option when the option will be exercisable.
Options granted to employees and directors generally become exercisable
over four years. Options are exercisable in a variety of ways depending on
the terms of the optionee's agreement with Cell Genesys. In general, an
option is exercisable at any time or times during its term, in part or in
full, to the extent the option is then vested. Options are not exercisable
for a fraction of a share. An option granted under the Cell Genesys
Incentive Plan is exercised by giving written notice of exercise to Cell
Genesys, specifying the number of shares of Cell Genesys Common Stock to be
purchased and tendering payment of the purchase price to Cell Genesys.
Payment for shares issued upon exercise of an option may, depending on the
terms of the option agreement, consist of cash, check, promissory notes,
surrender of shares of Cell Genesys Common Stock owned by the optionee or
such other consideration as determined by Cell Genesys' board of directors
or the Cell Genesys Compensation Committee.

Exercise Price. The exercise price of options granted under the Cell
Genesys Incentive Plan is determined by Cell Genesys' board of directors.
The exercise price of incentive stock options may not be less than 100
percent of the fair market value of the Cell Genesys Common Stock on the
date of grant. The exercise price of nonstatutory stock options may not be
less than 85 percent of the fair market value of the Cell Genesys Common
Stock on the date of grant. However, the exercise price of options granted
to a person who actually or constructively owns more than 10 percent of the
voting power or value of all classes of stock of Cell Genesys may not be
less than 110 percent or the fair market value on the date of grant. The
Cell Genesys Common Stock is traded in the over-the-counter market and
quoted on The Nasdaq National Market. While the Cell Genesys Common Stock
is quoted on The Nasdaq National Market, the fair market value thereof on
any date of determination will be the reported closing bid price thereof on
The Nasdaq National Market. If the Cell Genesys Common Stock is listed on a
stock exchange in the future, the fair market value per share thereof will
be the closing price thereof on such exchange.

Termination of Employment. Except as described below, if an optionee's
employment by or services to Cell Genesys terminate for any reason other
than death, the option is exercisable within a period of time determined by
Cell Genesys' board of directors or the Cell Genesys Compensation Committee
to the extent vested on the date of termination. For terminations other
than as a result of disability, the time period is generally 30 days and
cannot exceed three months in the case of an incentive stock option or six
months in the case of a nonstatutory stock option. For terminations that
result from total and permanent disability, the time period ranges from six
to 12 months. However, the time period cannot extend beyond the expiration
date of the option.

Death. If an optionee dies while employed by Cell Genesys, or within 30
days (or such other period of time as determined by Cell Genesys' board of
directors or the Cell Genesys Compensation Committee at the date of grant)
after the termination of the optionee's employment by or services to Cell
Genesys, the option may be exercised by the optionee's estate or by a
person who acquired the right to exercise the option by bequest or
inheritance. Such options may be exercised within six months after the date
of death to the extent exercisable on the date of death. However, the
option cannot be exercised beyond the expiration date of the option.

Nontransferability of Options. An option is not transferable by the
optionee, other than by will or the laws of descent and distribution.
During the optionee's lifetime, only the optionee may exercise the option.

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Other Provisions. The option agreement may contain other provisions not
inconsistent with the Cell Genesys Incentive Plan, as determined by Cell
Genesys' board of directors or the Cell Genesys Compensation Committee.

Terms of Stock Purchase Rights. The acquisition of shares of Cell Genesys
Common Stock under the Cell Genesys Incentive Plan pursuant to stock purchase
rights is governed by the terms and conditions of the Cell Genesys Incentive
Plan and either a stock purchase agreement or stock bonus agreement between
Cell Genesys and the participant. Each purchase or bonus is subject to the
following additional terms and conditions:

Rights to Purchase and Duration of Right. The Cell Genesys Incentive Plan
allows for the grant of a "stock purchase right" to buy stock or to receive
a stock bonus. A stock purchase right must be accepted by the offeree
within six months after the date of grant. A stock purchase right is
accepted by signing a stock purchase agreement or stock bonus agreement and
tendering full payment of the purchase price to Cell Genesys. Payment for
shares depends upon the terms of the agreement as determined by Cell
Genesys' board of directors or the Cell Genesys Compensation Committee.

Exercise Price. The exercise price of stock purchase rights is determined
by Cell Genesys' board of directors or the Cell Genesys Compensation
Committee and may not be less than 85 percent of the fair market value of
the Cell Genesys Common Stock on the date of grant. The Cell Genesys Common
Stock is traded in the over-the-counter market and quoted on The Nasdaq
National Market. While the Cell Genesys Common Stock is quoted on The
Nasdaq National Market, the fair market value thereof on any date of
determination will be the reported closing bid price thereof on The Nasdaq
National Market. If the Cell Genesys Common Stock is listed on a stock
exchange in the future, the fair market value per share thereof will be the
closing price thereof on such exchange.

Repurchase Option. Unless Cell Genesys' board of directors or the Cell
Genesys Compensation Committee determines otherwise, the stock purchase
agreement or stock bonus agreement will provide Cell Genesys a repurchase
option exercisable upon the termination of the purchaser's employment by or
services to Cell Genesys for any reason (including death or disability).
The purchase price for shares repurchased may be paid by cancellation of
any indebtedness of the purchaser to Cell Genesys. The repurchase option
lapses at a rate determined by Cell Genesys' board of directors or the Cell
Genesys Compensation Committee.

Nontransferability of Rights. A stock purchase right is not transferable
by the offeree, other than by will or the laws of descent and distribution.
During the offeree's lifetime, only the offeree may exercise the stock
purchase right.

Other Provisions. The stock purchase agreement or stock bonus agreement
may contain other provisions not inconsistent with the Cell Genesys
Incentive Plan as determined by Cell Genesys' board of directors or the
Cell Genesys Compensation Committee.

Changes in Capitalization. In the event of changes in the Cell Genesys
Common Stock by reason of stock dividends, split-ups or combination of shares,
reclassifications, recapitalizations, mergers, consolidations, reorganizations
or liquidations, Cell Genesys' board of directors or the Cell Genesys
Compensation Committee will adjust the exercise price and the number and class
of shares subject to each option or stock purchase right as Cell Genesys'
board of directors or the Cell Genesys Compensation Committee, as the case may
be, deems appropriate. Such adjustment will be final and conclusive.

Reports. Cell Genesys will provide optionees with all required annual
reports regarding options and stock purchase rights issued under the Cell
Genesys Incentive Plan and will give notice to participants of the grant of
such options and stock purchase rights. In addition, Cell Genesys will respond
to reasonable requests for information regarding options and stock purchase
rights on an informal basis from time to time.

Amendment and Termination. The board of directors of Cell Genesys may at any
time amend or terminate the Cell Genesys Incentive Plan without approval of
the stockholders. Cell Genesys currently intends to obtain

99
<PAGE>

stockholder approval of any amendment to the Cell Genesys Incentive Plan to
the extent necessary to comply with Rule 16b-3 under the Exchange Act, with
Section 422 of the Code, or with any other applicable law or regulation,
including requirements of The Nasdaq Stock Market. Any amendment or
termination of the Cell Genesys Incentive Plan is subject to the rights of
optionees under agreements entered into prior to such amendment or
termination.

Tax Information. The Omnibus Budget Reconciliation Act of 1993 added Section
162(m) to the Code. Under Section 162(m), the allowable deduction for
compensation paid or accrued with respect to the chief executive officer and
each of the other four most highly compensated executive officers of a
publicly held corporation is limited to no more than $1,000,000 per year for
fiscal years beginning on or after January 1, 1994. To enable Cell Genesys to
preserve the benefit of receiving a tax deduction for the full amount of
income recognized by Cell Genesys' executive officers upon exercise of stock
options, the Cell Genesys Incentive Plan limits the number of shares that may
be granted to an employee in any one fiscal year. However, because the change
in the Code is new and subject to clarification by the Internal Revenue
Service, there can be no assurance that Cell Genesys will be able to continue
to deduct all compensation paid to its employees.

The following is a brief summary of the federal income tax consequences of
transactions under the Cell Genesys Incentive Plan based on federal securities
and income tax laws in effect December 31, 1996. This summary is not intended
to be exhaustive and does not discuss the tax consequences or a participant's
death or provisions of the income tax laws of any municipality, state or
foreign country in which an optionee may reside.

Incentive Stock Options. No taxable income is recognized by the optionee
upon grant or exercise of an incentive stock option, unless the alternative
minimum tax rules apply. If Cell Genesys Common Stock is issued to an
optionee pursuant to the exercise of an incentive stock option, and if no
disqualifying disposition of such shares is made by such optionee within
two years after the date of grant or within one year after the date of
exercise by the optionee, then (i) upon the resale of such shares, any
amount realized in excess of the option exercise price will be treated as
long-term capital gain and any loss sustained will be long-term capital
loss, and (ii) no deduction will be allowed to Cell Genesys for federal
income tax purposes. The exercise of an incentive stock option may result
in alternative minimum tax liability to the optionee.

If Cell Genesys Common Stock acquired upon the exercise of an incentive
stock option is disposed of before the expiration of either holding period
describe above, generally (i) the optionee will recognize income in the
year of disposition in an amount equal to the excess, if any, of the fair
market value of the shares at exercise (or, if less, the amount realized on
the disposition of the shares) over the option exercise price paid for such
shares, and (ii) Cell Genesys will be entitled to a tax deduction equal to
the amount the employee recognizes as compensation income due to the
disqualifying disposition. Any further gain or loss realized by the
participant will be taxed as short-term or long-term capital gain or loss,
as the case may be, and will not result in any deduction by Cell Genesys.
Different rules may apply if shares are purchased by any optionee who is
subject to Section 16(b) of the Exchange Act and the optionee subsequently
disposes of such shares prior to the expiration of statutory holding
periods.

Nonstatutory Stock Options. Generally, with respect to nonstatutory stock
options (i) no income will be recognized by the optionee at the time the
option is granted; (ii) at exercise, ordinary income will be recognized by
the optionee in an amount equal to the difference between the option
exercise price and the fair market value of the shares on the date of
exercise, and Cell Genesys will be entitled to a tax deduction in the same
amount; and (iii) at disposition, any gain or loss will be treated as
capital gain or loss. In the case of an optionee who is also an employee,
any income recognized upon exercise of a nonstatutory stock option will
constitute wages for which withholding will be required.

Stock Purchase Rights. Stock purchase rights receive the same tax
treatment as nonstatutory stock options.

100
<PAGE>

Participation in the Cell Genesys Incentive Plan. The following table shows
the number of options granted to the named groups under the Cell Genesys
Incentive Plan during the year ended December 31, 1996.

<TABLE>
<CAPTION>
GRANTEES NUMBER OF OPTIONS
-------- -----------------
<S> <C>
Executive Officers as a Group.......................... 287,000
Non-Executive Director Group........................... 30,000
Non-Executive Officer Employee Group................... 520,975
</TABLE>

THE BOARD OF DIRECTORS OF CELL GENESYS UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS OF CELL GENESYS VOTE FOR THE APPROVAL OF THE INCENTIVE PLAN
AMENDMENT.

ADDITIONAL PROPOSAL NO. 5--RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS

The board of directors of Cell Genesys has selected Ernst & Young LLP,
independent auditors, to audit the financial statements of Cell Genesys for
the fiscal year ending December 31, 1997. Ernst & Young LLP has audited Cell
Genesys' financial statements since the year ended December 31, 1989.
Representatives of Ernst & Young LLP are expected to be present at the Cell
Genesys Annual Meeting with the opportunity to make a statement if they desire
to do so, and are expected to be available to respond to appropriate
questions.

THE BOARD OF DIRECTORS OF CELL GENESYS UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS OF CELL GENESYS VOTE FOR THE RATIFICATION OF THE APPOINTMENT OF
ERNST & YOUNG LLP AS THE INDEPENDENT AUDITORS OF CELL GENESYS.

101
<PAGE>

ADDITIONAL MATTERS SUBMITTED TO A VOTE OF SOMATIX STOCKHOLDERS

ADDITIONAL PROPOSAL NO. 1--AMENDMENT TO CERTIFICATE OF INCORPORATION

The Somatix Amendment. At the meeting of the board of directors of Somatix
on January 12, 1997, the board of directors approved an amendment to the
certificate of incorporation of Somatix to provide that the Somatix Series A
Preferred Stock will be converted into Cell Genesys Common Stock pursuant to
the Merger. At the Somatix Special Meeting, the holders of Somatix Capital
Stock (with the Somatix Series A Preferred Stock and Somatix Series B
Preferred Stock voting on an as-converted basis), voting together as a single
class, and the holders of Somatix Series A Preferred Stock will be asked to
consider and vote upon a proposal to approve and adopt the following
resolution with respect to such amendment to the certificate of incorporation
of Somatix:

RESOLVED, that Section 4 of the certificate of designations of
preferences of preferred shares of the Corporation setting forth the
powers, designations, preferences, special rights, qualifications,
limitations and restrictions of the series A-1 preferred stock and series
A-2 preferred stock of the Corporation be amended and supplemented by
inserting after Section 4(D) thereof the following:

(E) Anything to the contrary herein notwithstanding, at the effective
time (the "Effective Time") of the merger contemplated by the agreement
and plan of merger and reorganization, dated as of January 12, 1997 (as
amended and restated as of March 27, 1997, the "Merger Agreement"),
among Cell Genesys, Inc., a corporation organized under the laws of the
State of Delaware ("Cell Genesys"), S Merger Corp., a corporation
organized under the laws of the State of Delaware and a direct wholly
owned subsidiary of Cell Genesys, and the Corporation, each share of
Series A Preferred Stock issued and outstanding immediately prior to
the Effective Time, upon the terms and subject to the conditions set
forth in the Merger Agreement, shall cease to exist and shall be
converted into and become exchangeable for such cash, securities or
other property as provided in the Merger Agreement.

Reasons for the Somatix Amendment. The Somatix Amendment is required as a
condition to Cell Genesys' obligation to consummate the Merger to clarify the
treatment of the Somatix Series A Preferred Stock under the certificate of
designations applicable to the Somatix Series A Preferred Stock upon
consummation of the Merger.

Effect of the Somatix Amendment. Upon consummation of the Merger, each share
of Somatix Series A Preferred Stock issued and outstanding immediately prior
to the Effective Time will be converted into the right to receive 2.4062
shares of Cell Genesys Common Stock.

Required Vote. The affirmative vote of a majority of the outstanding shares
of Somatix Capital Stock (with the Somatix Series A Preferred Stock and
Somatix Series B Preferred Stock voting on an as-converted basis), voting
together as a single class, and a majority of the outstanding shares of
Somatix Series A Preferred Stock, is required to approve and adopt the Somatix
Amendment.

THE BOARD OF DIRECTORS OF SOMATIX, WITH ONE ABSTENTION, RECOMMENDS THAT THE
STOCKHOLDERS OF SOMATIX VOTE FOR THE APPROVAL AND ADOPTION OF THE SOMATIX
AMENDMENT.

102
<PAGE>

OTHER INFORMATION REGARDING CELL GENESYS

DIRECTORS AND OFFICERS

The directors and executive officers of Cell Genesys are:

<TABLE>
<CAPTION>
NAME AGE POSITION WITH CELL GENESYS
---- --- --------------------------
<C> <C> <S>
Stephen A. Sherwin, M.D. .... 48 Chairman of the Board, President and
Chief Executive Officer
James M. Gower............... 48 Director
Peter Barton Hutt............ 62 Director
Raju S. Kucherlapati, Ph.D. . 54 Director
Joseph E. Maroun............. 67 Director
Eugene L. Step............... 68 Director
Kathleen Sereda Glaub........ 43 Senior Vice President and Chief
Financial Officer
R. Scott Greer............... 38 President, Abgenix, Inc.
Daniel F. Hoth, M.D. ........ 50 Senior Vice President and Chief Medical
Officer
Bridget P. Binko............. 45 Vice President--Regulatory Affairs
David Broad, Ph.D. .......... 43 Vice President--Process Development
Mitchell H. Finer, Ph.D. .... 38 Vice President--Research
Bruce A. Hironaka............ 42 Vice President--Corporate Development
Christine McKinley........... 43 Vice President--Human Resources
</TABLE>

A biography of the principal occupations for the past five years of each of
the directors of Cell Genesys is provided above under "Additional Matters
Submitted to a Vote of Cell Genesys Stockholders--Additional Proposal No. 3--
Election of Directors." A biography of the principal occupations for the past
five years of each of the executive officers (other than Dr. Sherwin) is
provided below.

Ms. Glaub was elected senior vice president and chief financial officer of
Cell Genesys in October 1995. Ms. Glaub joined Cell Genesys in September 1993
as vice president and chief financial officer. From 1985 to 1990, Ms. Glaub
held various financial positions at Genentech, Inc., most recently as
treasurer. From 1980 to 1985, she held various positions in the treasury and
finance departments at Intel Corporation. Ms. Glaub received a B.A. in
psychology from the University of California, Berkeley and an M.B.A. from
Northwestern University.

Mr. Greer has served as president of Abgenix, Inc., a subsidiary of Cell
Genesys, since its inception in June 1996. From 1991 to 1996, he held various
positions at Cell Genesys, most recently as senior vice president of corporate
development. Mr. Greer was director of corporate development at Genetics
Institute and has held positions at Booz, Allen, Hamilton, Inc. and Coopers &
Lybrand. Mr. Greer received a B.A. from Whitman College and an M.B.A. from
Harvard Business School. He is a certified public accountant.

Dr. Hoth joined Cell Genesys in June 1993 as senior vice president and chief
medical officer. From March 1994 to 1996, he also served as chief operating
officer of Cell Genesys. In February 1994, he was appointed by the Secretary
of Health and Human Services to the National Task Force on AIDS Drug
Development. From 1987 to 1993, Dr. Hoth served as director of the AIDS
Division of the National Institute of Allergy and Infectious Diseases, which
is the principal federal government agency division for AIDS therapy and
vaccine research. Previously, Dr. Hoth held senior positions at the National
Cancer Institute, including that of chief of the Investigational Drug Branch.
Dr. Hoth received a B.A. in psychology from Franklin and Marshall College and
an M.D. from Georgetown University. Effective June 30, 1997, Dr. Hoth will no
longer be a full-time employee of the company, but will continue as a part-
time consultant under an exclusive consulting agreement in the fields of gene
therapy and cell therapy that was signed in March 1997.

Ms. Binko, vice president of regulatory affairs, joined Cell Genesys in
1993, bringing to Cell Genesys extensive experience in FDA regulations.
Previously, she worked for five years in a variety of regulatory areas at IDEC
Pharmaceuticals, including human clinical studies of antibodies and the
licensure of manufacturing facilities. Prior to IDEC, Ms. Binko participated
in both investigational new drug application and new drug application filings
with the FDA in the antiviral area at Syntex, where she also worked for five
years. She received a B.S. in biology and an M.A. in microbiology from the
State University of New York at Buffalo.

103
<PAGE>

Dr. Broad has served at Cell Genesys since 1993 and is currently vice
president of process development. His depth of experience in biological
product development includes more than six years at Celltech Limited, where he
specialized in cell-based manufacturing systems for therapeutic proteins and
antibodies. Dr. Broad also served as a senior development scientist at Beecham
Pharmaceuticals. He received his B.S. and Ph.D. in microbiology from the
University of London and served as a postdoctoral research fellow in the
Microbiology Section of the School of Pharmacy, University of London.

Dr. Finer, vice president of research at Cell Genesys, has been with Cell
Genesys since 1990, serving in a variety of scientific positions, most
recently as director of molecular biology. He has provided scientific
leadership to both the ex vivo and in vivo gene therapy programs at Cell
Genesys. Prior to joining Cell Genesys, Dr. Finer was an American Cancer
Society postdoctoral fellow at the Whitehead Institute for Biomedical Research
at the Massachusetts Institute of Technology. He received his B.A. in
biochemistry, microbiology and immunology from the University of California,
Berkeley and his Ph.D. in biochemistry and molecular biology from Harvard
University.

Mr. Hironaka, prior to being elected vice president of corporate development
in l996, served as director of business development for Cell Genesys' gene
therapy business, a position that he held since joining Cell Genesys in August
l994. From 1992 to 1994, Mr. Hironaka was with Aviron, a biotechnology company
focusing on viral vaccines, most recently as vice president responsible for
business development, finance, human resource and operations. Previously, he
was a consultant with McKinsey & Company, a leading international management
consulting firm. Mr. Hironaka graduated Phi Beta Kappa with an A.B. in
economics from the University of California, Berkeley and holds an M.B.A. and
J.D. from Stanford University.

Ms. McKinley, who is vice president of human resources at Cell Genesys, has
played an integral role in building and managing Cell Genesys' human resource
function. She joined Cell Genesys in l994 after overseeing corporate human
resources for over eight years at Nellcor Puritan Bennett, Inc. Ms. McKinley
also worked at Genentech, Inc. for seven years in various human resource
positions. She received a B.A. in psychology from the University of California
at Santa Barbara.

104
<PAGE>

STOCK OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT

The following table sets forth certain information with respect to the
beneficial ownership of Cell Genesys Common Stock as of April 22, 1997 by (i)
each stockholder known by Cell Genesys to own beneficially more than five
percent of the outstanding shares of Cell Genesys Common Stock, (ii) each
director of Cell Genesys, (iii) the Chief Executive Officer and the four other
most highly compensated (for fiscal year 1996) executive officers of Cell
Genesys who were serving as such at the end of fiscal year 1996 and (iv) all
executive officers and directors of Cell Genesys as a group.

<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENT
BENEFICIALLY OF CLASS
BENEFICIAL OWNER OWNED(1) OWNED(2)
---------------- ------------ --------
<S> <C> <C>
Hoechst Marion Roussel, Inc.(3)...................... 2,750,000 15.88%
9300 Ward Parkway
Kansas City, Missouri 64114
Trustees of the General Electric Pension Trust....... 1,856,420 11.21%
c/o General Electric Investment Corporation
3003 Summer Street
Stamford, Connecticut 06904
T. Rowe Price........................................ 952,177 5.75%
100 E. Pratt Street
Baltimore, Maryland 21202
JT America Inc. ..................................... 940,477 5.68%
1825 South Grant Street
Suite 220
San Mateo, California 94402
James M. Gower(4).................................... 6,875 *
Peter Barton Hutt(5)................................. 47,250 *
Raju S. Kucherlapati, Ph.D.(6)....................... 225,398 1.36%
Joseph E. Maroun(7).................................. 33,325 *
Stephen A. Sherwin, M.D.(8).......................... 604,542 3.59%
Eugene L. Step(9).................................... 47,250 *
Mitchell F. Finer, Ph.D.(10)......................... 65,939 *
Kathleen Sereda Glaub(11)............................ 111,708 *
R. Scott Greer(12)................................... 237,588 1.42%
Daniel F. Hoth, M.D.(13)............................. 122,692 *
All directors and executive officers as a group (14
persons)(14)........................................ 1,631,541 9.25%
</TABLE>
- --------
* Less than 1.0%

(1) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect
to securities. Except as indicated in the footnotes to this table and
pursuant to applicable community property laws, the persons named in the
table have sole voting and investment power with respect to all shares of
Cell Genesys Common Stock beneficially owned. Unless otherwise indicated
in the footnotes to this table and subject to applicable community
property laws, each of the stockholders named in this table has sole
voting and investment power with respect to the shares shown as
beneficially owned by it or him. This table is based upon information
supplied to Cell Genesys by executive officers, directors and principal
stockholders. The address of each officer and director identified in this
table is that of Cell Genesys' executive offices, 342 Lakeside Drive,
Foster City, California 94404.

(2) Percentage of beneficial ownership is calculated assuming 16,566,348
shares of Cell Genesys Common Stock were outstanding as of April 22, 1997.
Shares of Cell Genesys Common Stock subject to options or warrants
currently exercisable or convertible, or exercisable or convertible within
60 days of April 22, 1997, are deemed outstanding for computing the
percentage of the person holding such option or warrant but are not deemed
outstanding for computing the percentage of any other person.

105
<PAGE>

(3) Includes 750,000 shares of Cell Genesys Common Stock subject to a warrant
exercisable at $13 per share.
(4) Includes 6,875 shares of Cell Genesys Common Stock subject to options
exercisable within 60 days after April 22, 1997.
(5) Includes 47,250 shares of Cell Genesys Common Stock subject to options
exercisable within 60 days after April 22, 1997.
(6) Includes 51,312 shares of Cell Genesys Common Stock subject to options
exercisable within 60 days after April 22, 1997.
(7) Includes 15,625 shares of Cell Genesys Common Stock subject to options
exercisable within 60 days after April 22, 1997.
(8) Includes 283,584 shares of Cell Genesys Common Stock subject to options
exercisable within 60 days after April 22, 1997.
(9) Includes 47,250 shares of Cell Genesys Common Stock subject to options
exercisable within 60 days after April 22, 1997.
(10) Includes 54,482 shares of Cell Genesys Common Stock subject to options
exercisable within 60 days after April 22, 1997.
(11) Includes 109,549 shares of Cell Genesys Common Stock subject to options
exercisable within 60 days after April 22, 1997.
(12) Includes 212,541 shares of Cell Genesys Common Stock subject to options
exercisable within 60 days after April 22, 1997.
(13) Includes 121,371 shares of Cell Genesys Common Stock subject to options
exercisable within 60 days after April 22, 1997.
(14) Includes 1,070,665 shares of Cell Genesys Common Stock subject to options
exercisable within 60 days after April 22, 1997.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

Section 16(a) of the Exchange Act requires Cell Genesys' executive officers
and directors, and persons who own more than 10 percent of a registered class
of Cell Genesys' equity securities, to file with the Commission initial
reports of ownership and reports of changes in ownership of Cell Genesys
Common Stock and other equity securities of Cell Genesys. Executive officers,
directors and 10 percent stockholders are required by Commission regulations
to furnish Cell Genesys with copies of all Section 16(a) forms they file.

To Cell Genesys' knowledge (based solely on review of the copies of such
reports furnished to Cell Genesys or written representations that no other
reports were required), during the fiscal year ended December 31, 1996, all
executive officers, directors and 10 percent stockholders complied with all
Section 16(a) filing requirements except for Bridget P. Binko, David F. Broad,
Ph.D., Mitchell H. Finer, Ph.D., and Christine McKinley, each of whom was
appointed an officer during 1996 and was approximately two weeks late in their
initial filing of holdings on Form 3.

EMPLOYMENT CONTRACTS

Since the time of Dr. Sherwin's initial employment in March 1990 Cell
Genesys has agreed to maintain his salary for 12 months after termination of
his employment with Cell Genesys, unless Cell Genesys terminates him for cause
or he terminates his employment voluntarily.

106
<PAGE>

CELL GENESYS EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table sets forth certain information concerning the
compensation of Cell Genesys' Chief Executive Officer and each of the four
other most highly compensated executive officers (collectively, the "Named
Officers") for services to Cell Genesys during fiscal years 1994, 1995 and
1996 in their respective capacities as officers thereof.

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------ ------------
OTHER SECURITIES
NAME AND YEAR ENDING ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION DECEMBER 31, SALARY BONUS(1) COMPENSATION OPTIONS(2) COMPENSATION
- ------------------ ------------ -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Stephen A. Sherwin,
M.D.................... 1996 $350,000 $80,000 -- 100,000 --
Chairman, President and 1995 $336,000 $67,500 -- 100,000 --
Chief Executive Officer 1994 $320,000 $48,000 -- 100,000 --
Kathleen Sereda Glaub... 1996 $200,000 $56,000 -- 75,000 --
Senior Vice President 1995 $183,210 $38,000 -- 100,000 --
and Chief Financial 1994 $165,000 $20,600 -- 27,500 --
Officer
R. Scott Greer(3)....... 1996 $230,000 $55,000 $ 6,580 75,000 --
President, Abgenix,
Inc. 1995 $205,000 $47,000 $ 6,580 50,000 --
1994 $191,250 $19,500 $ 4,000 50,000 --
Daniel F. Hoth, M.D.(4). 1996 $240,000 $ -- $ 6,580 25,000 --
Senior Vice President 1995 $235,000 $ -- $32,000 150,000 --
and Chief Medical 40,000
Officer 1994 $210,000 $21,000 $ 5,000 -- $83,000
Mitchell H. Finer,
Ph.D................... 1996 $144,454 $24,000 -- 12,000 --
Vice President-- 1995 $115,500 $17,325 -- 7,500 --
Research 1994 $110,000 $17,500 -- 14,500 --
</TABLE>
- --------
(1) These bonuses, which were awarded for the year noted, were paid in the
subsequent year.
(2) Cell Genesys has no restricted stock awards, stock appreciation rights or
long-term incentive plan payouts.
(3) The amounts listed under "Other Annual Compensation" for 1994, 1995 and
1996 consist of the imputed interest income on a $100,000 relocation loan
made in 1992.
(4) Included in "All Other Compensation" for 1994 is a forgiven note of
$50,000 and the related additional tax gross-up payment of $33,000. "Other
Annual Compensation" for 1994 and 1996 consists of $5,000 and $6,580,
respectively, of imputed interest income. "Other Annual Compensation" for
1995 is comprised of $25,500 of payments to Dr. Hoth for relocation
expenses and $6,500 of imputed interest income.

107
<PAGE>

OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth details regarding stock options granted to
the Named Officers in fiscal year 1996.

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------
POTENTIAL REALIZABLE VALUE
NUMBER OF AT ASSUMED ANNUAL RATE
SECURITIES % OF TOTAL OF STOCK PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE FOR OPTION TERMS(3)
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION ---------------------------
NAME GRANTED(1) 1996(2) (PER SHARE) DATE 5% 10%
- ---- ---------- --------------- ----------- ---------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Stephen A. Sherwin,
M.D. ................... 100,000 12.4% $10.125 2/15/06 $ 636,756 $ 1,613,664
Kathleen Sereda Glaub... 75,000 9.3% $10.125 2/15/06 $ 477,567 $ 1,210,248
R. Scott Greer.......... 75,000 9.3% $10.125 2/15/06 $ 477,567 $ 1,210,248
Daniel F. Hoth, M.D. ... 25,000 3.1% $10.125 2/15/06 $ 159,189 $ 403,416
Mitchell H. Finer,
Ph.D. .................. 12,000 1.5% $10.125 2/15/06 $ 76,411 $ 193,640
</TABLE>
- --------
(1) Options granted under Cell Genesys' 1989 Incentive Stock Plan have a
maximum term of 10 years but may be terminated earlier upon termination of
employment. Shares vest over a four-year period at the rate of 1/48th per
month.

(2) Based on an aggregate of 807,975 options granted to employees in 1996.

(3) The potential realizable value is calculated based on the 10-year term of
the option and the fair market value of the Cell Genesys Common Stock at
the time the option was granted, compounded annually. The five and 10
percent assumed annualized rates of compound stock price appreciation are
provided in compliance with the rules of the Commission and are not meant
to represent Cell Genesys' estimate or a projection by Cell Genesys of
future Cell Genesys Common Stock prices.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES

The following table sets forth certain information concerning option
exercises and unexercised options held as of December 31, 1996 by the Named
Officers.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
SHARES ACQUIRED VALUE OPTIONS AT DECEMBER 31, 1996 DECEMBER 31, 1996
NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(1)
- ---- --------------- -------- ---------------------------- ----------------------------
<S> <C> <C> <C> <C>
Stephen A. Sherwin,
M.D. ................... 20,000 $100,000 251,083 / 129,167 $1,321,426 / $115,105
Kathleen Sereda Glaub... -- -- 78,059 / 124,441 $ 131,085 / $150,165
R. Scott Greer.......... -- -- 18,771 / 0 $1,246,895 / $ 0
Daniel F. Hoth, M.D. ... -- -- 94,601 / 120,399 $ 195,096 / $223,654
Mitchell H. Finer,
Ph.D. .................. -- -- 44,607 / 20,313 $ 263,790 / $ 26,759
</TABLE>
- --------
(1) Fair market value of the Cell Genesys Common Stock at December 31, 1996
minus the exercise price of the options multiplied by the number of shares
underlying the option.

108
<PAGE>

CELL GENESYS COMPENSATION COMMITTEE REPORT ON EXECUTIVE
COMPENSATION

Decisions regarding compensation of the executive officers of Cell Genesys
are made by the compensation committee of the board of directors of Cell
Genesys (the "Compensation Committee"). The Compensation Committee is
responsible for setting compensation policy and determining the annual
compensation of the executive officers of Cell Genesys, including base
salaries, bonuses, if any, and stock options. Cell Genesys' executive pay
programs are designed to attract and retain executives who will contribute to
Cell Genesys' long-term success, to reward executives for achieving both
short- and long-term goals of Cell Genesys, to link executive and stockholder
interests through equity-based compensation plans, and to provide a
compensation package that recognizes both individual contributions and company
performance. A substantial portion of each executive's total compensation is
intended to be variable and to relate to, and be contingent upon, performance.
The Compensation Committee evaluates the performance and determines the
compensation of the chief executive officer and other executive officers of
Cell Genesys annually, based upon individual performance and the achievement
of corporate goals.

GENERAL COMPENSATION POLICY

Cell Genesys' executive compensation programs seek to accomplish several
major goals:

. To recruit and retain highly qualified executive officers by offering
overall compensation that is competitive with that offered for comparable
positions in companies in the biotechnology industry of comparable size
and at a comparable stage of development;

. To motivate executives to achieve important business and performance
objectives and to reward them when such objectives are met; and

. To align the interests of executive officers with the long-term interests
of stockholders through participation in Cell Genesys' stock option plan.

The achievement of these goals is based on a mix of compensation elements,
as described below.

BASE SALARY

Base salaries for all employees, including executive officers, are
determined based on an established job grade and compensation matrix that is
designed to provide a base salary that is competitive with comparable
companies. In monitoring the job grade and compensation matrix, the
Compensation Committee compared compensation information derived from
compensation surveys including compensation levels for companies of similar
size and stage of development. Included in the survey are some, but not all of
the companies included in the Nasdaq Pharmaceutical Index, with the primary
focus on biotechnology companies at a similar stage in the San Francisco Bay
Area that may compete for the same pool of employees. The assessment confirmed
that Cell Genesys' base compensation overall was comparable to the industry
averages. Adjustments to each individual's base salary, including executive
officers, are made in connection with annual performance reviews. The amount
of such increases are calculated using merit increase guidelines based on the
employee's position within the relevant compensation range and the results of
their performance review. The recommended percentage increases are adjusted
annually to reflect the Compensation Committee's assessment of appropriate
salary adjustments given the results of competitive surveys and general
economic conditions.

PERFORMANCE-BASED INCENTIVE PLAN

An annual bonus, set as a percentage of base salary, may be earned by
officers and other key employees based on the achievement of individual
objectives and company goals. These goals are established at the start of each
year in conjunction with the Compensation Committee and the full board of
directors. Awards made to executive officers were based upon the achievement
of Cell Genesys' established goals as well as selected

109
<PAGE>

department goals of the individual officers. These goals included progress
made in pre-clinical and clinical trials, strategic alliances, financing
activities and the financial results of Cell Genesys. Cell Genesys'
compensation policy was also compared to relevant market data and found to be
comparable to industry averages. In reflection of Cell Genesys' performance
during 1996 and in accord with its existing policy, the Compensation Committee
approved 1996 targets for merit increases to base compensation and bonuses
comparable to industry averages.

STOCK-BASED INCENTIVE COMPENSATION

Stock options enable Cell Genesys to provide long-term incentives to its
employees that align the interests of all employees, including the executive
officers, with those of the stockholders. Options are exercisable in the
future at the fair market value at the time of grant, so that an option holder
is rewarded only by the appreciation in price of the Cell Genesys Common
Stock. Stock options granted generally have a four-year vesting period and
expire 10 years after the date of grant. Periodic grants of stock options are
generally made annually to all eligible employees, with additional grants made
to certain employees upon commencement of employment and occasionally
following a significant change in job responsibility, scope or title or a
particularly noteworthy achievement. Guidelines for the number of options
granted to each eligible employee are determined by the Compensation Committee
based on several factors, including salary grade and the performance of each
participant. The size of the resulting grants developed under this procedure
are targeted to be at or above competitive levels as a reflection of both the
added incentive to continue the favorable performance of Cell Genesys and the
risk attached to the future growth of the biotechnology industry.

CHIEF EXECUTIVE OFFICER COMPENSATION

Dr. Sherwin's salary, bonus and stock option grant for fiscal 1996 are
consistent with the criteria described above and the Compensation Committee's
evaluation of his overall leadership and management of Cell Genesys. 1996 was
a year of significant accomplishment, both in terms of progress made against
Cell Genesys' research and development programs and in terms of the
implementation of a new business strategy. Cell Genesys began the year as a
single company with two diverse areas of product development--in gene therapy
and in antibody therapy. By mid-year, Cell Genesys had implemented a new
strategic plan leading to the separation of the two business areas and the
creation of a new subsidiary, Abgenix, Inc. This plan allowed both companies
to examine separately strategic opportunities to maximize the likelihood of
success and to enhance shareholder value. This was particularly true in the
gene therapy area, where such efforts culminated in the signing of the Merger
Agreement. On the research side, Cell Genesys successfully completed its Phase
I clinical trials of its AIDS gene therapy and initiated Phase II clinical
studies under two separate clinical trials. Cell Genesys also expanded its
gene therapy program to include cancer targets and identified the first such
target for which an investigational new drug application is expected to be
filed with the FDA in mid-1997. Significant progress was also made in Abgenix'
antibody business with the identification of a lead product candidate and the
successful demonstration that Cell Genesys' technology produces high affinity
human antibodies against multiple antigen targets. On the financial side, Cell
Genesys ended the year with over $85 million in cash, up from $82 million at
the start of the year. This was made possible, in part, by milestone payments
and corporate partnership revenues relating to AIDS gene therapy product
development program, as well as unanticipated revenues from the successful
renegotiation of a license for gene-activated follicle stimulating hormone and
a signature payment from the signing of a letter of intent for a new gene
activation deal with Hoechst Marion Roussel. Dr. Sherwin has continued to
ensure that Cell Genesys' assets are utilized effectively and to their best
advantage, conservatively managing Cell Genesys' cash resources, resulting in
an impressive cash balance remaining at the end of the year.

COMPLIANCE WITH INTERNAL REVENUE CODE SECTION 162(M)

Cell Genesys' policy is generally to qualify compensation paid to executive
officers for deductibility under Section 162(m) of the Internal Revenue Code.
However, Cell Genesys reserves the discretion to pay compensation to its
executive officers that may not be deductible. In 1994, Cell Genesys' board of
directors and stockholders approved an amendment to Cell Genesys' 1989
Incentive Stock Plan to qualify for an exemption from the limit on deductions
under Section 162(m) with respect to options and stock purchase rights granted
under the 1989 Incentive Stock Plan.

110
<PAGE>

The foregoing report has been submitted by the undersigned in our capacity
as members of the Compensation Committee of the board of directors of Cell
Genesys.

COMPENSATION COMMITTEE

James M. Gower
Eugene L. Step

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Cell Genesys Compensation Committee is composed of Messrs. Gower and
Step. The Cell Genesys Compensation Committee makes recommendations to the
board of directors concerning salaries and incentive compensation for officers
of Cell Genesys. Dr. Sherwin, chairman of the board, president and chief
executive officer of Cell Genesys, is not a member of the Cell Genesys
Compensation Committee and cannot vote on matters decided by the Cell Genesys
Compensation Committee. Dr. Sherwin participates in Cell Genesys Compensation
Committee discussions regarding salaries and incentive compensation for all
employees of and consultants to Cell Genesys, but is excluded from discussions
regarding his own salary and incentive compensation.

111
<PAGE>

CELL GENESYS STOCK PERFORMANCE GRAPH

STOCKHOLDER RETURN COMPARISON

The graph below compares the cumulative total return(1) on Cell Genesys
Common Stock for fiscal years 1996, 1995 and 1994 and the fiscal year period
commencing January 26, 1993 (the date on which Cell Genesys Common Stock was
first publicly traded) and ending December 31, 1996 compared to the Center for
Research in Security Prices ("CRSP") Total Return Index for The Nasdaq
National Market (United States companies) and the CRSP Total Return Index for
the Nasdaq Pharmaceutical Stocks (Standard Industrial Classification Code
Number 283). The stock price performance shown on the graph below is not
necessarily indicative of future price performance.

COMPARISON OF CUMULATIVE STOCKHOLDER RETURN(1)
AMONG CELL GENESYS, INC.
S&P 500 INDEX AND S&P FINANCIAL INDEX

PERFORMANCE GRAPH APPEARS HERE
<TABLE>
<CAPTION>

Measurement Period Cell NASDAQ-
(Fiscal Year Covered) Genesys, Inc. NASDAQ-US PHARMACEUTICAL
- --------------------- --------------- --------- --------------
<S> <C> <C> <C>
Measurement Pt-01/26/1993 $100.00 $100.00 $100.00
FYE 03/31/1993 $102.00 $098.00 $076.00
FYE 06/30/1993 $123.00 $099.00 $081.00
FYE 09/30/1993 $164.00 $108.00 $087.00
FYE 12/31/1993 $177.00 $110.00 $095.00
FYE 03/31/1994 $132.00 $105.00 $077.00
FYE 06/30/1994 $084.00 $100.00 $067.00
FYE 09/30/1994 $089.00 $109.00 $076.00
FYE 12/31/1994 $075.00 $107.00 $071.00
FYE 03/31/1995 $050.00 $117.00 $077.00
FYE 06/30/1995 $041.00 $134.00 $089.00
FYE 09/30/1995 $057.00 $150.00 $112.00
FYE 12/31/1995 $091.00 $152.00 $130.00
FYE 03/31/1996 $069.00 $159.00 $136.00
FYE 06/30/1996 $069.00 $172.00 $132.00
FYE 09/30/1996 $072.00 $178.00 $135.00
FYE 12/31/1996 $083.00 $187.00 $130.00
</TABLE>

- --------
(1) Assumes $100 invested on January 26, 1993 in Cell Genesys Common Stock and
in each index listed above. The total return for Cell Genesys Common Stock
and the indices used assumes the reinvestment of dividends, even though
dividends have never been declared on Cell Genesys Common Stock.

112
<PAGE>

OTHER INFORMATION REGARDING SOMATIX

DIRECTORS AND OFFICERS

The directors and executive officers of Somatix are:

<TABLE>
<CAPTION>
NAME AGE POSITION WITH SOMATIX
---- --- ---------------------
<C> <C> <S>
David W. Carter............. 58 Chairman of the Board of Directors,
President and Chief Executive Officer
Karen Davis, Ph.D. ......... 54 Director
Michael R. Eisenson......... 41 Director
Fred H. Gage, Ph.D. ........ 46 Director
John T. Potts, Jr., M.D. ... 64 Director
Leon E. Rosenberg, M.D. .... 63 Director
Thomas E. Shenk, Ph.D. ..... 49 Director
Inder M. Verma, Ph.D. ...... 48 Director
Samuel D. Waksal, Ph.D. .... 49 Director
Edward O. Lanphier II....... 40 Executive Vice President, Commercial
Development and Chief Financial Officer
Lawrence K. Cohen, Ph.D. ... 43 Vice President Research
Joseph A. Rokovich, Ph.D. .. 46 Vice President, Regulatory, Clinical
Operations, QA/QC and Project Management
</TABLE>

A biography of the principal occupations for the past five years of each of
the directors and executive officers of Somatix is provided below.

Mr. Carter has served as president and chief executive officer of Somatix
since September 1991 and as a director of Somatix since 1988. In September
1994, Mr. Carter was appointed chairman of the board of directors of Somatix.
Prior to joining Somatix, he was president and chief operating officer of
Northfield Laboratories.

Dr. Davis has served as a director of Somatix since 1992. She is president
of The Commonwealth Fund, a philanthropic foundation in the health care field,
which she joined in July 1992 as executive vice president. Dr. Davis is also
an adjunct professor of Health Policy and Management at The Johns Hopkins
University School of Hygiene and Public Health. From 1982 until 1992, Dr.
Davis was chairman of the Department of Health Policy and Management in The
Johns Hopkins University School of Hygiene and Public Health. Dr. Davis sits
on several boards and committees concerned with health policy issues and is
the author of numerous books and articles on health economics and policy
analysis. Dr. Davis currently serves as a director of the Mount Sinai Medical
Center.

Mr. Eisenson has served as a director of Somatix since 1988. He is the
president and chief executive officer of Harvard Private Capital Group, Inc.,
which he joined in 1986. Harvard Private Capital Group, Inc. manages the
private equity and real estate portfolios of the Harvard University endowment
fund. Mr. Eisenson was a principal with the Boston Consulting Group from 1981
to 1985. He serves on the board of directors of Harken Energy Corporation,
ImmunoGen, Inc., NHP Incorporated, United Auto Group, Inc. and several private
companies.

Dr. Gage has served as a director of Somatix since September 1993. Dr. Gage
has been professor of neuroscience at The Salk Institute since 1995. Prior to
that, he was a member of the faculty at the University of California, San
Diego, from 1985 to 1995. Dr. Gage was a founder of GeneSys Therapeutics
Corporation and has served as a consultant to Somatix since the acquisition of
GeneSys Therapeutics Corporation in January 1992.

113
<PAGE>

Dr. Potts has served as a director of Somatix since March 1995. His career
spans 40 years of distinguished service in science and medicine. He earned his
M.D. in 1957 from University of Pennsylvania, then trained at Massachusetts
General Hospital and National Heart Institute. At the National Institutes of
Health, he became head of the Section on Polypeptide Hormones prior to
becoming chief of Endocrinology at Massachusetts General Hospital in 1968. Dr.
Potts served as physician-in-chief at Massachusetts General Hospital and
Jackson Distinguished Professor of Clinical Medicine at Harvard Medical School
from 1981 to 1996. In September 1996, Dr. Potts moved from the post of
physician-in-chief to director of research at Massachusetts General Hospital
and Jackson Distinguished Professor of Medicine. He is also a member of the
board of directors of Genentech, Inc.

Dr. Rosenberg has served as a director of Somatix since August 1995. Dr.
Rosenberg is the president of Bristol-Myers Squibb Pharmaceutical Research
Institute, a post he has held since September 1991. Prior to joining Bristol-
Myers Squibb, Dr. Rosenberg was the dean of the Yale University School of
Medicine from 1984 to 1991. During his 26-year affiliation with Yale, he
worked as a research geneticist, teacher, and clinician. Dr. Rosenberg is a
member of the board of directors of EntreMed Incorporated, Research America
and The Whitehead Institute for Biomedical Research.

Dr. Shenk has served as a director of Somatix since February 1995. Dr.
Shenk, a founder of Merlin Pharmaceutical Corporation, is Howard Hughes
Professor of Molecular Biology at Princeton University, where he has been
since 1984. He has done extensive work with the adenovirus, and is the author
of numerous articles on the subject. He also serves as a member of the board
of directors of Cadus Pharmaceutical Corporation.

Dr. Verma has served as a director of Somatix since June 1996. Dr. Verma is
chairman of the Faculty and Academic Council of The Salk Institute, and Co-
Director of the Laboratory of Genetics, Salk Institute. He joined The Salk
Institute in April, 1974. In 1995, the National Institutes of Health selected
Dr. Verma to chair a committee reviewing the scope and advancement of gene
therapy. Currently, Dr. Verma is an adjunct professor, Department of Biology,
at the University of California, San Diego and he has been a member of the
faculty since 1979.

Dr. Waksal has served as a director of Somatix since February 1995. He has
been president and chief executive officer of Imclone Systems, Incorporated, a
New York-based biotechnology company, since 1987. He has taught at Mount Sinai
School of Medicine and conducted research at the National Cancer Institute,
Stanford University Medical and Tufts University School of Medicine. He is
author of numerous articles, and also serves as chairman of the board of Cadus
Pharmaceutical Corporation.

Mr. Lanphier joined Somatix in July 1992 as executive vice president,
commercial development. Since August 15, 1996, Mr. Lanphier has also served as
Somatix' chief financial officer. From December 1991 to July 1992, he was
senior vice president of business development and marketing at Celtrix
Pharmaceuticals, Inc., a pharmaceutical company. From 1988 to 1991, he was the
president and chief executive officer of BioGrowth, Inc., a pharmaceutical
company. Mr. Lanphier previously has held positions with Biotherapeutics,
Inc., Synergen, Inc. and Eli Lilly & Company.

Dr. Cohen was named vice president of research of Somatix in December 1993.
He joined Somatix Corporation in 1988 as program leader for the vascular graft
project. After the Hana-Somatix merger in 1991, he became manager of molecular
biology at Somatix. Before joining Somatix Corporation, he was a senior
scientist and group leader at Applied bioTechnology.

Dr. Rokovich joined Somatix in 1992 as director of project management and
acting director of regulatory affairs. In July 1994, he was named vice
president of regulatory affairs and project management, and, since September
1996, he has served as vice president of regulatory, clinical operations,
quality, and project management. His previous experience in biotechnology
development includes management positions at BioRad Laboratories, Cetus
Corporation and Chiron Corporation.

114
<PAGE>

STOCK OWNERSHIP OF PRINCIPAL STOCKHOLDERS AND MANAGEMENT

The following table sets forth certain information with respect to the
beneficial ownership of Somatix Common Stock as of April 22, 1997 by (i) each
stockholder known by Somatix to own beneficially more than five percent of the
outstanding shares of Somatix Common Stock, (ii) each director of Somatix,
(iii) the Chief Executive Officer and the four other most highly compensated
(for fiscal year 1996) executive officers of Somatix who were serving as such
at the end of fiscal year 1996 and (iv) all executive officers and directors
of Somatix as a group.

<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT OF
BENEFICIAL OWNER BENEFICIALLY OWNED(1) CLASS OWNED(2)
---------------- --------------------- --------------
<S> <C> <C>
Fletcher International Limited(3).... 2,988,988 10.52%
c/o Midland Bank Trust Corporation
(Cayman) Limited
P.O. Box 1109, Mary Street
Grand Cayman, Cayman Islands
British West Indies
Bristol-Myers Squibb(4).............. 2,303,221 8.11%
Route 206 and Province Line Road
Princeton, NJ 08543-4000
Aeneas Venture Corporation(5)........ 2,249,882 7.92%
600 Atlantic Avenue
Boston, MA 02210
Legg Mason, Inc.(6).................. 2,132,174 6.97%
111 South Calvert Street
Baltimore, MD 21202
David W. Carter(7)................... 528,150 1.86%
Thomas E. Shenk, Ph.D.(8)............ 430,716 1.52%
Samuel D. Waksal, Ph.D.(9)........... 235,699 *
Fred H. Gage, Ph.D.(10).............. 233,051 *
Edward O. Lanphier II(11)............ 177,812 *
Inder M. Verma, Ph.D.(12)............ 143,751 *
Lawrence K. Cohen, Ph.D.(13)......... 131,411 *
Joseph A. Rokovich, Ph.D.(14)........ 35,125 *
Karen Davis, Ph.D.(15)............... 25,500 *
John T. Potts, Jr., M.D.(16)......... 25,000 *
Leon E. Rosenberg, M.D.(17).......... 25,000 *
All directors and executive
officers as a group (13
persons)(18)........................ 4,294,436 15.12%
</TABLE>
- -------
* Less than 1.0%

(1) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect
to securities. Except as indicated in the footnotes to this table and
pursuant to applicable community property laws, the persons named in the
table have sole voting and investment power with respect to all shares of
Somatix Common Stock beneficially owned. Unless otherwise indicated in
the footnotes to this table and subject to applicable community property
laws, stockholders named in this table have sole voting and investment
power with respect to the shares shown as beneficially owned by them.
This table is based upon information supplied to Somatix by executive
officers, directors and principal stockholders. The address of each
officer and director identified in this table is that of Somatix'
executive offices, 950 Marina Village Parkway, Alameda, California 94501.

(2) Percentage of beneficial ownership is calculated assuming 28,407,932
shares of Somatix Common Stock were outstanding as of April 22, 1997.
Shares of Somatix Common Stock subject to options or warrants currently
exercisable or convertible, or exercisable or convertible within 60 days
of April 22, 1997, are deemed outstanding for computing the percentage of
the person holding such option or warrant but are not deemed outstanding
for computing the percentage of any other person.

(3)Includes 650,000 shares of Somatix Common Stock subject to the Fletcher
Warrant.

(4) Includes 25,000 shares of Somatix Common Stock subject to options
exercisable within 60 days after April 22, 1997. Dr. Rosenberg, a
director of Somatix, is the president of Bristol-Myers Pharmaceutical

115
<PAGE>

Research Institute. He may be deemed the beneficial owner of 2,303,221
shares of Somatix Common Stock. Dr. Rosenberg disclaims beneficial
ownership of such shares.

(5) Mr. Eisenson, a director of Somatix, is a vice president and member of the
investment committee of Aeneas Venture Corporation. He may be deemed the
beneficial owner of 1,593,726 shares of Somatix Common Stock, including
67,385 shares of preferred stock that is convertible into 421,156 shares
of Somatix Common Stock, 210,000 shares of Somatix Common Stock subject to
warrants exercisable within 60 days of April 22, 1997, and 25,000 shares
of Somatix Common Stock subject to options exercisable within 60 days of
April 22, 1997, of which a portion is subject to repurchase rights, held
by Aeneas Venture Corporation, with shared voting and investment power
with respect thereto. Mr. Eisenson disclaims beneficial ownership of such
shares.

(6) Includes 152,174 shares of Somatix Common Stock subject to warrants
exercisable within 60 days after April 22, 1997.

(7) Includes 478,750 shares of Somatix Common Stock subject to options
exercisable within 60 days after April 22, 1997.

(8) Includes 25,000 shares of Somatix Common Stock subject to options
exercisable within 60 days after April 22, 1997, of which a portion is
subject to repurchase rights. Also includes 42,986 shares held by
Dr. Shenk's children, for which Dr. Shenk disclaims beneficial ownership
and 42,988 shares of Somatix Common Stock subject to warrants held by his
wife and exercisable within 60 days after April 22, 1997 for which Dr.
Shenk disclaims beneficial ownership.

(9) Includes 25,000 shares of Somatix Common Stock subject to options
exercisable within 60 days after April 22, 1997, of which a portion is
subject to repurchase rights. Also includes 18,000 shares held by
Dr. Waksal's children, for which Dr. Waksal disclaims beneficial ownership
and 128,964 shares of Somatix Common Stock held by Sudbury Partners I. Dr.
Waksal disclaims beneficial ownership of the shares held by Sudbury,
except to the extent of his pecuniary interest arising from his
partnership interests.

(10) Includes 115,705 shares of Somatix Common Stock subject to options
exercisable within 60 days after April 22, 1997, of which a portion is
subject to repurchase rights. Also includes 104,846 shares of Somatix
Common Stock owned by the Gage Trust. Dr. Gage also holds 10,938 shares of
Somatix Common Stock subject to options exercisable within 60 days after
April 22, 1997. Dr. Gage, a director of Somatix, is the trustee of such
trust and may be deemed the beneficial owner of these shares with shared
voting and investment power with respect thereto.

(11) Includes 177,812 shares of Somatix Common Stock subject to options
exercisable within 60 days after April 22, 1997.

(12) Includes 43,751 shares of Somatix Common Stock subject to options
exercisable within 60 days after April 22, 1997.

(13) Includes 104,750 shares of Somatix Common Stock subject to options
exercisable within 60 days after April 22, 1997.

(14) Includes 33,125 shares of Somatix Common Stock subject to options
exercisable within 60 days after April 22, 1997. Also includes 2,000
shares held by his wife, for which Dr. Rokovich disclaims beneficial
ownership.

(15) Includes 25,000 shares of Somatix Common Stock subject to options
exercisable within 60 days after April 22, 1997, of which a portion is
subject to repurchase rights.

(16) Includes 25,000 shares of Somatix Common Stock subject to options
exercisable within 60 days after April 22, 1997, of which a portion is
subject to repurchase rights.

(17) Includes 25,000 shares of Somatix Common Stock subject to options
exercisable within 60 days after April 22, 1997, of which a portion is
subject to repurchase rights.

(18) Includes 265,705 shares of Somatix Common Stock subject to options held by
officers and directors of Somatix exercisable within 60 days after April
22, 1997, of which a portion is subject to repurchase rights, and
1,221,362 shares of Somatix Common Stock subject to options or warrants
exercisable within 60 days after April 22, 1997.

116
<PAGE>

OTHER MATTERS

As of the date of this Joint Proxy Statement/Prospectus, the boards of
directors of Cell Genesys and Somatix know of no matters that will be
presented for consideration at the Cell Genesys Annual Meeting or the Somatix
Special Meeting, respectively, other than as described in this Joint Proxy
Statement/Prospectus. If any other matter properly comes before the Cell
Genesys Annual Meeting or the Somatix Special Meeting or any adjournment or
postponement thereof and is voted upon, it is the intention of the persons
named in the accompanying proxies to vote such proxies in accordance with the
judgment of the respective boards of directors of Cell Genesys and Somatix.

EXPERTS

The consolidated financial statements of Cell Genesys appearing in Cell
Genesys' Annual Report on Form 10-K for the year ended December 31, 1996 have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.

The consolidated financial statements of Somatix at June 30, 1996 and 1995
and for each of the three years in the period ended June 30, 1996, included in
Somatix' Annual Report on Form 10-K for the year ended June 30, 1996 included
with this Joint Proxy Statement/Prospectus and as an exhibit to the
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon included therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing.

The consolidated financial statements of Somatix at and for the period
ending December 31, 1996 appearing in Somatix' Current Report on Form 8-K
filed on April 3, 1997, have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.

LEGAL MATTERS

The validity of the Cell Genesys Common Stock to be issued in connection
with the Merger will be passed upon for Cell Genesys by Shearman & Sterling,
San Francisco, California.

STOCKHOLDER PROPOSALS

The date by which stockholder proposals must be received by Somatix for
inclusion in the proxy statement and form of proxy for its 1997 annual meeting
of stockholders, if the Merger has not been consummated prior to the date the
meeting is to be held, is July 21, 1997. The date by which stockholder
proposals must be received by Cell Genesys for inclusion in the proxy
statement and form of proxy for its 1998 annual meeting of stockholders is
December 31, 1997.

117
<PAGE>

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
APPENDIX A

CONFORMED COPY

AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AMONG
CELL GENESYS, INC.,
S MERGER CORP.
AND
SOMATIX THERAPY CORPORATION

DATED AS OF JANUARY 12, 1997,
AS AMENDED AND RESTATED AS OF MARCH 27, 1997

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TABLE OF CONTENTS

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ARTICLE I

DEFINITIONS

<C> <S> <C>
SECTION 1.01. Certain Defined Terms.................................... A-2

ARTICLE II

THE MERGER

SECTION 2.01. The Merger............................................... A-7
SECTION 2.02. Closing.................................................. A-7
SECTION 2.03. Effective Time........................................... A-7
SECTION 2.04. Effect of the Merger..................................... A-8
SECTION 2.05. Certificate of Incorporation; By-laws; Directors and
Officers of Surviving Corporation........................ A-8

ARTICLE III

CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES

SECTION 3.01. Conversion of Securities................................. A-8
SECTION 3.02. Exchange of Shares Other than Treasury Shares............ A-9
SECTION 3.03. Stock Transfer Books..................................... A-9
SECTION 3.04. No Fractional Share Certificates......................... A-10
SECTION 3.05. Options and Warrants to Purchase STC Common Stock........ A-11
SECTION 3.06. Certain Adjustments...................................... A-11

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF STC

SECTION 4.01. Organization and Qualification; Subsidiaries............. A-11
SECTION 4.02. Certificate of Incorporation and By-laws................. A-12
SECTION 4.03. Capitalization........................................... A-12
Authority Relative to This Agreement and the STC Stock
SECTION 4.04. Option Agreement......................................... A-12
SECTION 4.05. No Conflict; Required Filings and Consents............... A-13
SECTION 4.06. Permits; Compliance with Laws............................ A-13
SEC Filings; Financial Statements; Projected Cash
SECTION 4.07. Balances; Operating Budget............................... A-14
SECTION 4.08. Absence of Certain Changes or Events..................... A-15
SECTION 4.09. Employee Benefit Plans; Labor Matters.................... A-15
SECTION 4.10. Tax Matters.............................................. A-16
SECTION 4.11. Contracts; Debt Instruments.............................. A-16
SECTION 4.12. Litigation............................................... A-16
SECTION 4.13. Environmental Matters.................................... A-16
SECTION 4.14. Intellectual Property.................................... A-17
SECTION 4.15. Taxes.................................................... A-17
SECTION 4.16. Opinion of Financial Advisor............................. A-17
SECTION 4.17. Brokers.................................................. A-17
SECTION 4.18. Certain Interests........................................ A-17
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TABLE OF CONTENTS--(CONTINUED)

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF CGI AND MERGER SUB

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SECTION 5.01. Organization and Qualification; Subsidiaries............................ A-18
SECTION 5.02. Certificate of Incorporation and By-laws................................ A-18
SECTION 5.03. Capitalization.......................................................... A-18
SECTION 5.04. Authority Relative to This Agreement and the CGI Stock Option Agreement. A-19
SECTION 5.05. No Conflict; Required Filings and Consents.............................. A-19
SECTION 5.06. Permits; Compliance with Laws........................................... A-20
SECTION 5.07. SEC Filings; Financial Statements....................................... A-20
SECTION 5.08. Absence of Certain Changes or Events.................................... A-21
SECTION 5.09. Employee Benefit Plans; Labor Matters................................... A-21
SECTION 5.10. Tax Matters............................................................. A-22
SECTION 5.11. Contracts; Debt Instruments............................................. A-22
SECTION 5.12. Litigation.............................................................. A-22
SECTION 5.13. Environmental Matters................................................... A-23
SECTION 5.14. Intellectual Property................................................... A-23
SECTION 5.15. Taxes................................................................... A-23
SECTION 5.16. Opinion of Financial Advisor............................................ A-23
SECTION 5.17. Brokers................................................................. A-23
SECTION 5.18. Certain Interests....................................................... A-24

ARTICLE VI

COVENANTS

SECTION 6.01. Conduct of Business by STC Pending the Closing.......................... A-24
SECTION 6.02. Conduct of Business by CGI Pending the Closing.......................... A-25
SECTION 6.03. Cooperation; Steering Committee......................................... A-27
SECTION 6.04. Notices of Certain Events............................................... A-27
SECTION 6.05. Access to Information; Confidentiality.................................. A-27
SECTION 6.06. No Solicitation of Transactions......................................... A-27
SECTION 6.07. Plan of Reorganization.................................................. A-28
SECTION 6.08. Subsequent Financial Statements......................................... A-28
SECTION 6.09. Control of Operations................................................... A-28
SECTION 6.10. Further Action; Consents; Filings....................................... A-28

ARTICLE VII

ADDITIONAL AGREEMENTS

SECTION 7.01. Registration Statement; Joint Proxy Statement........................... A-29
SECTION 7.02. Stockholders' Meetings.................................................. A-30
SECTION 7.03. Affiliates.............................................................. A-30
SECTION 7.04. Directors' and Officers' Indemnification and Insurance.................. A-31
SECTION 7.05. No Shelf Registration................................................... A-32
SECTION 7.06. Public Announcements.................................................... A-32
SECTION 7.07. Officers and Directors of CGI........................................... A-32
SECTION 7.08. NMS Listing............................................................. A-32
SECTION 7.09. Blue Sky................................................................ A-32
SECTION 7.10. STC Stock Options....................................................... A-32
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TABLE OF CONTENTS--(CONTINUED)
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SECTION 7.11. [INTENTIONALLY LEFT BLANK]............................... A-33
SECTION 7.12. Bridge Facility.......................................... A-33
SECTION 7.13. Audited Financial Statements............................. A-34
SECTION 7.14. Additional Debt.......................................... A-34

ARTICLE VIII

CONDITIONS TO THE MERGER

Conditions to the Obligations of Each Party to Consummate
SECTION 8.01. the Merger............................................... A-35
SECTION 8.02. Conditions to the Obligations of STC..................... A-35
SECTION 8.03. Conditions to the Obligations of CGI..................... A-36

ARTICLE IX

TERMINATION, AMENDMENT AND WAIVER

SECTION 9.01. Termination.............................................. A-37
SECTION 9.02. Effect of Termination.................................... A-38
SECTION 9.03. Amendment................................................ A-38
SECTION 9.04. Waiver................................................... A-38
SECTION 9.05. Expenses................................................. A-38

ARTICLE X

GENERAL PROVISIONS

SECTION 10.01. Non-Survival of Representations and Warranties........... A-39
SECTION 10.02. Notices.................................................. A-39
SECTION 10.03. Severability............................................. A-39
SECTION 10.04. Assignment; Binding Effect; Benefit...................... A-39
SECTION 10.05. Incorporation of Exhibits................................ A-40
SECTION 10.06. Specific Performance..................................... A-40
SECTION 10.07. Governing Law............................................ A-40
SECTION 10.08. Waiver of Jury Trial..................................... A-40
SECTION 10.09. Headings................................................. A-40
SECTION 10.10. Counterparts............................................. A-40
SECTION 10.11. Entire Agreement......................................... A-40
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EXHIBITS

Exhibit 1.00(a) Form of STC Stock Option Agreement
Exhibit 1.00(b) Form of CGI Stock Option Agreement
Exhibit 1.00(c) Form of Bridge Facility Promissory Note
Exhibit 1.01(a) Form of Stockholder Resolution Regarding the CGI Amendment
Exhibit 1.01(b) Form of Stockholder Resolution Regarding the STC Amendment
Exhibit 7.03(a) Form of STC Affiliate Agreement
Exhibit 7.03(b) Form of CGI Affiliate Agreement

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AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER AND REORGANIZATION

AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, dated
as of January 12, 1997 (as amended and restated as of March 27, 1997, and as
further amended, supplemented or otherwise modified from time to time, this
"Agreement"), among CELL GENESYS, INC., a corporation organized and existing
under the laws of the State of Delaware ("CGI"), S MERGER CORP., a corporation
organized and existing under the laws of the State of Delaware ("Merger Sub")
and a direct wholly owned subsidiary of CGI, and SOMATIX THERAPY CORPORATION,
a corporation organized and existing under the laws of the State of Delaware
("STC") (references in this Agreement to the "date hereof" or "the date of
this Agreement" or similar terms shall mean and be a reference to January 12,
1997);

WITNESSETH:

WHEREAS, the boards of directors of CGI, Merger Sub and STC have each
determined that it is fair to and in the best interests of their respective
stockholders for Merger Sub to merge (the "Merger") with and into STC upon the
terms and subject to the conditions set forth herein and in accordance with
the General Corporation Law of the State of Delaware (the "General Corporation
Law");

WHEREAS, concurrently with the execution of this Agreement and as an
inducement to CGI and Merger Sub to enter into this Agreement, CGI, Merger Sub
and STC have entered into a stock option agreement, dated as of the date
hereof (the "STC Stock Option Agreement"), substantially in the form attached
hereto as Exhibit 1.00(a) pursuant to which STC has granted to Purchaser an
option to purchase from STC up to 5,441,480 shares of common stock, par value
$.01 per share, of STC (the "STC Common Stock"), representing approximately
19.9 percent of the shares of STC Common Stock issued and outstanding on the
date hereof, at a price of $3.51 per Share, all upon the terms and subject to
the conditions set forth therein;

WHEREAS, concurrently with the execution of this Agreement and as an
inducement to STC to enter into this Agreement, CGI and STC have entered into
a stock option agreement, dated as of the date hereof (the "CGI Stock Option
Agreement"), substantially in the form attached hereto as Exhibit 1.00(b)
pursuant to which CGI has granted to STC an option to purchase from CGI up to
3,286,703 shares of common stock, par value $.001 per share, of CGI (the "CGI
Common Stock"), representing approximately 19.9 percent of the shares of CGI
Common Stock issued and outstanding on the date hereof, at a price of $9.12
per Share, all upon the terms and subject to the conditions set forth therein;

WHEREAS, concurrently with the execution of this Agreement and as an
inducement to CGI and Merger Sub to enter into this Agreement, STC has made a
promissory note in favor of CGI, dated as of the date hereof (the "Bridge
Facility Promissory Note"), substantially in the form attached hereto as
Exhibit 1.00(c) pursuant to which STC has agreed to repay with interest the
aggregate principal amount of all Advances (as defined below) made by CGI
under the Bridge Facility (as defined below), all upon the terms and subject
to the conditions set forth therein; and

WHEREAS, for United States federal income tax purposes, it is intended that
the Merger qualify as a reorganization under the provisions of Section 368 of
the Internal Revenue Code of 1986, as amended (together with the rules and
regulations promulgated thereunder, the "Code");

NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, covenants and agreements set forth herein, and other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, and intending to be legally bound hereby, the parties hereto
hereby agree as follows:

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ARTICLE I

DEFINITIONS

SECTION 1.01. Certain Defined Terms. Unless the context otherwise requires,
the following terms, when used in this Agreement, shall have the respective
meanings specified below:

"Actual Balances" shall mean, on any specified date, the actual balances
of cash, cash equivalents and marketable securities held by STC on such
date.

"affiliate" shall have the meaning specified in Rule 144 promulgated
under the Securities Act.

"Agreement" shall have the meaning specified in the preamble to this
Agreement.

"beneficial owner" shall mean, with respect to any shares of capital
stock, a person who shall be deemed to be the beneficial owner of such
shares (i) which such person or any of its affiliates or associates (as
such term is defined in Rule 12b-2 promulgated under the Exchange Act)
beneficially owns, directly or indirectly, (ii) which such person or any of
its affiliates or associates has, directly or indirectly, (A) the right to
acquire (whether such right is exercisable immediately or subject only to
the passage of time), pursuant to any agreement, arrangement or
understanding or upon the exercise of consideration rights, exchange
rights, warrants or options, or otherwise, or (B) the right to vote
pursuant to any agreement, arrangement or understanding, or (iii) which are
beneficially owned, directly or indirectly, by any other persons with whom
such person or any of its affiliates or associates or person with whom such
person or any of its affiliates or associates has any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting
or disposing of any such shares of capital stock.

"Blue Sky Laws" shall mean state securities or "blue sky" laws.

"Bridge Facility" shall mean the loan facility to be provided by CGI to
STC pursuant to, and upon the terms and subject to the conditions set forth
in, Section 7.12 and the Bridge Facility Promissory Note.

"Bridge Facility Maturity Date" shall mean the earliest to occur of (i)
December 31, 1997; (ii) the 180th day after termination of this Agreement
for any reason whatsoever; and (iii) notwithstanding the immediately
preceding clause (ii), the first business day after termination of this
Agreement by CGI pursuant to Section 9.01(d).

"Bridge Facility Promissory Note" shall have the meaning specified in the
recitals to this Agreement.

"business day" shall mean any day on which the principal offices of the
SEC in Washington, D.C. are open to accept filings, or, in the case of
determining a date when any payment is due, any day on which banks are not
required or authorized by law or executive order to close in San Francisco,
California.

"Certificate of Merger" shall have the meaning specified in Section 2.03.

"CGI" shall have the meaning specified in the preamble to this Agreement.

"CGI Affiliate Agreement" shall have the meaning specified in Section
7.03(b).

"CGI Amendment" shall mean the proposed amendment, substantially in the
form attached hereto as Exhibit 1.01(a), to the certificate of
incorporation of CGI, to be included in the Joint Proxy Statement and voted
on at CGI Stockholders' Meeting.

"CGI Benefit Plans" shall have the meaning specified in Section 5.09(a).

"CGI Common Stock" shall have the meaning specified in the recitals to
this Agreement.

"CGI Director" shall mean any person serving as a director of CGI on the
date hereof who remains a director of CGI after the Effective Time or any
other designee selected by CGI.

"CGI Disclosure Schedule" shall mean the disclosure schedule delivered by
CGI to STC prior to the execution of this Agreement and forming a part
hereof.

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"CGI Material Adverse Effect" shall mean any change in or effect on the
business of CGI and the CGI Subsidiaries that is, or could reasonably be
expected to be, materially adverse to the business, assets (including
intangible assets), liabilities (contingent or otherwise), condition
(financial or otherwise) or results of operations of CGI and the CGI
Subsidiaries taken as a whole; provided, however, that any change in or
effect upon the business of CGI and the CGI Subsidiaries that directly or
indirectly arises out of or is attributable to (i) any decrease in the
market price of CGI Common Stock (but not any change or effect underlying
such decrease to the extent such change or effect would otherwise
constitute a CGI Material Adverse Effect) or (ii) circumstances or events
that generally affect the industries in which CGI or the CGI Subsidiaries
operate, shall not constitute a CGI Material Adverse Effect; provided
further that the foregoing proviso shall not be deemed to cause the
condition contained in Section 8.02(a) or (b) not to have been satisfied.

"CGI Material Contract" shall have the meaning specified in Section 5.11.

"CGI Permits" shall have the meaning specified in Section 5.06(a).

"CGI Reports" shall have the meaning specified in Section 5.07(a).

"CGI Right" shall mean the preferred share purchase right to be issued
with respect to each share of CGI Common Stock issued to holders of STC
Capital Stock pursuant to the Merger as provided in Section 3(b) of the CGI
Rights Agreement.

"CGI Rights Agreement" shall mean the preferred shares rights agreement,
dated as of July 28, 1995, between CGI and The First National Bank of
Boston, as rights agent.

"CGI Stock Option Agreement" shall have the meaning specified in the
recitals to this Agreement.

"CGI Stock Plans" shall mean CGI's 1989 Incentive Stock Plan, as amended,
and 1992 Employee Stock Purchase Plan, as amended.

"CGI Stockholders' Meeting" shall have the meaning specified in Section
7.01(a).

"CGI Subsidiaries" shall have the meaning specified in Section 5.01.

"Closing" shall have the meaning specified in Section 2.02.

"Code" shall have the meaning specified in the recitals to this
Agreement.

"Commitment Termination Event" shall mean any of (i) termination of this
Agreement or the Bridge Facility Promissory Note for any reason whatsoever;
(ii) the occurrence of an Event of Default under the Bridge Facility
Promissory Note; and (iii) a material breach of this Agreement or the
Bridge Facility Promissory Note.

"Common Exchange Ratio" shall have the meaning specified in Section
3.01(a).

"Competing Transaction" shall mean any of the following involving CGI or
STC, as the case may be (other than the Merger contemplated by this
Agreement):

(i) any merger, consolidation, share exchange, business combination
or other similar transaction;

(ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of 15 percent or more of the assets of such party and its
subsidiaries, taken as a whole, in a single transaction or series of
transactions;

(iii) any tender offer or exchange offer for 25 percent or more of
the outstanding voting securities of such party or the filing of a
registration statement under the Securities Act in connection
therewith; or

A-3
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(iv) any person having acquired beneficial ownership or the right to
acquire beneficial ownership of, or any "group" (as such term is
defined under Section 13(d) of the Exchange Act) having been formed
which beneficially owns or has the right to acquire beneficial
ownership of, 25 percent or more of the outstanding voting securities
of such party;

(v) any solicitation by any person (A) proposing any transaction
described in clause (i), (ii), (iii) or (iv) above or (B) who is not a
stockholder of CGI or STC on the date hereof, in opposition to the
approval of this Agreement by the stockholders of CGI or STC; or

(vi) any public announcement of a proposal, plan or intention to do
any of the foregoing or any agreement to engage in any of the
foregoing.

"Confidentiality Agreement" shall mean the confidentiality agreement,
dated as of October 14, 1996, between CGI and STC.

"Costs" shall have the meaning specified in Section 7.04(d).

"DEA" the United States Drug Enforcement Administration.

"DLJ" shall mean Donaldson, Lufkin & Jenrette, financial advisors to STC.

"$" shall mean United States Dollars.

"Effective Time" shall have the meaning specified in Section 2.03.

"Environmental Law" shall mean any Law and any enforceable judicial or
administrative interpretation thereof, including any judicial or
administrative order, consent decree or judgment, relating to pollution or
protection of the environment or natural resources, including, without
limitation, those relating to the use, handling, transportation, treatment,
storage, disposal, release or discharge of Hazardous Material, as in effect
as of the date hereof.

"Environmental Permit" shall mean any permit, approval, identification
number, license or other authorization required under or issued pursuant to
any applicable Environmental Law.

"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.

"Event of Default" shall have the meaning specified in the Bridge
Facility Promissory Note.

"Excess Shares" shall have the meaning specified in Section 3.04(b).

"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, together with the rules and regulations promulgated thereunder.

"Exchange Agent" shall have the meaning specified in Section 3.02.

"Exchange Fund" shall have the meaning specified in Section 3.02.

"Expenses" shall mean, with respect to any party hereto, all reasonable
out-of-pocket expenses (including, without limitation, all fees and
expenses of counsel, accountants, investment bankers, experts and
consultants to a party hereto and its affiliates) incurred by such party or
on its behalf in connection with or related to the authorization,
preparation, negotiation, execution and performance of its obligations
pursuant to this Agreement and the consummation of the Merger, the
preparation, printing, filing and mailing of the Registration Statement and
the Joint Proxy Statement, the solicitation of shareholder approvals, the
filing of HSR Act notice, if any, and all other matters related to the
closing of the Merger.

"FDA" shall mean the United States Food and Drug Administration.

"FDCA" shall mean the Federal Food, Drug, and Cosmetic Act, as amended.

"Fletcher" shall mean Fletcher International Limited, a company organized
under the laws of the Cayman Islands.

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"Fletcher Put Options" shall mean the put options granted by Fletcher to
STC pursuant to Section 1(a) of the subscription agreement, dated September
24, 1996, between STC and Fletcher and upon the terms and subject to the
conditions set forth in Annex A thereto.

"Fletcher Warrant" shall mean the warrant, dated September 25, 1996,
issued by STC to and in the name of Fletcher.

"General Corporation Law" shall have the meaning specified in the
recitals to this Agreement.

"Governmental Entity" shall mean any United States federal, state or
local or any foreign governmental, regulatory or administrative authority,
agency or commission or any court, tribunal or arbitral body.

"Governmental Order" shall mean any order, writ, judgment, injunction,
decree, stipulation, determination or award entered by or with any
Governmental Entity.

"Hazardous Material" shall mean (i) any petroleum, petroleum products,
by-products or breakdown products, radioactive materials, asbestos-
containing materials or polychlorinated biphenyls or (ii) any chemical,
material or substance defined or regulated as toxic or hazardous or as a
pollutant or contaminant or waste under any applicable Environmental Law.

"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, together with the rules and regulations promulgated
thereunder.

"Indemnified Parties" shall have the meaning specified in Section
7.04(d).

"IRS" shall mean the United States Internal Revenue Service.

"Joint Proxy Statement" shall have the meaning specified in Section
7.01(a).

"Law" shall mean any federal, state or local statute, law, ordinance,
regulation, rule, code, order, other requirement or rule of law of the
United States or any other jurisdiction, including, without limitation, the
FDCA, the Controlled Substances Act, and any other similar act or law.

"Lehman Brothers" shall mean Lehman Brothers, Inc., financial advisors to
CGI.

"Liquidity Notice" shall have the meaning specified in Section 7.12(b).

"Merger" shall have the meaning specified in the recitals to this
Agreement.

"Merger Sub" shall have the meaning specified in the preamble to this
Agreement.

"NASD" shall mean the National Association of Securities Dealers, Inc.

"NMS" shall mean the National Association of Securities Dealers Automated
Quotation System/National Market System.

"Operating Budget" shall have the meaning specified in Section 4.07(e).

"Permitted Financing" shall have the meaning specified in Section
7.14(b).

"person" shall mean an individual, corporation, partnership, limited
partnership, limited liability company, syndicate, person (including,
without limitation, a "person" as defined in Section 13(d)(3) of the
Exchange Act), trust, association, entity or government or political
subdivision, agency or instrumentality of a government.

"Presurrender Dividends" shall have the meaning specified in Section
3.02.

"Projected Cash Balances" shall have the meaning specified in Section
4.07(d).

"Registration Statement" shall have the meaning specified in Section
7.01(a).

"Representatives" shall have the meaning specified in Section 6.05(a).

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"SEC" shall have the meaning specified in the recitals to this Agreement.

"Securities Act" shall mean the Securities Act of 1933, as amended,
together with the rules and regulations promulgated thereunder.

"Series A Exchange Ratio" shall have the meaning specified in Section
3.01(b).

"Series A Preferred Stock" shall mean the preferred stock of STC
designated as "Series A-1 Preferred Stock" and "Series A-2 Preferred Stock"
pursuant to the certificate of designation of preferences of preferred
shares of STC filed with the Secretary of State of the State of Delaware on
June 29, 1995.

"Series B Exchange Ratio" shall have the meaning specified in Section
3.01(c).

"Series B Preferred Stock" shall mean the preferred stock of STC
designated as "Series B-1 Preferred Stock" pursuant to the certificate of
designation of preferences of preferred shares of STC filed with the
Secretary of State of the State of Delaware on September 25, 1996.

"STC" shall have the meaning specified in the preamble to this Agreement.

"STC Affiliate Agreement" shall have the meaning specified in Section
7.05(a).

"STC Amendment" shall mean the proposed amendment, substantially in the
form attached hereto as Exhibit 1.01(b), to the certificate of
incorporation of STC, to be included in the Joint Proxy Statement and voted
on at the STC Stockholders' Meeting.

"STC Benefit Plans" shall have the meaning specified in Section 4.09(a).

"STC Capital Stock" shall mean the STC Common Stock, the Series A
Preferred Stock and the Series B Preferred Stock.

"STC Common Stock" shall have the meaning specified in the recitals to
this Agreement.

"STC Director" shall mean any person serving as a director of STC on the
date hereof who becomes a director of CGI at the Effective Time or any
other designee selected by STC.

"STC Disclosure Schedule" shall mean the disclosure schedule delivered by
STC to CGI prior to the execution of this Agreement and forming a part
hereof.

"STC Material Adverse Effect" shall mean any change in or effect on the
business of STC and the STC Subsidiaries that is, or could reasonably be
expected to be, materially adverse to the business, assets (including
intangible assets), liabilities (contingent or otherwise), condition
(financial or otherwise) or results of operations of STC and the STC
Subsidiaries taken as a whole; provided, however, that any change in or
effect upon the business of STC and the STC Subsidiaries that directly or
indirectly arises out of or is attributable to (i) the loss by STC of any
of its corporate partners (including, without limitation, any financial
consequence of such loss of corporate partners) due primarily to the public
announcement of this Agreement and the transactions contemplated hereby,
(ii) any decrease in the market price of the STC Common Stock (but not any
change or effect underlying such decrease to the extent such change or
effect would otherwise constitute an STC Material Adverse Effect), (iii)
circumstances or events that generally affect the industries in which STC
or the STC Subsidiaries operate, (iv) so long as STC has not breached
Section 6.01 in any material respect, any decrease in STC's cash balances
and liquidity from the date hereof and (v) in the event CGI has not,
pursuant to Section 7.12, made available to STC funds which, together with
STC's then existing funds, are sufficient to avoid the triggering of the
rights specified in Section 7(B) of the certificate of designation of STC
applicable to the Series A Preferred Stock, the triggering of such rights,
shall not constitute an STC Material Adverse Effect; provided further that
the foregoing proviso shall not be deemed to cause the condition contained
in Section 8.03(a) or (b) not to have been satisfied.

"STC Material Contract" shall have the meaning specified in Section 4.11.

"STC Permits" shall have the meaning specified in Section 4.06(a).

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"STC Reports" shall have the meaning specified in Section 4.07(a).

"STC Stock Option" shall have the meaning specified in Section 3.05.

"STC Stock Option Agreement" shall have the meaning specified in the
recitals to this Agreement.

"STC Stock Plans" shall mean the Hana Biologics, Inc. 1988 Directors
Stock Option Plan, STC's 1988 Stock Option Plan, as amended, the GeneSys
Therapeutic Corporation 1991 Stock Option Plan, STC's 1992 Stock Option
Plan, as amended, and the Merlin Pharmaceutical Corporation 1993 Stock
Option Plan.

"STC Stockholders' Meeting" shall have the meaning specified in Section
7.01(a).

"STC Subsidiaries" shall have the meaning specified in Section 4.01.

"subsidiary" shall mean, with respect to any person, any corporation,
limited liability company, partnership, joint venture or other legal entity
of which such person (either alone or through or together with any other
subsidiary of such person) owns, directly or indirectly, a majority of the
stock or other equity interests, the holders of which are generally
entitled to vote for the election of the board of directors or other
governing body of such corporation or other legal entity.

"Surviving Corporation" shall have the meaning specified in Section 2.01.

"Taxes" shall mean any and all taxes, fees, levies, duties, tariffs,
imposts and other charges of any kind (together with any and all interest,
penalties, additions to tax and additional amounts imposed with respect
thereto) imposed by any Governmental Entity or taxing authority, including,
without limitation, taxes or other charges on or with respect to income,
franchises, windfall or other profits, gross receipts, property, sales,
use, capital stock, payroll, employment, social security, workers'
compensation, unemployment compensation or net worth; taxes or other
charges in the nature of excise, withholding, ad valorem, stamp, transfer,
value-added or gains taxes; license, registration and documentation fees;
and customers' duties, tariffs and similar charges.

"Terminating CGI Breach" shall have the meaning specified in Section
9.01(h).

"Terminating STC Breach" shall have the meaning specified in Section
9.01(g).

"Trust" shall have the meaning specified in Section 3.04(c).

"U.S. GAAP" shall mean United States generally accepted accounting
principles.

ARTICLE II

THE MERGER

SECTION 2.01. The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the General Corporation Law,
at the Effective Time, Merger Sub shall be merged with and into STC. As a
result of the Merger, the separate corporate existence of Merger Sub shall
cease and STC shall continue as the surviving corporation of the Merger (the
"Surviving Corporation").

SECTION 2.02. Closing. Unless this Agreement shall have been terminated and
the Merger shall have been abandoned pursuant to Section 9.01 and subject to
the satisfaction or waiver of the conditions set forth in Article VIII, the
consummation of the Merger shall take place as promptly as practicable (and in
any event within three business days) after satisfaction or waiver of the
conditions set forth in Article VIII, at a closing (the "Closing") to be held
at the offices of Shearman & Sterling, 555 California Street, San Francisco,
California, unless another date, time or place is agreed to by STC and CGI.

SECTION 2.03. Effective Time. At the time of the Closing, the parties shall
cause the Merger to be consummated by filing a certificate of merger (the
"Certificate of Merger") with the Secretary of State of the State of Delaware
in such form as required by, and executed in accordance with the relevant
provisions of, the General Corporation Law (the date and time of such filing
being the "Effective Time").

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SECTION 2.04. Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of the General
Corporation Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, except as otherwise provided herein, all the
property, rights, privileges, powers and franchises of STC and Merger Sub
shall vest in the Surviving Corporation, and all debts, liabilities and duties
of STC and Merger Sub shall become the debts, liabilities and duties of the
Surviving Corporation.

SECTION 2.05. Certificate of Incorporation; By-laws; Directors and Officers
of Surviving Corporation. Unless otherwise agreed by STC and CGI prior to the
Effective Time, at the Effective Time:

(a) the certificate of incorporation and by-laws of Merger Sub, as in
effect immediately prior to the Effective Time, shall be the certificate of
incorporation and by-laws of the Surviving Corporation until thereafter
amended as provided by Law and such certificate of incorporation or by-
laws;

(b) the officers of Merger Sub immediately prior to the Effective Time
shall be the initial officers of the Surviving Corporation until their
successors are elected or appointed and qualified or until their
resignation or removal; and

(c) the directors of Merger Sub immediately prior to the Effective Time
shall be the initial directors of the Surviving Corporation until their
successors are elected or appointed and qualified or until their
resignation or removal.

ARTICLE III

CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES

SECTION 3.01. Conversion of Securities. At the Effective Time, by virtue of
the Merger and without any action on the part of Merger Sub, STC or the
holders of any of the following securities:

(a) Each share of STC Common Stock issued and outstanding immediately
prior to the Effective Time (other than any shares of STC Common Stock to
be cancelled pursuant to Section 3.01(d)) and all rights in respect thereof
shall forthwith cease to exist and shall be converted into and become
exchangeable for the number of shares of CGI Common Stock (and associated
CGI Rights) equal to .3850 (the "Common Exchange Ratio");

(b) Each share of Series A Preferred Stock issued and outstanding
immediately prior to the Effective Time (other than any shares of Series A
Preferred Stock to be cancelled pursuant to Section 3.01(d)) and all rights
in respect thereof shall forthwith cease to exist and shall be converted
into and become exchangeable for the number of shares of CGI Common Stock
(and associated CGI Rights) equal to the product of 6.25 multiplied by the
Common Exchange Ratio (the "Series A Exchange Ratio");

(c) Each share of Series B Preferred Stock issued and outstanding
immediately prior to the Effective Time (other than any shares of Series B
Preferred Stock to be cancelled pursuant to Section 3.01(d)) and all rights
in respect thereof shall forthwith cease to exist and shall be converted
into and become exchangeable for the number of shares of CGI Common Stock
(and associated CGI Rights) equal to the quotient of $150.00 divided by the
average of the daily closing prices of the CGI Common Stock over the 30-day
period ending three days prior to the Effective Time (the "Series B
Exchange Ratio");

(d) Each share of STC Capital Stock held in the treasury of STC and each
share of STC Capital Stock owned by CGI or any direct or indirect wholly
owned subsidiary of CGI or of STC immediately prior to the Effective Time
shall be cancelled and extinguished without any conversion thereof and no
payment shall be made with respect thereto; and

(e) Each share of common stock, par value $.01 per share, of Merger Sub
issued and outstanding immediately prior to the Effective Time and all
rights in respect thereof shall forthwith cease to exist and shall be
converted into and become exchangeable for one newly and validly issued,
fully paid and nonassessable share of common stock of the Surviving
Corporation.

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SECTION 3.02. Exchange of Shares Other than Treasury Shares. Subject to the
terms and conditions hereof, at or prior to the Effective Time, CGI shall
appoint, and shall retain for a period of at least six months after the
Effective Time, an exchange agent to effect the exchange of shares of STC
Capital Stock for CGI Common Stock (and associated CGI Rights) in accordance
with the provisions of this Article III (the "Exchange Agent"). As soon as
reasonably practicable after the Effective Time, CGI will instruct the
Exchange Agent to mail to each holder of record of STC Capital Stock (i) a
letter of transmittal (which shall specify that delivery shall be effected,
and risk of loss and title to certificates evidencing shares of STC Capital
Stock shall pass, only upon proper delivery of such certificates to the
Exchange Agent and shall be in such form and have such other provisions as CGI
may reasonably specify) and (ii) instructions to effect the surrender of
certificates evidencing shares of STC Capital Stock in exchange for
certificates evidencing shares of CGI Common Stock (and associated CGI Rights)
and, in lieu of any fractional shares thereof, cash. From time to time after
the Effective Time, CGI shall deposit, or cause to be deposited, certificates
representing CGI Common Stock (and associated CGI Rights) for conversion of
shares of STC Capital Stock in accordance with the provisions of Section 3.01
(such certificates, together with any dividends or distributions with respect
thereto, being herein referred to as the "Exchange Fund"). Commencing
immediately after the Effective Time and until the appointment of the Exchange
Agent shall be terminated, each holder of a certificate or certificates
theretofore evidencing shares of STC Capital Stock may surrender the same,
together with a duly executed letter of transmittal and such other customary
documents as CGI may reasonably require, to the Exchange Agent, and, after the
appointment of the Exchange Agent shall be terminated, any such holder may
surrender any such certificate, letter of transmittal and other documents to
CGI. Such holder shall be entitled upon such surrender to receive in exchange
therefor a certificate or certificates representing the number of full shares
of CGI Common Stock (and associated CGI Rights) into which the shares of STC
Capital Stock theretofore represented by the certificate or certificates so
surrendered shall have been converted in accordance with the provisions of
Section 3.01, together with a cash payment in lieu of fractional shares, if
any, in accordance with Section 3.04, and all such shares of CGI Common Stock
(and associated CGI Rights) shall be deemed to have been issued at the
Effective Time. Until so surrendered and exchanged, each outstanding
certificate which, prior to the Effective Time, represented issued and
outstanding shares of STC Capital Stock shall be deemed for all corporate
purposes of CGI, other than the payment of dividends and other distributions,
if any, to evidence ownership of the number of full shares of CGI Common Stock
(and associated CGI Rights) into which the shares of STC Capital Stock
theretofore represented thereby shall have been converted at the Effective
Time. Unless and until any such certificate theretofore representing shares of
STC Capital Stock is so surrendered, no dividend or other distribution, if
any, payable to the holders of record of CGI Common Stock as of any date
subsequent to the Effective Time shall be paid to the holder of such
certificate in respect thereof. Upon the surrender of any such certificate
theretofore representing shares of STC Capital Stock, however, the record
holder of the certificate or certificates representing shares of CGI Common
Stock issued in exchange therefor shall receive from the Exchange Agent or
from CGI, as the case may be, payment of the amount of dividends and other
distributions, if any, which as of any date subsequent to the Effective Time
and until such surrender shall have become payable with respect to such number
of shares of CGI Common Stock ("Presurrender Dividends"). No interest shall be
payable with respect to the payment of Presurrender Dividends upon the
surrender of certificates theretofore representing shares of STC Capital
Stock. After the appointment of the Exchange Agent shall have been terminated,
such holders of CGI Common Stock which have not received payment of
Presurrender Dividends shall look only to CGI for payment thereof.
Notwithstanding the foregoing provisions of this Section 3.02, risk of loss
and title to such certificates representing shares of STC Capital Stock shall
pass only upon proper delivery of such certificates to the Exchange Agent, and
neither the Exchange Agent nor any party hereto shall be liable to a holder of
shares of STC Capital Stock for any CGI Common Stock or dividends or
distributions thereon delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law or to a transferee
pursuant to Section 3.03.

SECTION 3.03. Stock Transfer Books. At the Effective Time, the stock
transfer books of STC with respect to shares of STC Capital Stock shall each
be closed, and there shall be no further registration of transfers of shares
of STC Capital Stock thereafter on the records of any such stock transfer
books. In the event of a transfer of ownership of shares of STC Capital Stock
that is not registered in the stock transfer records of STC, at the Effective
Time, a certificate or certificates representing the number of full shares of
CGI Common Stock into

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which such shares of STC Capital Stock shall have been converted shall be
issued to the transferee together with a cash payment in lieu of fractional
shares, if any, in accordance with Section 3.04, and a cash payment in the
amount of Presurrender Dividends, if any, in accordance with Section 3.02, if
the certificate or certificates representing such shares of STC Capital Stock
is or are surrendered as provided in Section 3.02, accompanied by all
documents required to evidence and effect such transfer and by evidence of
payment of any applicable stock transfer tax.

SECTION 3.04. No Fractional Share Certificates. (a) No scrip or fractional
share certificate for CGI Common Stock shall be issued upon the surrender for
exchange of certificates evidencing shares of STC Capital Stock, and an
outstanding fractional share interest shall not entitle the owner thereof (i)
to vote, (ii) to receive dividends or (iii) to any rights of a stockholder of
CGI or of the Surviving Corporation with respect to such fractional share
interest.

(b) As promptly as practicable following the Effective Time, the Exchange
Agent shall determine the excess of (i) the number of full shares of CGI
Common Stock to be issued and delivered to the Exchange Agent pursuant to
Section 3.02 over (ii) the aggregate number of full shares of CGI Common Stock
to be distributed to holders of STC Capital Stock pursuant to Section 3.02
(such excess being herein called the "Excess Shares"). Following the Effective
Time, the Exchange Agent, as agent for the holders of STC Capital Stock, shall
sell the Excess Shares at then prevailing prices on the NMS, all in the manner
provided in subsection (c) of this Section 3.04.

(c) The sale of the Excess Shares by the Exchange Agent shall be executed on
the NMS through one or more member firms of such exchange and shall be
executed in round lots to the extent practicable. The Exchange Agent shall use
all reasonable efforts to complete the sale of the Excess Shares as promptly
following the Effective Time as, in the Exchange Agent's reasonable judgment,
is practicable consistent with obtaining the best execution of such sales in
light of prevailing market conditions. Until the net proceeds of such sale or
sales have been distributed to the holders of STC Capital Stock, the Exchange
Agent shall hold such proceeds in trust for the holders of STC Capital Stock
(the "Trust"). CGI shall pay all commissions, transfer taxes and other out-of-
pocket transaction costs, including the expenses and compensation of the
Exchange Agent, incurred in connection with such sale of Excess Shares. The
Exchange Agent shall determine the portion of the Trust to which each holder
of STC Capital Stock shall be entitled, if any, by multiplying the amount of
the aggregate net proceeds comprising the Trust by a fraction the numerator of
which is the amount of fractional share interests to which such holder of STC
Capital Stock is entitled (after taking into account all shares of STC Capital
Stock held at the Effective Time by such holder) and the denominator of which
is the aggregate amount of fractional share interests to which all holders of
STC Capital Stock are entitled.

(d) Notwithstanding the provisions of subsections (b) and (c) of this
Section 3.04, CGI may, in lieu of the issuance and sale of Excess Shares and
the making of the payments contemplated in such subsections, pay to the
Exchange Agent an amount in cash sufficient for the Exchange Agent to pay each
holder of STC Capital Stock an amount in cash equal to the product obtained by
multiplying (i) the fractional share interest to which such holder would
otherwise be entitled (after taking into account all shares of STC Capital
Stock held at the Effective Time by such holder) by (ii) the closing price for
a share of CGI Common Stock on the NMS on the first business day immediately
following the Effective Time, and, in such case, all references herein to the
cash proceeds of the sale of the Excess Shares and similar references shall be
deemed to mean and refer to the payments calculated as set forth in this
subsection (d). In such event, Excess Shares shall not be issued or otherwise
transferred to the Exchange Agent pursuant to Section 3.02.

(e) As soon as practicable after the determination of the amount of cash, if
any, to be paid to holders of STC Capital Stock with respect to any fractional
share interests, the Exchange Agent shall make available such amounts, net of
any required withholding, excise or similar tax, to such holders of STC
Capital Stock, subject to and in accordance with the terms of Section 3.02.

(f) Any portion of the Exchange Fund or the Trust which remains
undistributed for six months after the Effective Time shall be delivered to
CGI, and any holder of STC Capital Stock who has not theretofore complied

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with the provisions of this Article III shall thereafter look only to CGI for
satisfaction of their claims for CGI Common Stock or any cash in lieu of
fractional shares of CGI Common Stock and any Presurrender Dividends.

SECTION 3.05. Options and Warrants to Purchase STC Common Stock. At the
Effective Time, each option or warrant granted by STC to purchase shares of
STC Common Stock (each, an "STC Stock Option") which is outstanding and
unexercised immediately prior to the Effective Time, shall be assumed by CGI
and converted into an option or warrant to purchase shares of CGI Common Stock
in such number and at such exercise price as provided below and otherwise
having the same terms and conditions as in effect immediately prior to the
Effective Time (except to the extent that such terms, conditions and
restrictions may be altered in accordance with their terms as a result of the
Merger):

(a) the number of shares of CGI Common Stock to be subject to the new
option or warrant shall be equal to the product of (i) the number of shares
of STC Common Stock subject to the original option or warrant and (ii) the
Common Exchange Ratio;

(b) the exercise price per share of CGI Common Stock under the new option
or warrant shall be equal to the quotient of (i) the exercise price per
share of STC Common Stock under the original option or warrant divided by
(ii) the Common Exchange Ratio; and

(c) upon each exercise of options or warrants by a holder thereof, the
aggregate number of shares of CGI Common Stock deliverable upon such
exercise shall be rounded down, if necessary, to the nearest whole share
and the aggregate exercise price shall be rounded up, if necessary, to the
nearest cent.

The adjustments provided herein with respect to any options which are
"incentive stock options" (as defined in Section 422 of the Code) shall be
effected in a manner consistent with the requirements of Section 424(a) of the
Code.

SECTION 3.06. Certain Adjustments. If between the date of this Agreement and
the Effective Time, the outstanding shares of STC Capital Stock or CGI Common
Stock shall be changed into a different number of shares by reason of any
reclassification, recapitalization, split-up, combination or exchange of
shares, or any dividend payable in stock or other securities shall be declared
thereon with a record date within such period, the exchange ratios established
pursuant to the provisions of Section 3.01 shall be adjusted accordingly to
provide to the holders of STC Capital Stock the same economic effect as
contemplated by this Agreement prior to such reclassification,
recapitalization, split-up, combination, exchange or dividend.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF STC

STC hereby represents and warrants to CGI and Merger Sub that:

SECTION 4.01. Organization and Qualification; Subsidiaries. Each of STC and
each subsidiary of STC (the "STC Subsidiaries") has been duly organized and is
validly existing and in good standing (to the extent applicable) under the
laws of the jurisdiction of its incorporation or organization, as the case may
be, and has the requisite corporate power and authority and all necessary
governmental approvals to own, lease and operate its properties and to carry
on its business as it is now being conducted, except where the failure to be
so organized, existing or in good standing or to have such power, authority
and governmental approvals could not reasonably be expected to have,
individually or in the aggregate, an STC Material Adverse Effect. Each of STC
and each STC Subsidiary is duly qualified or licensed to do business, and is
in good standing (to the extent applicable), in each jurisdiction where the
character of the properties owned, leased or operated by it or the nature of
its business makes such qualification or licensing necessary, except for such
failures to be so qualified or licensed and in good standing that could not
reasonably be expected to have, individually or in the aggregate, an STC
Material Adverse Effect.

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SECTION 4.02. Certificate of Incorporation and By-laws. The copies of STC's
certificate of incorporation and by-laws that are incorporated by reference as
exhibits to STC's Form 10-K for the period ending June 30, 1996 (the "STC 1996
10-K") are true, complete and correct copies thereof. Such certificate of
incorporation and by-laws are in full force and effect. STC is not in
violation of any of the provisions of its certificate of incorporation or by-
laws.

SECTION 4.03. Capitalization. The authorized capital stock of STC consists
of 40,000,000 shares of STC Common Stock and 1,000,000 shares of preferred
stock. As of January 6, 1997, (i) 27,344,121 shares of STC Common Stock are
issued and outstanding, all of which are validly issued, fully paid and
nonassessable, (ii) no shares of STC Common Stock are held in the treasury of
STC, (iii) no shares of STC Common Stock are held by the STC Subsidiaries,
(iv) 3,052,491 shares of STC Common Stock are reserved for future issuance
pursuant to employee stock options or stock incentive rights granted under the
STC Stock Plans, (v) 5,441,480 shares of STC Common Stock are reserved for
issuance pursuant to the STC Stock Option Agreement, (vi) 2,047,651 shares of
STC Common Stock are reserved for issuance upon conversion of the Series A
Preferred Stock, (vii) 1,500,000 shares of STC Common Stock are reserved for
issuance upon conversion of the Series B Preferred Stock, (viii) 224,000
shares of Series A-1 Preferred Stock are issued and outstanding, (ix) 23,651
shares of Series A-2 Preferred Stock are issued and outstanding and (x) 33,333
shares of Series B Preferred Stock are issued and outstanding. There has been
no change in the capitalization of STC since January 6, 1997, excluding the
exercise of outstanding stock options. Except for the STC Stock Option
Agreement and shares of STC Common Stock issuable pursuant to the STC Stock
Plans or pursuant to agreements or arrangements described in Section 4.03 of
the STC Disclosure Schedule, and the warrants to purchase 889,000 shares of
STC Common Stock issued to holders of the Series A-1 Preferred Stock, there
are no options, warrants or other rights, agreements, arrangements or
commitments of any character to which STC is a party or by which STC is bound
relating to the issued or unissued capital stock of STC or any STC Subsidiary
or obligating STC or any STC Subsidiary to issue or sell any shares of capital
stock of, or other equity interests in, STC or any STC Subsidiary. All shares
of STC Common Stock subject to issuance as aforesaid, upon issuance prior to
the Effective Time on the terms and conditions specified in the instruments
pursuant to which they are issuable, will be duly authorized, validly issued,
fully paid and nonassessable. Except for the Fletcher Warrant, there are no
outstanding contractual obligations of STC or any STC Subsidiary to
repurchase, redeem or otherwise acquire any shares of STC Capital Stock or any
capital stock of any STC Subsidiary. Each outstanding share of capital stock
of each STC Subsidiary is duly authorized, validly issued, fully paid and
nonassessable and each such share owned by STC or another STC Subsidiary is
free and clear of all security interests, liens, claims, pledges, options,
rights of first refusal, agreements, limitations on STC's or such other STC
Subsidiary's voting rights, charges and other encumbrances of any nature
whatsoever, except where the failure to own such shares free and clear could
not reasonably be expected to have, individually or in the aggregate, an STC
Material Adverse Effect. Except as set forth in Section 4.03 of the STC
Disclosure Schedule, there are no material outstanding contractual obligations
of STC or any STC Subsidiary to provide funds to, or make any material
investment (in the form of a loan, capital contribution or otherwise) in, any
STC Subsidiary or any other person.

SECTION 4.04. Authority Relative to This Agreement and the STC Stock Option
Agreement. STC has all necessary corporate power and authority to execute and
deliver this Agreement and the STC Stock Option Agreement, to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the STC Stock Option Agreement by STC and the consummation by STC of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action, and no other corporate
proceedings on the part of STC are necessary to authorize this Agreement or
the STC Stock Option Agreement or to consummate such transactions (other than
the approval of this Agreement and the Merger by the holders of a majority of
the outstanding shares of STC Capital Stock and Series A Preferred Stock
entitled to vote with respect thereto at the STC Stockholders' Meeting, in
each case voting together as a single class, and the filing and recordation of
the Certificate of Merger as required by the General Corporation Law). This
Agreement and the STC Stock Option Agreement have been duly executed and
delivered by STC and, assuming the due authorization, execution and delivery
by the other parties hereto and thereto, constitute legal, valid and binding
obligations of STC, enforceable against STC in accordance with their terms.

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SECTION 4.05. No Conflict; Required Filings and Consents. (a) The execution
and delivery of this Agreement and the STC Stock Option Agreement by STC do
not, and the performance by STC of its obligations hereunder and thereunder
and the consummation of the Merger will not, (i) conflict with or violate any
provision of the certificate of incorporation or by-laws of STC or any
equivalent organizational documents of any STC Subsidiary, (ii) assuming that
all consents, approvals, authorizations and permits described in Section
4.05(b) have been obtained and all filings and notifications described in
Section 4.05(b) have been made, conflict with or violate any Law applicable to
STC or any STC Subsidiary or by which any property or asset of STC or any STC
Subsidiary is bound or affected or (iii) except as set forth in Section
4.05(a) of the STC Disclosure Schedule, result in any breach of or constitute
a default (or an event which with the giving of notice or lapse of time or
both could reasonably be expected to become a default) under, or give to
others any right of termination, amendment, acceleration or cancellation of,
or result in the creation of a lien or other encumbrance on any property or
asset of STC or any STC Subsidiary pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation, except, with respect to clauses (ii) and (iii), for
any such conflicts, violations, breaches, defaults or other occurrences which
could not reasonably be expected, individually or in the aggregate, (A) to
have an STC Material Adverse Effect or (B) to prevent or materially delay the
performance by STC of its obligations pursuant to this Agreement or the STC
Stock Option Agreement or the consummation of the Merger.

(b) The execution and delivery of this Agreement and the STC Stock Option
Agreement by STC do not, and the performance by STC of its obligations
hereunder and thereunder and the consummation of the Merger will not, require
any consent, approval, authorization or permit of, or filing by STC with or
notification by STC to, any Governmental Entity except (i) pursuant to
applicable requirements of the Exchange Act, the Securities Act, Blue Sky
Laws, the rules and regulations of the NASD, state takeover laws, the
premerger notification requirements of the HSR Act, if any, and the filing and
recordation of the Certificate of Merger as required by the General
Corporation Law, and (ii) where failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, could not
reasonably be expected, individually or in the aggregate, (A) to have an STC
Material Adverse Effect or (B) to prevent or materially delay the performance
by STC of its obligations pursuant to this Agreement or the STC Stock Option
Agreement or the consummation of the Merger.

SECTION 4.06. Permits; Compliance with Laws. (a) STC and the STC
Subsidiaries are in possession of all franchises, grants, authorizations,
licenses, establishment registrations, product listings, permits, easements,
variances, exceptions, consents, certificates, approvals and orders of any
Governmental Entity, including, without limitation, the FDA, the DEA, and
similar authorities in other jurisdictions, necessary for STC or any STC
Subsidiary to own, lease and operate its properties or to produce, store,
distribute and market its products or otherwise to carry on its business as it
is now being conducted (the "STC Permits"), except where the failure to have,
or the suspension or cancellation of, any of the STC Permits could not
reasonably be expected to have, individually or in the aggregate, an STC
Material Adverse Effect, and, as of the date of this Agreement, no suspension
or cancellation of any of the STC Permits is pending or, to the knowledge of
STC, threatened, except where the failure to have, or the suspension or
cancellation of, any of the STC Permits could not reasonably be expected to
have, individually or in the aggregate, an STC Material Adverse Effect.
Neither STC nor any STC Subsidiary is in conflict with, or in default or
violation of, (i) any Law applicable to STC or any STC Subsidiary or by which
any property or asset of STC or any STC Subsidiary is bound or affected or
(ii) any STC Permits, except in the case of clauses (i) and (ii) for any such
conflicts, defaults or violations that could not reasonably be expected to
have, individually or in the aggregate, an STC Material Adverse Effect.

(b) Except as disclosed in the STC Reports or in Section 4.06(b) of the STC
Disclosure Schedule or as could not reasonably be expected to have,
individually or in the aggregate, an STC Material Adverse Effect:

(i) to the knowledge of STC, all of the clinical studies which have been,
or are being, conducted by or for STC and the STC Subsidiaries are being
conducted in substantial compliance with generally accepted good clinical
practices and all applicable government regulatory requirements; and

(ii) to the knowledge of STC, none of STC, the STC Subsidiaries or any of
their respective officers, employees or agents (during the term of such
person's employment by STC or any STC Subsidiary or while

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acting as an agent of STC or any STC Subsidiary, or, to STC's knowledge,
prior to such employment) has made any untrue statement of a material fact
or fraudulent statement to the FDA or any similar Governmental Entity,
failed to disclose a material fact required to be disclosed to the FDA or
similar Governmental Entity, or committed an act, made a statement or
failed to make a statement that could reasonably be expected to provide a
basis for the FDA or similar Governmental Entity to invoke its policy
respecting "Fraud, Untrue Statements of Material Facts, Bribery, and
Illegal Gratuities" or similar governmental policy or Law.

SECTION 4.07. SEC Filings; Financial Statements; Projected Cash Balances;
Operating Budget. (a) Except as disclosed in Section 4.07 of the STC
Disclosure Schedule, STC has timely filed all forms, reports and documents
required to be filed by it with the SEC and the NASD since June 30, 1994
through the date of this Agreement (collectively and as amended, the "STC
Reports"). Each STC Report (i) was prepared in accordance with the
requirements of the Securities Act, the Exchange Act or the rules and
regulations of the NASD, as the case may be, and (ii) did not at the time it
was filed contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements made therein, in the light of the circumstances under which they
were made, not misleading. No STC Subsidiary is subject to the periodic
reporting requirements of the Exchange Act or required to file any form,
report or other document with the SEC, the NASD, any other stock exchange or
any other comparable Governmental Entity.

(b) Each of the consolidated financial statements (including, in each case,
any notes thereto) contained in the STC Reports was prepared, and each of the
consolidated financial statements (including, in each case, the notes thereto)
prepared and delivered pursuant to Section 7.13, if any, will be prepared, in
accordance with U.S. GAAP applied on a consistent basis throughout the periods
indicated (except as may be indicated in the notes thereto) and each presented
or will present fairly, in all material respects, the consolidated financial
position of STC and the consolidated STC Subsidiaries as at the respective
dates thereof and for the respective periods indicated therein, except as
otherwise noted therein (subject, in the case of unaudited statements, to
normal and recurring year-end adjustments which did not have and could not
reasonably be expected to have, individually or in the aggregate, an STC
Material Adverse Effect).

(c) Except as and to the extent set forth or reserved against on the
consolidated balance sheet of STC and the STC Subsidiaries as reported in the
STC Reports, including the notes thereto, none of STC or any STC Subsidiary
has any liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) that would be required to be reflected on a balance
sheet or in notes thereto prepared in accordance with U.S. GAAP, except for
liabilities or obligations incurred in the ordinary course of business
consistent with past practice since June 30, 1996 that have not had and could
not reasonably be expected to have, individually or in the aggregate, an STC
Material Adverse Effect.

(d) Within five days after the date hereof, STC shall furnish CGI with a
detailed schedule of STC's projected balances (the "Projected Cash Balances")
of cash, cash equivalents and marketable securities of STC for each month
during the period from the date hereof through August 31, 1997. The Projected
Cash Balances will be prepared (and any revised Projected Cash Balances
delivered after the date hereof will be prepared) by senior management of STC
on the basis of assumptions and supplemental data which represent a reasonable
basis for such preparation, and will reflect (and any revised Projected Cash
Balances delivered after the date hereof will reflect) the best currently
available estimates and judgment of senior management of STC as to the
expected future balances of cash, cash equivalents and marketable securities
of the STC for the periods included.

(e) Within five days after the date hereof, STC shall furnish CGI with a
detailed schedule of STC's projected operating budget (the "Operating Budget")
of STC for each month during the period from the date hereof through August
31, 1997. The Operating Budget will be prepared (and any revised Operating
Budget delivered after the date hereof will be prepared) by senior management
of STC on the basis of assumptions and supplemental data which represent a
reasonable basis for such preparation, and will reflect (and any revised
Operating Budget delivered after the date hereof will reflect) the best
currently available estimates and judgment of senior management of STC as to
the future operating expenses of STC expected to be incurred by STC in the
ordinary course consistent with past practice for the periods included.

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SECTION 4.08. Absence of Certain Changes or Events. Since June 30, 1996,
except as contemplated by or as disclosed in this Agreement, as set forth in
Section 4.08 of the STC Disclosure Schedule or as disclosed in any STC Report
filed since June 30, 1996, STC and the STC Subsidiaries have conducted their
businesses only in the ordinary course consistent with past practice and,
since such date, there has not been (i) any STC Material Adverse Effect
excluding any changes and effects resulting from changes in economic,
regulatory or political conditions or changes in conditions generally
applicable to the industries in which STC and the STC Subsidiaries are
involved, (ii) any event that could reasonably be expected to prevent or
materially delay the performance of its obligations pursuant to this Agreement
and the consummation of the Merger by STC, (iii) any material change by STC in
its accounting methods, principles or practices, (iv) any declaration, setting
aside or payment of any dividend or distribution in respect of the shares of
STC Capital Stock or any redemption, purchase or other acquisition of any of
STC's securities or (v) any increase in the compensation or benefits or
establishment of any bonus, insurance, severance, deferred compensation,
pension, retirement, profit sharing, stock option (including, without
limitation, the granting of stock options, stock appreciation rights,
performance awards or restricted stock awards), stock purchase or other
employee benefit plan, or any other increase in the compensation payable or to
become payable to any executive officers of STC or any STC Subsidiary except
in the ordinary course of business consistent with past practice.

SECTION 4.09. Employee Benefit Plans; Labor Matters. (a) With respect to
each employee benefit plan, program, arrangement and contract (including,
without limitation, any "employee benefit plan", as defined in Section 3(3) of
ERISA) maintained or contributed to by STC or any STC Subsidiary, or with
respect to which STC or any STC Subsidiary could incur liability under Section
4069, 4212(c) or 4204 of ERISA (the "STC Benefit Plans"), STC has delivered or
made available to CGI a true, complete and correct copy of (i) such STC
Benefit Plan and the most recent summary plan description related to such STC
Benefit Plan, if a summary plan description is required therefor, (ii) each
trust agreement or other funding arrangement relating to such STC Benefit
Plan, (iii) the most recent annual report (Form 5500) filed with the IRS) with
respect to such STC Benefit Plan, (iv) the most recent actuarial report or
financial statement relating to such STC Benefit Plan and (v) the most recent
determination letter issued by the IRS with respect to such STC Benefit Plan,
if it is qualified under Section 401(a) of the Code.

(b) Each STC Benefit Plan has been administered in all material respects in
accordance with its terms and all contributions required to be made under the
terms of any of the STC Benefit Plans as of the date of this Agreement have
been timely made or have been reflected on the most recent consolidated
balance sheet filed or incorporated by reference in the STC Reports prior to
the date of this Agreement. Except as set forth in Section 4.09(b) of the STC
Disclosure Schedule, with respect to the STC Benefit Plans, no event has
occurred and, to the knowledge of STC, there exists no condition or set of
circumstances in connection with which STC or any STC Subsidiary could be
subject to any liability under the terms of such STC Benefit Plans, ERISA, the
Code or any other applicable Law which could reasonably be expected to have,
individually or in the aggregate, an STC Material Adverse Effect.

(c) Except as set forth in Section 4.09(c) of the STC Disclosure Schedule,
neither STC nor any STC Subsidiary is a party to any collective bargaining or
other labor union contract applicable to persons employed by STC or any STC
Subsidiary and no collective bargaining agreement is being negotiated by STC
or any STC Subsidiary. As of the date of this Agreement, there is no labor
dispute, strike or work stoppage against STC or any STC Subsidiary pending or,
to the knowledge of STC, threatened which may interfere with the respective
business activities of STC or any STC Subsidiary, except where such dispute,
strike or work stoppage could not reasonably be expected to have, individually
or in the aggregate, an STC Material Adverse Effect. As of the date of this
Agreement, to the knowledge of STC, none of STC, any STC Subsidiary, or any of
their respective representatives or employees has committed any unfair labor
practice in connection with the operation of the respective businesses of STC
or any STC Subsidiary, and there is no charge or complaint against STC or any
STC Subsidiary by the National Labor Relations Board or any comparable
Governmental Entity pending or threatened in writing, except where such unfair
labor practice, charge or complaint could not reasonably be expected to have,
individually or in the aggregate, an STC Material Adverse Effect.

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(d) Except as set forth in Section 4.09(d) of the STC Disclosure Schedule,
STC has delivered to CGI true, complete and correct copies of (i) all
employment agreements with officers and employees and all consulting
agreements of STC and each STC Subsidiary providing for annual compensation in
excess of $25,000, (ii) all severance plans, agreements, programs and policies
of STC and each STC Subsidiary with or relating to their respective employees
or consultants, and (iii) all plans, programs, agreements and other
arrangements of STC and each STC Subsidiary with or relating to their
respective employees or consultants which contain "change of control"
provisions.

(e) Except as provided in Section 4.09(e) of the STC Disclosure Schedule or
as otherwise required by Law, no STC Benefit Plan provides retiree medical or
retiree life insurance benefits to any person.

SECTION 4.10. Tax Matters. Except as disclosed in the STC Reports, neither
STC nor, to the knowledge of STC, any of its affiliates has taken or agreed to
take any action (other than actions contemplated by this Agreement) that could
reasonably be expected to prevent the Merger from constituting a transaction
qualifying under Section 368 of the Code. STC is not aware of any agreement,
plan or other circumstance that could reasonably be expected to prevent the
Merger from so qualifying under Section 368 of the Code.

SECTION 4.11. Contracts; Debt Instruments. Except as disclosed in the STC
Reports or in Section 4.11 of the STC Disclosure Schedule, there is no
contract or agreement that is material to the business, financial condition or
results of operations of STC and the STC Subsidiaries taken as a whole (each,
an "STC Material Contract"). Except as disclosed in the STC Reports or in
Section 4.11 of the STC Disclosure Schedule, neither STC nor any STC
Subsidiary is in violation of or in default under (nor does there exist any
condition which with the passage of time or the giving of notice could
reasonably be expected to cause such a violation of or default under) any loan
or credit agreement, note, bond, mortgage, indenture or lease, or any other
contract, license, agreement, arrangement or understanding to which it is a
party or by which it or any of its properties or assets is bound, except for
violations or defaults that could not reasonably be expected to have,
individually or in the aggregate, an STC Material Adverse Effect. Set forth in
Section 4.11 of the STC Disclosure Schedule is a description of any material
changes to the amount and terms of the indebtedness of STC and its
subsidiaries as described in the notes to the financial statements
incorporated in STC 1996 10-K.

SECTION 4.12. Litigation. Except as disclosed in the STC Reports or in
Section 4.12 of the STC Disclosure Schedule, there is no suit, claim, action,
proceeding or investigation pending or, to the knowledge of STC, threatened
against STC or any STC Subsidiary before any Governmental Entity that could
reasonably be expected to have, individually or in the aggregate, an STC
Material Adverse Effect, and, except as disclosed to CGI, to the knowledge of
STC, there are no existing facts or circumstances that could reasonably be
expected to result in such a suit, claim, action, proceeding or investigation.
For purposes hereof, nonmeritorious strike-suit litigation challenging the
execution, adoption or performance of this Agreement shall not be deemed
material. Except as disclosed to CGI, STC is not aware of any facts or
circumstances which could reasonably be expected to result in the denial of
insurance coverage under policies issued to STC and the STC Subsidiaries in
respect of such suits, claims, actions, proceedings and investigations, except
in any case as could not reasonably be expected to have, individually or in
the aggregate, an STC Material Adverse Effect. Except as disclosed in the STC
Reports or in Section 4.12 of the STC Disclosure Schedule, neither STC nor any
STC Subsidiary is subject to any outstanding order, writ, injunction or decree
which could reasonably be expected to have, individually or in the aggregate,
an STC Material Adverse Effect.

SECTION 4.13. Environmental Matters. Except as disclosed in the STC Reports
or in Section 4.13 of the STC Disclosure Schedule or as could not reasonably
be expected to have, individually or in the aggregate, an STC Material Adverse
Effect, (i) STC and the STC Subsidiaries are in compliance with all applicable
Environmental Laws; (ii) all past noncompliance of STC or any STC Subsidiary
with Environmental Laws or Environmental Permits has been resolved without any
pending, ongoing or future obligation, cost or liability; and (iii) neither
STC nor any STC Subsidiary has released a Hazardous Material at, or
transported a Hazardous Material to or from, any real property currently or
formerly owned, leased or occupied by STC or any STC Subsidiary, in violation
of any Environmental Law.

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SECTION 4.14. Intellectual Property. Except as set forth in Section 4.14 of
the STC Disclosure Schedule, or as could not reasonably be expected to have,
individually or in the aggregate, an STC Material Adverse Effect, STC and the
STC Subsidiaries own or possess adequate licenses or other valid rights to use
all patents, patent rights, trademarks, trademark rights, trade names, trade
dress, trade name rights, copyrights, service marks, trade secrets,
applications for trademarks and for service marks, know-how and other
proprietary rights and information used or held for use in connection with the
respective businesses of STC and the STC Subsidiaries as currently conducted,
and STC is unaware of any assertion or claim challenging the validity of any
of the foregoing. Section 4.14 of the STC Disclosure Schedule lists all
licenses, sublicenses and other agreements to which STC or any STC Subsidiary
is a party and pursuant to which (i) any third party is authorized to use any
intellectual property right of STC or any STC Subsidiary and (ii) STC or any
STC Subsidiary is authorized to use any intellectual property rights (other
than pursuant to shrink-wrap licenses and noncustomized software licenses) of
a third party, and includes the identity of all parties thereto, a description
of the nature and subject matter thereof, the royalty provisions, if any,
therein and the term thereof. Except as set forth in Section 4.14 of the STC
Disclosure Schedule, the conduct of the respective businesses of STC and the
STC Subsidiaries as currently conducted does not conflict in any way with any
patent, patent right, license, trademark, trademark right, trade dress, trade
name, trade name right, service mark or copyright of any third party that
could not reasonably be expected to have, individually or in the aggregate, an
STC Material Adverse Effect. To the knowledge of STC, there are no
infringements of any proprietary rights owned by or licensed by or to STC or
any STC Subsidiary that could reasonably be expected to have, individually or
in the aggregate, an STC Material Adverse Effect.

SECTION 4.15. Taxes. Except as set forth in Section 4.15 of the STC
Disclosure Schedule and except for such matters as could not reasonably be
expected to have, individually or in the aggregate, an STC Material Adverse
Effect, (i) each of STC and each STC Subsidiary has timely filed or shall
timely file all returns and reports required to be filed by it with any taxing
authority with respect to Taxes for any period ending on or before the
Effective Time, taking into account any extension of time to file granted to
or obtained on behalf of STC and the STC Subsidiaries, (ii) all Taxes shown to
be payable on such returns or reports that are due prior to the Effective Time
have been or will be paid, (iii) as of the date hereof, no deficiency for any
amount of Tax has been asserted or assessed by a taxing authority against STC
or any STC Subsidiary and (iv) each of STC and each STC Subsidiary has
provided adequate reserves in its financial statements for any Taxes that have
not been paid, whether or not shown as being due on any returns.

SECTION 4.16. Opinion of Financial Advisor. DLJ has delivered to the board
of directors of STC its written opinion to the effect that, as of the date
hereof, the Common Exchange Ratio, the Series A Exchange Ratio and the Series
B Exchange Ratio to be offered to the stockholders of STC in the proposed
transaction are fair to such stockholders from a financial point of view. DLJ
has authorized the inclusion of its opinion in the Joint Proxy Statement.

SECTION 4.17. Brokers. No broker, finder or investment banker (other than
DLJ) is entitled to any brokerage, finder's or other fee or commission in
connection with the Merger based upon arrangements made by or on behalf of
STC. STC has heretofore made available to CGI true, complete and correct
copies of all agreements between STC and DLJ pursuant to which such firm would
be entitled to any payment relating to the Merger.

SECTION 4.18. Certain Interests. (a) Except as set forth in Section 4.18(a)
of the STC Disclosure Schedule, no officer or director (excluding outside
directors) of STC or any STC Subsidiary, and no relative or spouse (or
relative of such spouse) who resides with, or is a dependent of, any such
officer or director:

(i) has any direct or indirect financial interest in any competitor of
STC; provided, however, that the ownership of securities representing no
more than two percent of the outstanding voting power of any competitor,
supplier or customer, and which are also listed on any national securities
exchange or traded actively in the national over-the-counter market, shall
not be deemed to be a "financial interest" so long as the person owning
such securities has no other connection or relationship with such
competitor, supplier or customer;

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(ii) owns, directly or indirectly, in whole or in part, or has any other
interest, in any tangible or intangible property which STC or any STC
Subsidiary uses in the conduct of its business or otherwise; or

(iii) has outstanding any indebtedness to STC or any STC Subsidiary.

(b) Except as set forth in Section 4.18(b) of the STC Disclosure Schedule,
neither STC nor any STC Subsidiary has any liability or any other obligation
of any nature whatsoever to any officer, director or shareholder of STC or any
STC Subsidiary, or to any relative or spouse (or relative of such spouse) who
resides with, or is a dependent of, any such officer, director or shareholder,
other than immaterial liabilities and obligations incurred in the ordinary
course of business which are reflected in the STC Reports or with respect to
which adequate reserves have been taken.

ARTICLE V

REPRESENTATIONS AND WARRANTIES OF CGI AND MERGER SUB

CGI and Merger Sub hereby jointly and severally represent and warrant to STC
that:

SECTION 5.01. Organization and Qualification; Subsidiaries. Each of CGI,
Merger Sub and each other subsidiary of CGI (the "CGI Subsidiaries") has been
duly organized and is validly existing and in good standing (to the extent
applicable) under the laws of the jurisdiction of its incorporation or
organization, as the case may be, and has the requisite corporate power and
authority and all necessary governmental approvals to own, lease and operate
its properties and to carry on its business as it is now being conducted,
except where the failure to be so organized, existing or in good standing or
to have such power, authority and governmental approvals could not reasonably
be expected to have, individually or in the aggregate, a CGI Material Adverse
Effect. Each of CGI, Merger Sub and each other CGI Subsidiary is duly
qualified or licensed to do business, and is in good standing (to the extent
applicable), in each jurisdiction where the character of the properties owned,
leased or operated by it or the nature of its business makes such
qualification or licensing necessary, except for such failures to be so
qualified or licensed and in good standing that could not reasonably be
expected to have, individually or in the aggregate, a CGI Material Adverse
Effect.

SECTION 5.02. Certificate of Incorporation and By-laws. Except as set forth
in Section 5.02 of the CGI Disclosure Schedule, the copies of CGI's
certificate of incorporation and by-laws that are incorporated by reference as
exhibits to CGI's Form 10-K for the period ending December 31, 1995 (the "CGI
1995 10-K") are true, complete and correct copies thereof. CGI has heretofore
furnished STC with true, complete and correct copies of the certificate of
incorporation and by-laws of Merger Sub. Such certificates of incorporation
and by-laws are in full force and effect. Neither CGI nor Merger Sub is in
violation of any of the provisions of its certificate of incorporation or by-
laws.

SECTION 5.03. Capitalization. The authorized capital stock of CGI consists
of 25,000,000 shares of CGI Common Stock and 5,000,000 shares of preferred
stock. As of January 10, 1997, (i) 16,516,0099 shares of CGI Common Stock are
issued and outstanding, all of which are validly issued, fully paid and
nonassessable, (ii) no shares of CGI Common Stock are held in the treasury of
STC, (iii) no shares of CGI Common Stock are held by the CGI Subsidiaries,
(iv) 2,363,240 shares of CGI Common Stock are reserved for future issuance
pursuant to employee stock options or stock incentive rights granted under the
CGI Stock Plans and (v) 3,286,703 shares of CGI Common Stock are reserved for
issuance pursuant to the CGI Stock Option Agreement. As of the date hereof,
there are no shares of preferred stock of CGI issued and outstanding. Except
for the CGI Stock Option Agreement, shares of CGI Common Stock issuable
pursuant to the CGI Stock Plans or pursuant to agreements or arrangements
described in Section 5.03 of the CGI Disclosure Schedule, the CGI Rights
issued and issuable pursuant to the CGI Rights Plan, there are no options,
warrants or other rights, agreements, arrangements or commitments of any
character to which CGI is a party or by which CGI is bound relating to the
issued or unissued capital stock of CGI, Merger Sub or any other CGI
Subsidiary or obligating CGI, Merger Sub or any other CGI Subsidiary to issue
or sell any shares of capital stock of, or other equity interests in, CGI,
Merger Sub or any other CGI Subsidiary. All shares of CGI Common Stock subject
to issuance as aforesaid, upon issuance

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prior to the Effective Time on the terms and conditions specified in the
instruments pursuant to which they are issuable, will be duly authorized,
validly issued, fully paid and nonassessable. There are no outstanding
contractual obligations of CGI, Merger Sub or any other CGI Subsidiary to
repurchase, redeem or otherwise acquire any shares of CGI Common Stock or any
capital stock of any CGI Subsidiary. Each outstanding share of capital stock
of each CGI Subsidiary is duly authorized, validly issued, fully paid and
nonassessable and each such share owned by CGI or another CGI Subsidiary is
free and clear of all security interests, liens, claims, pledges, options,
rights of first refusal, agreements, limitations on CGI's or such other CGI
Subsidiary's voting rights, charges and other encumbrances of any nature
whatsoever, except where the failure to own such shares free and clear could
not reasonably be expected to have, individually or in the aggregate, a CGI
Material Adverse Effect. Except as set forth in Section 5.03 of the CGI
Disclosure Schedule, there are no material outstanding contractual obligations
of CGI, Merger Sub or any other CGI Subsidiary to provide funds to, or make
any material investment (in the form of a loan, capital contribution or
otherwise) in, any CGI Subsidiary or any other person.

SECTION 5.04. Authority Relative to This Agreement and the CGI Stock Option
Agreement. CGI and Merger Sub have all necessary corporate power and authority
to execute and deliver this Agreement and the CGI Stock Option Agreement, to
perform their respective obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and the CGI Stock Option Agreement by CGI and
Merger Sub and the consummation by CGI and Merger Sub of the transactions
contemplated hereby and thereby have been duly and validly authorized by all
necessary corporate action, and no other corporate proceedings on the part of
CGI or Merger Sub are necessary to authorize this Agreement or the CGI Stock
Option Agreement or to consummate such transactions (other than the approval
of this Agreement and the Merger by the holders of a majority of the votes
cast by CGI's stockholders with respect thereto at the CGI Stockholders'
Meeting and the filing and recordation of the Certificate of Merger as
required by the General Corporation Law). This Agreement and the CGI Stock
Option Agreement have been duly executed and delivered by CGI and Merger Sub
and, assuming the due authorization, execution and delivery by STC, constitute
legal, valid and binding obligations of CGI and Merger Sub, enforceable
against CGI and Merger Sub in accordance with their terms.

SECTION 5.05. No Conflict; Required Filings and Consents. (a) The execution
and delivery of this Agreement and the CGI Stock Option Agreement by CGI and
Merger Sub do not, and the performance by CGI and Merger Sub of their
obligations hereunder and thereunder and the consummation of the Merger will
not, (i) conflict with or violate any provision of the certificate of
incorporation or by-laws of CGI or Merger Sub or any equivalent organizational
documents of any other CGI Subsidiary, (ii) assuming that all consents,
approvals, authorizations and permits described in Section 5.05(b) have been
obtained and all filings and notifications described in Section 5.05(b) have
been made, conflict with or violate any Law applicable to CGI or any other CGI
Subsidiary or by which any property or asset of CGI, Merger Sub or any other
CGI Subsidiary is bound or affected or (iii) except as set forth in Section
5.05(a) of the CGI Disclosure Schedule, result in any breach of or constitute
a default (or an event which with the giving of notice or lapse of time or
both could reasonably be expected to become a default) under, or give to
others any right of termination, amendment, acceleration or cancellation of,
or result in the creation of a lien or other encumbrance on any property or
asset of CGI, Merger Sub or any other CGI Subsidiary pursuant to, any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation, except, with respect to clauses
(ii) and (iii), for any such conflicts, violations, breaches, defaults or
other occurrences which could not reasonably be expected, individually or in
the aggregate, (A) to have a CGI Material Adverse Effect or (B) to prevent or
materially delay the performance by CGI or Merger Sub of its obligations
pursuant to this Agreement or the CGI Stock Option Agreement or the
consummation of the Merger.

(b) The execution and delivery of this Agreement and the CGI Stock Option
Agreement by CGI and Merger Sub do not, and the performance by CGI and Merger
Sub of their respective obligations hereunder and thereunder and the
consummation of the Merger will not, require any consent, approval,
authorization or permit of, or filing by CGI or Merger Sub with or
notification by CGI or Merger Sub to, any Governmental Entity, except (i)
pursuant to applicable requirements of the Exchange Act, the Securities Act,
Blue Sky Laws, the rules

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and regulations of the NASD, state takeover laws, the premerger notification
requirements of the HSR Act, if any, and the filing and recordation of the
Certificate of Merger as required by the General Corporation Law and (ii)
where failure to obtain such consents, approvals, authorizations or permits,
or to make such filings or notifications, could not reasonably be expected,
individually or in the aggregate, (A) to have a CGI Material Adverse Effect or
(B) to prevent or materially delay the performance by CGI or Merger Sub of its
obligations pursuant to this Agreement or the CGI Stock Option Agreement or
the consummation of the Merger.

SECTION 5.06. Permits; Compliance with Laws. (a) Each of CGI, Merger Sub and
each other CGI Subsidiary is in possession of all franchises, grants,
authorizations, licenses, establishment registrations, product listings,
permits, easements, variances, exceptions, consents, certificates, approvals
and orders of any Governmental Entity, including, without limitation, the FDA,
the DEA and similar authorities in other jurisdictions, necessary for it to
own, lease and operate its properties or to store, distribute and market its
products or otherwise to carry on its business as it is now being conducted
(the "CGI Permits"), except where the failure to have, or the suspension or
cancellation of, any of the CGI Permits could not reasonably be expected to
have, individually or in the aggregate, a CGI Material Adverse Effect, and, as
of the date of this Agreement, no suspension or cancellation of any of the CGI
Permits is pending or, to the knowledge of CGI, threatened, except where the
failure to have, or the suspension or cancellation of, any of the CGI Permits
could not reasonably be expected to have, individually or in the aggregate, a
CGI Material Adverse Effect. None of CGI, Merger Sub or any other CGI
Subsidiary is in conflict with, or in default or violation of, (i) any Law
applicable to CGI, Merger Sub or any other CGI Subsidiary or by which any
property or asset of CGI, Merger Sub or any other CGI Subsidiary is bound or
affected or (ii) any CGI Permits, except in the case of clauses (i) and (ii)
for any such conflicts, defaults or violations that could not reasonably be
expected to have, individually or in the aggregate, a CGI Material Adverse
Effect.

(b) Except as disclosed in the CGI Reports or in Section 5.06(b) of the CGI
Disclosure Schedule or as could not reasonably be expected to have,
individually or in the aggregate, a CGI Material Adverse Effect:

(i) to the knowledge of CGI, all of the clinical studies which have been,
or are being, conducted by or for CGI and the CGI Subsidiaries are being
conducted in substantial compliance with generally accepted good clinical
practices and all applicable government regulatory requirements; and

(ii) to the knowledge of CGI, none of CGI, the CGI Subsidiaries or any of
their respective officers, employees or agents (during the term of such
person's employment by CGI or any CGI Subsidiary or while acting as an
agent of CGI or any CGI Subsidiary, or, to CGI's knowledge, prior to such
employment) has made any untrue statement of a material fact or fraudulent
statement to the FDA or any similar Governmental Entity, failed to disclose
a material fact required to be disclosed to the FDA or similar Governmental
Entity, or committed an act, made a statement or failed to make a statement
that could reasonably be expected to provide a basis for the FDA or similar
Governmental Entity to invoke its policy respecting "Fraud, Untrue
Statements of Material Facts, Bribery, and Illegal Gratuities" or similar
governmental policy or Law.

SECTION 5.07. SEC Filings; Financial Statements. (a) Except as disclosed in
Section 5.07 of the CGI Disclosure Schedule, CGI has timely filed all forms,
reports and documents required to be filed by it with the SEC and the NASD
since December 31, 1993 through the date of this Agreement (collectively and
as amended, the "CGI Reports"). Each CGI Report (i) was prepared in accordance
with the requirements of the Securities Act, the Exchange Act or the NASD, as
the case may be, and (ii) did not at the time it was filed contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements made therein, in
the light of the circumstances under which they were made, not misleading. No
CGI Subsidiary is subject to the periodic reporting requirements of the
Exchange Act or required to file any form, report or other document with the
SEC, the NASD, any other stock exchange or any other comparable Governmental
Entity.

(b) Each of the consolidated financial statements (including, in each case,
any notes thereto) contained in the CGI Reports was prepared in accordance
with U.S. GAAP applied on a consistent basis throughout the periods indicated
(except as may be indicated in the notes thereto) and each presented fairly,
in all material

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respects, the consolidated financial position of CGI and the consolidated CGI
Subsidiaries as at the respective dates thereof and for the respective periods
indicated therein, except as otherwise noted therein (subject, in the case of
unaudited statements, to normal and recurring year-end adjustments which did
not and could not reasonably be expected to have, individually or in the
aggregate, a CGI Material Adverse Effect).

(c) Except as and to the extent set forth or reserved against on the
consolidated balance sheet of CGI and its Subsidiaries as reported in the CGI
Reports, including the notes thereto, none of CGI or any CGI Subsidiary has
any liabilities or obligations of any nature (whether accrued, absolute,
contingent or otherwise) that would be required to be reflected on a balance
sheet or in notes thereto prepared in accordance with U.S. GAAP, except for
liabilities or obligations incurred in the ordinary course of business
consistent with past practice since December 31, 1995 that have not had and
could not reasonably be expected to have, individually or in the aggregate, a
CGI Material Adverse Effect.

SECTION 5.08. Absence of Certain Changes or Events. Since December 31, 1995,
except as contemplated by or as disclosed in this Agreement, as set forth in
Section 5.08 of the CGI Disclosure Schedule or as disclosed in any CGI Report
filed since December 31, 1995, CGI and the CGI Subsidiaries have conducted
their businesses only in the ordinary course consistent with past practice
and, since such date, there has not been (i) any CGI Material Adverse Effect
excluding any changes and effects resulting from changes in economic,
regulatory or political conditions or changes in conditions generally
applicable to the industries in which CGI and the CGI Subsidiaries are
involved, (ii) any event that could reasonably be expected to prevent or
materially delay the performance of their obligations pursuant to this
Agreement and the consummation of the Merger by Merger Sub, (iii) any material
change by CGI in its accounting methods, principles or practices, (iv) any
declaration, setting aside or payment of any dividend or distribution in
respect of the shares of CGI Common Stock or any redemption, purchase or other
acquisition of any of CGI's securities or (v) any increase in the compensation
or benefits or establishment of any bonus, insurance, severance, deferred
compensation, pension, retirement, profit-sharing, stock option (including,
without limitation, the granting of stock options, stock appreciation rights,
performance awards or restricted stock awards), stock purchase or other
employee benefit plan, or any other increase in the compensation payable or to
become payable to any executive officers of CGI or any CGI Subsidiary except
in the ordinary course of business consistent with past practice.

SECTION 5.09. Employee Benefit Plans; Labor Matters. (a) With respect to
each employee benefit plan, program, arrangement and contract (including,
without limitation, any "employee benefit plan", as defined in Section 3(3) of
ERISA) maintained or contributed to by CGI or any CGI Subsidiary, or with
respect to which CGI or any CGI Subsidiary could incur liability under Section
4069, 4212(c) or 4204 of ERISA (the "CGI Benefit Plans", CGI has delivered or
made available to STC a true, complete and correct copy of (i) such CGI
Benefit Plan and the most recent summary plan description related to such CGI
Benefit Plan, if a summary plan description is required therefor, (ii) each
trust agreement or other funding arrangement relating to such CGI Benefit
Plan, (iii) the most recent annual report (Form 5500) filed with the IRS with
respect to such CGI Benefit Plan, (iv) the most recent actuarial report or
financial statement relating to such CGI Benefit Plan and (v) the most recent
determination letter issued by the IRS with respect to such CGI Benefit Plan,
if it is qualified under Section 401(a) of the Code.

(b) Each CGI Benefit Plan has been administered in all material respects in
accordance with its terms and all contributions required to be made under the
terms of any of the CGI Benefit Plans as of the date of this Agreement have
been timely made or have been reflected on the most recent consolidated
balance sheet filed or incorporated by reference in the CGI Reports prior to
the date of this Agreement. Except as set forth in Section 5.09(b) of the CGI
Disclosure Schedule, with respect to the CGI Benefit Plans, no event has
occurred and, to the knowledge of CGI, there exists no condition or set of
circumstances in connection with which CGI or any CGI Subsidiary could be
subject to any liability under the terms of such CGI Benefit Plans, ERISA, the
Code or any other applicable Law which could reasonably be expected to have,
individually or in the aggregate, a CGI Material Adverse Effect.

(c) Except as set forth in Section 5.09(c) of the CGI Disclosure Schedule,
neither CGI nor any CGI Subsidiary is a party to any collective bargaining or
other labor union contract applicable to persons employed

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by CGI or any CGI Subsidiary and no collective bargaining agreement is being
negotiated by CGI or any CGI Subsidiary. As of the date of this Agreement,
there is no labor dispute, strike or work stoppage against CGI or any CGI
Subsidiary pending or, to the knowledge of CGI, threatened which may interfere
with the respective business activities of CGI or any CGI Subsidiary, except
where such dispute, strike or work stoppage could not reasonably be expected
to have, individually or in the aggregate, a CGI Material Adverse Effect. As
of the date of this Agreement, to the knowledge of CGI, none of CGI, any CGI
Subsidiary, or any of their respective representatives or employees has
committed any unfair labor practice in connection with the operation of the
respective businesses of CGI or any CGI Subsidiary, and there is no charge or
complaint against CGI or any CGI Subsidiary by the National Labor Relations
Board or any comparable Governmental Entity pending or threatened in writing,
except where such unfair labor practice, charge or complaint could not
reasonably be expected to have, individually or in the aggregate, a CGI
Material Adverse Effect.

(d) CGI has delivered to STC true, complete and correct copies of (i) all
employment agreements with officers of CGI and each CGI Subsidiary providing
for annual compensation in excess of $25,000, (b) all severance plans,
agreements, programs and policies of CGI and each CGI Subsidiary with or
relating to their respective employees and (iii) all plans, programs,
agreements and other arrangements of CGI and each CGI Subsidiary with or
relating to their respective employees which contain "change of control"
provisions.

(e) Except as provided in Section 5.09(e) of the CGI Disclosure Schedule or
as otherwise required by Law, no CGI Benefit Plan provides retiree medical or
retiree life insurance benefits to any person.

SECTION 5.10. Tax Matters. Except as disclosed in the CGI Reports, neither
CGI nor, to the knowledge of CGI, any of its affiliates has taken or agreed to
take any action (other than actions contemplated by this Agreement) that could
reasonably be expected to prevent the Merger from constituting a transaction
qualifying under Section 368 of the Code. CGI is not aware of any agreement,
plan or other circumstance that could reasonably be expected to prevent the
Merger from so qualifying under Section 368 of the Code.

SECTION 5.11. Contracts; Debt Instruments. Except as disclosed in the CGI
Reports or in Section 5.11 of the CGI Disclosure Schedule, there is no
contract or agreement that is material to the business, financial condition or
results of operations of CGI and the CGI Subsidiaries taken as a whole (each,
a "CGI Material Contract"). Except as disclosed in the CGI Reports or in
Section 5.11 of the CGI Disclosure Schedule, neither CGI nor any CGI
Subsidiary is in violation of or in default under (nor does there exist any
condition which with the passage of time or the giving of notice could
reasonably be expected to cause such a violation of or default under) any loan
or credit agreement, note, bond, mortgage, indenture or lease, or any other
contract, license, agreement, arrangement or understanding to which it is a
party or by which it or any of its properties or assets is bound, except for
violations or defaults that could not reasonably be expected to have,
individually or in the aggregate, a CGI Material Adverse Effect. Set forth in
Section 5.11 of the CGI Disclosure Schedule is a description of any material
changes to the amount and terms of the indebtedness of CGI and its
subsidiaries as described in the notes to the financial statements
incorporated in the CGI 1995 10-K.

SECTION 5.12. Litigation. Except as disclosed in the CGI Reports or in
Section 5.12 of the CGI Disclosure Schedule, there is no suit, claim, action,
proceeding or investigation pending or, to the knowledge of CGI, threatened
against CGI or any CGI Subsidiary before any Governmental Entity that could
reasonably be expected to have, individually or in the aggregate, a CGI
Material Adverse Effect, and, except as disclosed to STC, to the knowledge of
CGI, there are no existing facts or circumstances that could reasonably be
expected to result in such a suit, claim, action, proceeding or investigation.
For purposes hereof, nonmeritorious strike-suit litigation challenging the
execution, adoption or performance of this Agreement shall not be deemed
material. Except as disclosed to STC, CGI is not aware of any facts or
circumstances which could reasonably be expected to result in the denial of
insurance coverage under policies issued to CGI and the CGI Subsidiaries in
respect of such suits, claims, actions, proceedings and investigations, except
in any case as could not reasonably be expected to have, individually or in
the aggregate, a CGI Material Adverse Effect. Except as disclosed in the CGI
Reports or in Section 5.12 of the CGI Disclosure Schedule, neither CGI nor any
CGI Subsidiary is subject to any outstanding order, writ, injunction or decree
which could reasonably be expected to have, individually or in the aggregate,
a CGI Material Adverse Effect.

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SECTION 5.13. Environmental Matters. Except as disclosed in the CGI Reports
or in Section 5.13 of the CGI Disclosure Schedule or as could not reasonably
be expected to have, individually or in the aggregate, a CGI Material Adverse
Effect, (i) CGI and the CGI Subsidiaries are in compliance with all applicable
Environmental Laws; (ii) all past noncompliance of CGI or any CGI Subsidiary
with Environmental Laws or Environmental Permits has been resolved without any
pending, ongoing or future obligation, cost or liability; and (iii) neither
CGI nor any CGI Subsidiary has released a Hazardous Material at, or
transported a Hazardous Material to or from, any real property currently or
formerly owned, leased or occupied by CGI or any CGI Subsidiary in violation
of any Environmental Law.

SECTION 5.14. Intellectual Property. Except as disclosed in Section 5.14 of
the CGI Disclosure Schedule or as could not reasonably be expected to have,
individually or in the aggregate, a CGI Material Adverse Effect, CGI and the
CGI Subsidiaries own or possess adequate licenses or other valid rights to use
all patents, patent rights, trademarks, trademark rights, trade names, trade
dress, trade name rights, copyrights, service marks, trade secrets,
applications for trademarks and for service marks, know-how and other
proprietary rights and information used or held for use in connection with the
respective businesses of CGI and the CGI Subsidiaries as currently conducted,
and CGI is unaware of any assertion or claim challenging the validity of any
of the foregoing. Section 5.14 of the CGI Disclosure Schedule lists all
licenses, sublicenses and other agreements to which CGI or any CGI Subsidiary
is a party and pursuant to which (i) any third party is authorized to use any
intellectual property right of CGI or any CGI Subsidiary and (ii) CGI or any
CGI Subsidiary is authorized to use any intellectual property rights (other
than pursuant to shrink-wrap licenses and noncustomized software licenses) of
a third party, and includes the identity of all parties thereto, a description
of the nature and subject matter thereof, the royalty provisions, if any,
therein and the term thereof. Except as set forth in Section 5.14 of the CGI
Disclosure Schedule, the conduct of the respective businesses of CGI and the
CGI Subsidiaries as currently conducted does not conflict in any way with any
patent, patent right, license, trademark, trademark right, trade dress, trade
name, trade name right, service mark or copyright of any third party that
could reasonably be expected to have, individually or in the aggregate, a CGI
Material Adverse Effect. Except as disclosed in Section 5.14 of the CGI
Disclosure Schedule, to the knowledge of CGI, there are no infringements of
any proprietary rights owned by or licensed by or to CGI or any CGI Subsidiary
that could reasonably be expected to have, individually or in the aggregate, a
CGI Material Adverse Effect.

SECTION 5.15. Taxes. Except as set forth in Section 5.15 of the CGI
Disclosure Schedule and except for such matters as could not reasonably be
expected to have, individually or in the aggregate, a CGI Material Adverse
Effect, (i) each of CGI, Merger Sub and each other CGI Subsidiary has timely
filed or shall timely file all returns and reports required to be filed by it
with any taxing authority with respect to Taxes for any period ending on or
before the Effective Time, taking into account any extension of time to file
granted to or obtained on behalf of CGI, Merger Sub and the other CGI
Subsidiaries, (ii) all Taxes shown to be payable on such returns or reports
that are due prior to the Effective Time have been or will be paid, (iii) as
of the date hereof, no deficiency for any amount of Tax has been asserted or
assessed by a taxing authority against CGI, Merger Sub or any other CGI
Subsidiary and (iv) each of CGI, Merger Sub and each other CGI Subsidiary has
provided adequate reserves in its financial statements for any Taxes that have
not been paid, whether or not shown as being due on any returns.

SECTION 5.16. Opinion of Financial Advisor. Lehman Brothers has delivered to
the board of directors of CGI its written opinion to the effect that, as of
the date hereof, each of the Common Exchange Ratio, the Series A Exchange
Ratio and the Series B Exchange Ratio is fair to the holders of shares of CGI
Common Stock from a financial point of view. Lehman Brothers has authorized
the inclusion of its opinion in the Joint Proxy Statement.

SECTION 5.17. Brokers. No broker, finder or investment banker (other than
Lehman Brothers) is entitled to any brokerage, finder's or other fee or
commission in connection with the Merger based upon arrangements made by or on
behalf of CGI. CGI has heretofore made available to STC true, complete and
correct copies of all agreements between CGI and Lehman Brothers pursuant to
which such firm would be entitled to any payment relating to the Merger.

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SECTION 5.18. Certain Interests. (a) Except as set forth in Section 5.18(a)
of the CGI Disclosure Schedule or in the CGI SEC Reports, no officer or
director (excluding outside directors) of CGI or any CGI Subsidiary, and no
relative or spouse (or relative of such spouse) who resides with, or is a
dependent of, any such shareholder, officer or director:

(i) has any direct or indirect financial interest in any competitor;
provided, however, that the ownership of securities representing no more
than two percent of the outstanding voting power of any competitor,
supplier or customer, and which are also listed on any national securities
exchange or traded actively in the national over-the-counter market, shall
not be deemed to be a "financial interest" so long as the person owning
such securities has no other connection or relationship with such
competitor, supplier or customer;

(ii) owns, directly or indirectly, in whole or in part, or has any other
interest in any tangible or intangible property which CGI or any CGI
Subsidiary uses in the conduct of its business or otherwise; or

(iii) has outstanding any indebtedness to CGI or any CGI Subsidiary.

(b) Except as set forth in Section 5.18(b) of the CGI Disclosure Schedule,
neither CGI nor any CGI Subsidiary has any liability or any other material
obligation of any nature whatsoever to any officer or director of CGI or any
CGI Subsidiary, or to any relative or spouse (or relative of such spouse) who
resides with, or is a dependent of, any such officer or director, other than
immaterial liabilities and obligations incurred in the ordinary course of
business which are reflected in the CGI Reports or with respect to which
adequate reserves have been taken.

ARTICLE VI

COVENANTS

SECTION 6.01. Conduct of Business by STC Pending the Closing. STC agrees
that, between the date of this Agreement and the Effective Time, except as set
forth in Section 6.01 of the STC Disclosure Schedule or as expressly
contemplated by any other provision of this Agreement, unless CGI shall
otherwise agree in writing, (x) the respective businesses of STC and the STC
Subsidiaries shall be conducted only in, and STC and the STC Subsidiaries
shall not take any action except in, the ordinary course of business
consistent with past practice and (y) STC shall use all reasonable efforts to
keep available the services of such of the current officers, employees and
consultants of STC and the STC Subsidiaries and to preserve the current
relationships of STC and the STC Subsidiaries with such of the corporate
partners, customers, suppliers and other persons with which STC or any STC
Subsidiary has significant business relations in order to preserve
substantially intact its business organization. By way of amplification and
not limitation, except as set forth in Section 6.01 of the STC Disclosure
Schedule or as expressly contemplated by any other provision of this Agreement
and the STC Stock Option Agreement, neither STC nor any STC Subsidiary shall,
between the date of this Agreement and the Effective Time, directly or
indirectly, do, or agree to do, any of the following without the prior written
consent of CGI, which consent shall not be unreasonably withheld or delayed:

(a) amend or otherwise change its certificate of incorporation or by-laws
or equivalent organizational documents;

(b) issue, sell, pledge, dispose of, grant, transfer, lease, license,
guarantee or encumber, or authorize the issuance, sale, pledge,
disposition, grant, transfer, lease, license or encumbrance of, (i) any
shares of capital stock of STC or any STC Subsidiary of any class, or
securities convertible into or exchangeable or exercisable for any shares
of such capital stock, or any options, warrants or other rights of any kind
to acquire any shares of such capital stock, or any other ownership
interest (including, without limitation, any phantom interest), of STC or
any STC Subsidiary, except for (A) issuances of STC Common Stock pursuant
to options and warrants thereon outstanding on the date hereof and
described in Section 4.03 and (B) issuances of non-cash dividends required
to be made under the terms of the certificate of designation of STC
applicable to the Series A Preferred Stock, or (ii) any property or assets
of STC or any STC Subsidiary;

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(c) (i) acquire (including, without limitation, by merger, consolidation,
or acquisition of stock or assets) any interest in any corporation,
partnership, other business organization or person or any division thereof
or any assets, other than acquisitions of assets; (ii) incur any
indebtedness for borrowed money or issue any debt securities or assume,
guarantee or endorse, or otherwise as an accommodation become responsible
for, the obligations of any person for borrowed money; (iii) terminate,
cancel or request any material change in, or agree to any material change
in, any STC Material Contract or enter into any corporate partnering
transaction or similar arrangement or any other contract or agreement
material to the business, results of operations or financial condition of
STC and the STC Subsidiaries taken as a whole; (iv) make or authorize any
capital expenditure, except for capital expenditures not in excess of
$5,000 individually and $50,000 in the aggregate; provided that CGI will
not unreasonably withhold its consent to reasonable expenditures in excess
thereof; or (v) enter into or amend any contract, agreement, commitment or
arrangement that, if fully performed, would not be permitted under this
Section 6.01(c);

(d) declare, set aside, make or pay any dividend or other distribution,
payable in cash, stock, property or otherwise, with respect to any of its
capital stock or the Fletcher Warrant, except that any STC Subsidiary may
pay dividends or make other distributions to STC or any other STC
Subsidiary and may pay noncash dividends required to be made under the
terms of the certificate of designation of STC applicable to the Series A
Preferred Stock;

(e) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;

(f) increase the compensation payable or to become payable to its
officers, consultants or employees, or grant any rights to severance or
termination pay to, or enter into any employment or severance agreement
which provides benefits upon a change in control of STC that would be
triggered by the Merger with, any director, officer, consultant or other
employee of STC or any STC Subsidiary who is not currently entitled to such
benefits from the Merger, or establish, adopt, enter into or amend any
collective bargaining, bonus, profit-sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, deferred compensation,
employment, termination, severance or other plan, agreement, trust, fund,
policy or arrangement for the benefit of any director, officer, consultant
or employee of STC or any STC Subsidiary, except to the extent required by
applicable Law or the terms of a collective bargaining agreement;

(g) take any action with respect to accounting policies or procedures,
other than actions in the ordinary course of business consistent with past
practice or as required by U.S. GAAP;

(h) make any tax election or settle or compromise any material federal,
state or local United States income tax liability, or any income tax
liability of any other jurisdiction, other than those made in the ordinary
course of business consistent with past practice and those for which
specific reserves have been recorded on the consolidated balance sheet of
STC and the consolidated STC Subsidiaries dated as of June 30, 1996
included in the 1996 STC 10-K and only to the extent of such reserves; or

(i) authorize or enter into any formal or informal agreement or otherwise
make any commitment to do any of the foregoing.

SECTION 6.02. Conduct of Business by CGI Pending the Closing. CGI agrees
that, between the date of this Agreement and the Effective Time, except as set
forth in Section 6.02 of the CGI Disclosure Schedule or as expressly
contemplated by any other provision of this Agreement, unless STC shall
otherwise agree in writing, (x) the respective businesses of CGI and the CGI
Subsidiaries shall be conducted only in, and CGI and the CGI Subsidiaries
shall not take any action except in, the ordinary course of business
consistent with past practice and (y) CGI shall use all reasonable efforts to
keep available the services of such of the current officers, significant
employees and consultants of CGI and the CGI Subsidiaries and to preserve the
current relationships of CGI and the CGI Subsidiaries with such of the
corporate partners, customers, suppliers and other persons with which CGI or
any CGI Subsidiary has significant business relations as CGI deems reasonably
necessary in order to preserve substantially intact its business organization.
By way of amplification and not limitation, except as set forth in Section
6.02 of the CGI Disclosure Schedule or as expressly contemplated by any other
provision of this

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Agreement and the CGI Stock Option Agreement, neither CGI nor any CGI
Subsidiary shall, between the date of this Agreement and the Effective Time,
directly or indirectly, do, or agree to do, any of the following without the
prior written consent of STC, which consent shall not be unreasonably withheld
or delayed:

(a) amend or otherwise change its certificate of incorporation or by-laws
or equivalent organizational documents;

(b) issue, sell, pledge, dispose of, grant, transfer, lease, license,
guarantee or encumber, or authorize the issuance, sale, pledge,
disposition, grant, transfer, lease, license or encumbrance of, (i) any
shares of capital stock of CGI or any CGI Subsidiary of any class, or
securities convertible into or exchangeable or exercisable for any shares
of such capital stock, or any options, warrants or other rights of any kind
to acquire any shares of such capital stock, or any other ownership
interest (including, without limitation, any phantom interest), of CGI or
any CGI Subsidiary, except for (A) issuances of CGI Common Stock pursuant
to options and warrants thereon outstanding on the date hereof and
described in Section 5.03, (B) issuances of options to new hires of CGI and
(C) issuances of options to employees, officers and directors of CGI
consistent with past practice, or (ii) any property or assets of CGI or any
CGI Subsidiary, except in the ordinary course of business consistent with
past practice and pursuant to any existing CGI Material Contract or in an
aggregate amount not in excess of $10,000,000;

(c) (i) acquire (including, without limitation, by merger, consolidation
or acquisition of stock or assets) any interest in any corporation,
partnership, other business organization or person or any division thereof
or any assets, other than acquisitions of assets (excluding the acquisition
of a business or substantially all of the stock or assets thereof) in the
ordinary course of business consistent with past practice, and any
acquisitions for consideration, calculated as of the date of execution of
the definitive agreement for any such acquisition, that is not, in the
aggregate for all such acquisitions, in excess of 10 percent of the market
value of CGI of the date of the execution of any contract related thereto;
(ii) incur any indebtedness for borrowed money or issue any debt securities
or assume, guarantee or endorse, or otherwise as an accommodation become
responsible for, the obligations of any person for borrowed money; (iii)
terminate, cancel or request any material change in, or agree to any
material change in, any CGI Material Contract or enter into any contract or
agreement material to the business, results of operations or financial
condition of CGI and the CGI Subsidiaries taken as a whole, in either case
other than in the ordinary course of business consistent with past
practice; (iv) make or authorize any capital expenditure, other than
capital expenditures in the ordinary course of business consistent with
past practice; or (v) enter into or amend any contract, agreement,
commitment or arrangement that, if fully performed, would not be permitted
under this Section 6.02(c);

(d) declare, set aside, make or pay any dividend or other distribution,
payable in cash, stock, property or otherwise, with respect to any of its
capital stock, except that any CGI Subsidiary may pay dividends or make
other distributions to CGI or any other CGI Subsidiary;

(e) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;

(f) increase the compensation payable or to become payable to its
officers or employees, except for increases in accordance with past
practices in salaries or wages of employees or officers of CGI or any CGI
Subsidiary (including, without limitation, annual merit increases and
bonuses), or grant any rights to severance or termination pay to, or enter
into any employment or severance agreement which provides benefits upon a
change in control of CGI that would be triggered by the Merger with, any
director, officer or other employee of CGI or any CGI Subsidiary who is not
currently entitled to such benefits upon the Merger, or establish, adopt,
enter into or amend any collective bargaining, bonus, profit-sharing,
thrift, compensation, stock option, restricted stock, pension, retirement,
deferred compensation, employment, termination, severance or other plan,
agreement, trust, fund, policy or arrangement for the benefit of any
director, officer or employee of CGI or any CGI Subsidiary, except to the
extent required by applicable Law or the terms of a collective bargaining
agreement;

(g) take any action with respect to accounting policies or procedures,
other than actions in the ordinary course of business consistent with past
practice or as required by U.S. GAAP;

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(h) make any tax election or settle or compromise any material federal,
state or local United States income tax liability, or any income tax
liability of any other jurisdiction, other than those made in the ordinary
course of business consistent with past practice and those for which
specific reserves have been recorded on the consolidated balance sheet of
CGI and the consolidated CGI Subsidiaries dated as of December 31, 1995
included in the 1995 CGI 10-K and only to the extent of such reserves; or

(i) authorize or enter into any formal or informal agreement or otherwise
make any commitment to do any of the foregoing.

SECTION 6.03. Cooperation; Steering Committee. Upon the execution and
delivery of this Agreement, CGI and STC shall establish a committee (the
"Steering Committee") for the purpose of, to the extent permitted by
applicable Laws, facilitating the efficient transition and combination of the
respective businesses of CGI and STC as promptly as practicable following the
Effective Time. The Steering Committee shall consist of up to 10 individuals
to be designated from time to time by the Chairman of CGI in consultation with
the Chairman of STC, and shall be chaired by CGI. The Steering Committee shall
be dissolved as of the Effective Time.

SECTION 6.04. Notices of Certain Events. Each of CGI and STC shall give
prompt notice to the other of (i) any notice or other communication from any
person alleging that the consent of such person is or may be required in
connection with the Merger; (ii) any notice or other communication from any
Governmental Entity in connection with the Merger; (iii) any actions, suits,
claims, investigations or proceedings commenced or, to its knowledge,
threatened against, relating to or involving or otherwise affecting CGI, STC,
the CGI Subsidiaries or the STC Subsidiaries that relate to the consummation
of the Merger; (iv) the occurrence of a default or event that, with the giving
of notice or lapse of time or both, will become a default under any STC
Material Contract or CGI Material Contract; and (v) any change that could
reasonably be expected to have an STC Material Adverse Effect or a CGI
Material Adverse Effect or to delay or impede the ability of either STC or CGI
to perform its obligations pursuant to this Agreement, the STC Stock Option
Agreement or the CGI Stock Option Agreement and to effect the consummation of
the Merger.

SECTION 6.05. Access to Information; Confidentiality. (a) Except as required
pursuant to any confidentiality agreement or similar agreement or arrangement
to which CGI or STC or any of the CGI Subsidiaries or the STC Subsidiaries is
a party or pursuant to applicable Law or the regulations or requirements of
any stock exchange or other regulatory organization with whose rules a party
hereto is required to comply, from the date of this Agreement to the Effective
Time, CGI and STC shall (and shall cause the CGI Subsidiaries and the STC
Subsidiaries, respectively, to) (i) provide to the other (and its officers,
directors, employees, accountants, consultants, legal counsel, agents and
other representatives (collectively, "Representatives")) access at reasonable
times upon prior notice to its and its subsidiaries' officers, employees,
agents, properties, offices and other facilities and to the books and records
thereof, and (ii) furnish promptly such information concerning its and its
subsidiaries' business, properties, contracts, assets, liabilities and
personnel as the other party or its Representatives may reasonably request. No
investigation conducted pursuant to this Section 6.05 shall affect or be
deemed to modify any representation or warranty made in this Agreement.

(b) The parties hereto shall comply with, and shall cause their respective
Representatives to comply with, all of their respective obligations under the
Confidentiality Agreement with respect to the information disclosed pursuant
to this Section 6.05.

SECTION 6.06. No Solicitation of Transactions. Each party to this Agreement
shall not, directly or indirectly, and shall instruct its officers, directors,
employees, subsidiaries, agents or advisors or other representatives
(including, without limitation, any investment banker, attorney or accountant
retained by it), not to, directly or indirectly, solicit, initiate or
knowingly encourage (including by way of furnishing nonpublic information), or
take any other action knowingly to facilitate, any inquiries or the making of
any proposal or offer (including, without limitation, any proposal or offer to
its stockholders) that constitutes, or may reasonably be expected to lead to,
any Competing Transaction, or enter into or maintain or continue discussions
or negotiate with any person in furtherance of such inquiries or to obtain a
Competing Transaction, or agree to or endorse

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any Competing Transaction, or authorize or permit any of the officers,
directors or employees of such party or any of its subsidiaries, or any
investment banker, financial advisor, attorney, accountant or other
representative retained by such party or any of such party's subsidiaries, to
take any such action; provided, however, that nothing contained in this
Section 6.06 shall prohibit the board of directors of CGI or STC from (i)
complying with Rule 14e-2 promulgated under the Exchange Act with regard to a
tender or exchange offer or (ii) after receiving the advice of outside counsel
to the effect that the board of directors of STC or CGI, as the case may be,
is required to do so in order to discharge properly its fiduciary duties,
considering, negotiating and approving and recommending to the shareholders of
STC or CGI, as the case may be, an unsolicited bona fide written acquisition
proposal which (A) was not received in violation of this Section 6.06, (B) if
executed or consummated would be a Competing Transaction, (C) is not subject
to financing and (D) the board of directors of STC or CGI, as the case may be,
determines in good faith, after consultation with its financial advisors,
would result in a transaction more favorable to STC's or CGI's stockholders,
as the case may be, than the transaction contemplated by this Agreement (any
such acquisition proposal, a "Superior Proposal"). Each party hereto shall
notify the other parties hereto promptly if any proposal or offer, or any
inquiry or contact with any person with respect thereto, regarding such an
acquisition proposal or a Competing Transaction is made. Each party hereto
immediately shall cease and cause to be terminated all existing discussions or
negotiations with any parties conducted heretofore with respect to a Competing
Transaction. None of the parties hereto shall release any third party from, or
waive any provision of, any confidentiality or standstill agreement to which
it is a party. Each party hereto shall use its best efforts to ensure that its
officers, directors, employees and subsidiaries and any investment banker or
other advisor or representative retained by such party are aware of the
restrictions described in this Section 6.06.

SECTION 6.07. Plan of Reorganization. This Agreement is intended to
constitute a "plan of reorganization" within the meaning of Section 1.368-2(g)
of the income tax regulations promulgated under the Code. From and after the
date of this Agreement, each party hereto shall use all reasonable efforts to
cause the Merger to qualify, and shall not, without the prior written consent
of the other parties hereto, knowingly take any actions or cause any actions
to be taken which could reasonably be expected to prevent the Merger from
qualifying, as a reorganization under the provisions of Section 368 of the
Code. In the event that the Merger shall fail to qualify as a reorganization
under the provisions of Section 368 of the Code, then the parties hereto agree
to negotiate in good faith to restructure the Merger in order that shall
qualify as tax-free transaction under the Code. Following the Effective Time,
and consistent with any such consent, neither the Surviving Corporation nor
CGI nor any of their respective affiliates knowingly and voluntarily shall
take any action or cause any action to be taken which could reasonably be
expected to cause the Merger to fail to qualify as a reorganization under
Section 368 of the Code.

SECTION 6.08. Subsequent Financial Statements. Prior to the Effective Time,
each of STC and CGI (i) shall consult with the other prior to making publicly
available its financial results for any period and (ii) shall consult with the
other prior to the filing of, and shall timely file with the SEC, each Annual
Report on Form10-K, Quarterly Report on Form 10-Q and Current Report on Form
8-K required to be filed by such party under the Exchange Act and shall
promptly deliver to the other copies of each such report filed with the SEC.

SECTION 6.09. Control of Operations. Nothing contained in this Agreement
shall give CGI, directly or indirectly, the right to control or direct the
operations of STC and the STC Subsidiaries prior to the Effective Time. Prior
to the Effective Time, each of CGI and STC shall exercise, consistent with the
terms and conditions of this Agreement, complete control and supervision over
its respective operations.

SECTION 6.10. Further Action; Consents; Filings. Upon the terms and subject
to the conditions hereof, each of the parties hereto shall use all reasonable
efforts to (i) take, or cause to be taken, all appropriate action, and do, or
cause to be done, all things necessary, proper or advisable under applicable
Law or otherwise to consummate and make effective the Merger, (ii) obtain from
Governmental Entities any consents, licenses, permits, waivers, approvals,
authorizations or orders required to be obtained or made by CGI, Merger Sub,
STC or the Surviving Corporation or any of their respective subsidiaries in
connection with the authorization, execution and delivery of this Agreement
and the consummation of the Merger and (iii) make all necessary

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filings, and thereafter make any other required or appropriate submissions,
with respect to this Agreement and the Merger required under (A) the rules and
regulations of the NASD, (B) the Securities Act, the Exchange Act and any
other applicable federal or state securities Laws, (C) the HSR Act, if any,
and (D) any other applicable Law. The parties hereto shall cooperate and
consult with each other in connection with the making of all such filings,
including by providing copies of all such documents to the nonfiling parties
and their advisors prior to filing, and none of the parties shall file any
such document if any of the other parties shall have reasonably objected to
the filing of such document. No party shall consent to any voluntary extension
of any statutory deadline or waiting period or to any voluntary delay of the
consummation of the Merger at the behest of any Governmental Entity without
the consent and agreement of the other parties hereto, which consent shall not
be unreasonably withheld or delayed.

ARTICLE VII

ADDITIONAL AGREEMENTS

SECTION 7.01. Registration Statement; Joint Proxy Statement. (a) As promptly
as practicable after the execution of this Agreement, CGI and STC shall
jointly prepare and STC and CGI shall file with the SEC a document or
documents that will constitute (i) the prospectus forming part of the
registration statement on Form S-4 of CGI (together with all amendments
thereto, the "Registration Statement"), in connection with the registration
under the Securities Act of the CGI Common Stock to be issued to STC's
stockholders pursuant to the Merger and (ii) the Joint Proxy Statement with
respect to the Merger relating to the special meeting of each of STC's
stockholders (the "STC Stockholders' Meeting") and CGI's stockholders (the
"CGI Stockholders' Meeting") to be held to consider approval of this Agreement
and the Merger contemplated hereby (together with any amendments thereto, the
"Joint Proxy Statement"). Copies of the Joint Proxy Statement shall be
provided to the NASD in accordance with its rules with respect to the NMS.
Each of the parties hereto shall use all reasonable efforts to cause the
Registration Statement to become effective as promptly as practicable after
this date hereof, and, prior to the effective date of the Registration
Statement, the parties hereto shall take all action required under any
applicable Laws in connection with the issuance of shares of CGI Common Stock
pursuant to the Merger. CGI or STC, as the case may be, shall furnish all
information concerning itself as the other party may reasonably request in
connection with such actions and the preparation of the Registration Statement
and Joint Proxy Statement. As promptly as practicable after the effective date
of the Registration Statement, the Joint Proxy Statement shall be mailed to
the stockholders of CGI and STC. Each of the parties hereto shall cause the
Joint Proxy Statement to comply as to form and substance in all material
respects with the applicable requirements of (i) the Exchange Act, (ii) the
Securities Act, (iii) the rules and regulations of the NASD and (iv) the
General Corporation Law.

(b) The Joint Proxy Statement shall include (i)(A) subject to the provisos
contained in the first sentence of Section 6.06, the approval of the Merger
and the STC Amendment and recommendation of the board of directors of STC to
the stockholders of STC that they vote in favor of approval of this Agreement
and the Merger contemplated hereby and the STC Amendment, and (B) the opinion
of DLJ referred to in Section 4.18, and (ii)(A) subject to the provisos
contained in the first sentence of Section 6.06, the approval of the Merger
and the CGI Amendment and recommendation of the board of directors of CGI to
the stockholders of CGI that they vote in favor of approval of this Agreement
and the Merger contemplated hereby and the CGI Amendment, and (B) the opinion
of Lehman Brothers referred to in Section 5.18.

(c) No amendment or supplement to the Joint Proxy Statement or the
Registration Statement shall be made without the approval of CGI and STC,
which approval shall not be unreasonably withheld or delayed. Each of the
parties hereto shall advise the other parties hereto, promptly after it
receives notice thereof, of the time when the Registration Statement has
become effective or any supplement or amendment has been filed, of the
issuance of any stop order, of the suspension of the qualification of the CGI
Common Stock issuable in connection with the Merger for offering or sale in
any jurisdiction, or of any request by the SEC or the NASD for amendment of
the Joint Proxy Statement or the Registration Statement or comments thereon
and responses thereto or requests by the SEC for additional information.

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(d) The information supplied by STC for inclusion in the Registration
Statement and the Joint Proxy Statement shall not, at (i) the time the
Registration Statement is filed with the SEC, (ii) if different, the time the
Registration Statement is declared effective, (iii) the time the Joint Proxy
Statement (or any amendment thereof or supplement thereto) is first mailed to
the stockholders of STC and CGI, (iv) the time of the STC Stockholders'
Meeting, (v) the time of the CGI Stockholders' Meeting and (vi) the Effective
Time, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. If at any time prior to the Effective Time any event or
circumstance relating to STC or any STC Subsidiary, or their respective
officers or directors, should be discovered by STC that should be set forth in
an amendment or a supplement to the Registration Statement or Joint Proxy
Statement, STC shall promptly inform CGI. All documents that STC is
responsible for filing with the SEC in connection with the Merger will comply
as to form in all material respects with the applicable requirements of the
rules and regulations of the NASD, the General Corporation Law, the Securities
Act and the Exchange Act.

(e) The information supplied by CGI for inclusion in the Registration
Statement and the Joint Proxy Statement shall not, at (i) the time the
Registration Statement is filed with the SEC, (ii) if different, the time the
Registration Statement is declared effective, (iii) the time the Joint Proxy
Statement (or any amendment thereof or supplement thereto) is first mailed to
the stockholders of CGI and STC, (iv) the time of the STC Stockholders'
Meeting, (v) the time of the CGI Stockholders' Meeting and (vi) the Effective
Time, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. If, at any time prior to the Effective Time, any event or
circumstance relating to CGI or any CGI Subsidiary, or their respective
officers or directors, should be discovered by CGI that should be set forth in
an amendment or a supplement to the Registration Statement or Joint Proxy
Statement, CGI shall promptly inform STC. All documents that CGI is
responsible for filing with the SEC in connection with the Merger will comply
as to form in all material respects with the applicable requirements of the
rules and regulations of the NASD, the General Corporation Law, the Securities
Act and the Exchange Act.

SECTION 7.02. Stockholders' Meetings. STC shall call and hold the STC
Stockholders' Meeting and CGI shall call and hold the CGI Stockholders'
Meeting as promptly as practicable after the date hereof for the purpose of
voting upon the approval of this Agreement pursuant to the Joint Proxy
Statement and the Merger contemplated hereby, and each of CGI and STC shall
use all reasonable efforts to hold the CGI Stockholders' Meeting and the STC
Stockholders' Meeting on the same day and as soon as practicable after the
date on which the Registration Statement becomes effective. STC shall use all
reasonable efforts to solicit from its stockholders proxies in favor of the
approval of this Agreement and the Merger contemplated hereby and the
Amendment pursuant to the Joint Proxy Statement and shall take all other
action necessary or advisable to secure the vote or consent of stockholders
required by the General Corporation Law or applicable stock exchange
requirements to obtain such approval. CGI shall use all reasonable efforts to
solicit from its stockholders proxies in favor of the approval of this
Agreement and the Merger contemplated hereby pursuant to the Joint Proxy
Statement, and shall take all other action necessary or advisable to secure
the vote or consent of stockholders required by the General Corporation Law or
applicable stock exchange requirements to obtain such approval. Each of the
parties hereto shall take all other action necessary or, in the opinion of the
other parties hereto, advisable to promptly and expeditiously secure any vote
or consent of stockholders required by applicable Law and such party's
certificate of incorporation and by-laws to effect the Merger.

SECTION 7.03. Affiliates. (a) Not fewer than 45 days prior to the Effective
Time, STC shall deliver to CGI a list of names and addresses of each person
who was, in STC's reasonable judgment, at the record date for the STC
Stockholders' Meeting, an affiliate of STC. STC shall provide CGI such
information and documents as CGI shall reasonably request for purposes of
reviewing such list. STC shall use all reasonable efforts to deliver or cause
to be delivered to CGI, prior to the Effective Time, an affiliate agreement in
the form attached hereto as Exhibit 7.03(a) (each, an "STC Affiliate
Agreement"), executed by each of the affiliates of STC identified in the
above-referenced list. The foregoing notwithstanding, CGI shall be entitled to
place legends as specified in the form of STC Affiliate Agreement on the
certificates evidencing any of the CGI Common Stock to be received by

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(i) any affiliate of STC or (ii) any person CGI reasonably identifies (by
written notice to STC) as being a person who may be deemed an "affiliate"
within the meaning of Rule 145 promulgated under the Securities Act, and to
issue appropriate stop transfer instructions to the transfer agent for such
CGI Common Stock, consistent with the terms of the form of STC Affiliate
Agreement, regardless of whether such person has executed an STC Affiliate
Agreement and regardless of whether such person's name and address appear on
Section 4.16 of the STC Disclosure Schedule.

(b) CGI shall use all reasonable efforts to obtain or cause to be obtained,
prior to the Effective Time, an affiliate agreement in the form attached
hereto as Exhibit 7.03(b) (each, a "CGI Affiliate Agreement"), executed by
each person who was, in CGI's reasonable judgment, at the record date for the
CGI Stockholders' Meeting, an affiliate of CGI.

SECTION 7.04. Directors' and Officers' Indemnification and
Insurance. (a) The certificate of incorporation and by-laws of the Surviving
Corporation shall contain provisions no less favorable with respect to
indemnification than are set forth in the certificate of incorporation and by-
laws of STC on the date hereof, which provisions shall not be amended,
repealed or otherwise modified for a period of six years from the Effective
Time in any manner that would affect adversely the rights thereunder of
individuals who at the Effective Time were directors, officers, employees,
fiduciaries or agents of STC, unless such modification shall be required by
law.

(b) STC shall, to the fullest extent permitted under applicable law and
regardless of whether the Merger shall become effective, indemnify and hold
harmless, and, after the Effective Time, the Surviving Corporation shall, to
the fullest extent permitted under applicable law, indemnify and hold
harmless, each present and former director, officer, employee, fiduciary and
agent of STC and each STC Subsidiary (collectively, the "Indemnified Parties")
against all costs and expenses (including attorneys' fees), judgments, fines,
losses, claims, damages, liabilities and settlement amounts paid in connection
with any claim, action, suit, proceeding or investigation (whether arising
before or after the Effective Time), whether civil, criminal, administrative
or investigative, arising out of or pertaining to any action or omission in
their capacity as an officer, director, employee, fiduciary or agent, whether
occurring before or after the Effective Time, for a period of six years after
the date hereof. In the event of any such claim, action, suit, proceeding or
investigation, (i) STC or the Surviving Corporation, as the case may be, shall
pay the reasonable fees and expenses of counsel selected by the Indemnified
Parties, which counsel shall be reasonably satisfactory to STC or the
Surviving Corporation, promptly after statements therefor are received and
(ii) STC and the Surviving Corporation shall cooperate in the defense of any
such matter; provided, however, that neither STC nor the Surviving Corporation
shall be liable for any settlement effected without its written consent (which
consent shall not be unreasonably withheld); provided further that neither STC
nor the Surviving Corporation shall be obligated pursuant to this Section
7.04(b) to pay the fees and expenses of more than one counsel for all
Indemnified Parties in any single action; provided further that, in the event
that any claim for indemnification is asserted or made within such six-year
period, all rights to indemnification in respect of such claim shall continue
until the disposition of such claim.

(c) The Surviving Corporation shall use all reasonable efforts to maintain
in effect for three years from the Effective Time, if available, the current
directors' and officers' liability insurance policies maintained by STC
(provided that the Surviving Corporation may substitute therefor policies of
at least the same coverage containing terms and conditions which are not
materially less favorable) with respect to matters occurring prior to the
Effective Time; provided, however, that in no event shall the Surviving
Corporation be required to expend pursuant to this Section 7.04(c) more than
an amount per year equal to 125% of current annual premiums paid by STC for
such insurance.

(d) In the event STC or the Surviving Corporation or any of their respective
successors or assigns (i) consolidates with or merges into any other person
and shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person, then, and in each such case, proper
provision shall be made so that the successors and assigns of STC or the
Surviving Corporation, as the case may be, or at CGI's option, CGI, shall
assume the obligations set forth in this Section 7.04.

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SECTION 7.05. No Shelf Registration. CGI shall not be required to amend or
maintain the effectiveness of the Registration Statement for the purpose of
permitting resale of the shares of CGI Common Stock received pursuant hereto
by the persons who may be deemed to be "affiliates" of STC or CGI within the
meaning of Rule 145 promulgated under the Securities Act.

SECTION 7.06. Public Announcements. The initial press release concerning the
Merger shall be a joint press release and, thereafter, CGI and STC shall
consult with each other before issuing any press release or otherwise making
any public statements with respect to this Agreement or the Merger and shall
not issue any such press release or make any such public statement without the
prior written approval of the other, except to the extent required by
applicable Law or the requirements of the rules and regulations of the NASD,
in which case the issuing party shall use all reasonable efforts to consult
with the other party before issuing any such release or making any such public
statement.

SECTION 7.07. Officers and Directors of CGI. (a) At the Effective Time,
subject to the certificate of incorporation and by-laws of CGI, Stephen A.
Sherwin, M.D. shall continue to hold the offices of Chairman, President and
Chief Executive Officer of CGI.

(b) Immediately after the Effective Time, the total number of persons
serving on the board of directors of CGI shall be nine (unless otherwise
agreed in writing by STC and CGI prior to the Effective Time), and shall
consist of the following individuals:

David W. Carter
James M. Gower
Raju S. Kucherlapati, Ph.D.
Joseph E. Maroun
John T. Potts, Jr., M.D.
Thomas E. Shenk, Ph.D.
Stephen A. Sherwin, M.D.
Eugene L. Step
Inder M. Verma, Ph.D.

In the event that, prior to the Effective Time, any person so selected to
serve on the board of directors of CGI is unable or unwilling to serve in such
position, the party with which such person was affiliated prior to the date
hereof shall designate another person to serve in such person's stead in
accordance with the provisions of the immediately preceding sentence; provided
that any such designee shall be reasonably satisfactory to each of CGI and
STC. From and after the Effective Time, the composition of the board of
directors shall be determined in accordance with the certificate of
incorporation and by-laws of CGI.

SECTION 7.08. NMS Listing. Each of the parties hereto shall use all
reasonable efforts to obtain, prior to the Effective Time, the approval for
listing on the NMS, effective upon official notice of issuance, of the shares
of CGI Common Stock into which the shares of STC Capital Stock will be
converted pursuant to Article III.

SECTION 7.09. Blue Sky. Each of the parties hereto shall use all reasonable
efforts to obtain, prior to the Effective Time, all necessary blue sky permits
and approvals required under Blue Sky Laws to permit the distribution of the
shares of CGI Common Stock to be issued in accordance with the provisions of
this Agreement.

SECTION 7.10. STC Stock Options. At the Effective Time, CGI shall assume, by
virtue of this Agreement and without any further action on the part of STC,
all of STC's obligations with respect to each outstanding STC Stock Option,
whether vested or unvested. STC shall take all corporate action necessary to
ensure that, unless otherwise elected by CGI prior to the Effective Time, CGI
shall make such assumption in such manner that CGI (i) is a corporation
"assuming a stock option in a transaction to which Section 424(a) applies"
within the meaning of Section 424 of the Code or (ii) to the extent that
Section 424 of the Code does not apply to such STC Stock Option, would be such
a corporation were Section 424 of the Code applicable to such STC Stock
Option; and, if not so otherwise elected, after the Effective Time, all
references to STC in the STC Stock Plans

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and the applicable STC Stock Option agreements shall be deemed to refer to
CGI, which shall have assumed the STC Stock Plans as of the Effective Time by
virtue of this Agreement and without any further action on the part of STC or
CGI. Each STC Stock Option so assumed by CGI under this Agreement shall
continue to have, and be subject to, the same terms and conditions set forth
in the applicable STC Stock Plan and the applicable STC Stock Option as in
effect immediately prior to the Effective Time, except as otherwise provided
in Section 3.05. CGI shall use all reasonable efforts to ensure that the STC
Stock Options intended to qualify as incentive stock options under Section 422
of the Code prior to the Effective Time continue to so qualify after the
Effective Time. As soon as practicable after the Effective Time, CGI shall
file with the SEC and use its best efforts to have declared effective a
registration statement on Form S-8 with respect to the shares of CGI Common
Stock issuable under the assumed STC Stock Plans.

SECTION 7.11. [INTENTIONALLY LEFT BLANK]

SECTION 7.12. Bridge Facility. (a) Pursuant to Section 6.01(b), STC is
prohibited from, among other things, exercising the Fletcher Put Options.

(b) During the term of this Agreement, STC shall promptly notify CGI if the
Projected Cash Balances are (i) then forecast by senior management of STC to
fall below $5,000,000 within 30 days or (ii) then below $5,000,000. Such
notice (a "Liquidity Notice") shall include, without limitation, the date on
which the Projected Cash Balances are forecast to fall below $5,000,000. STC
shall use all reasonable efforts to prevent the Actual Balances from falling
below $5,000,000. STC shall borrow under the Bridge Facility to prevent the
Actual Balances from falling below $5,000,000.

(c) Upon receipt of a Liquidity Notice from STC and so long as a Commitment
Termination Event shall not have occurred which reduces the then available
Bridge Facility amount to $0.00, if so requested by STC, CGI shall lend STC
funds under the Bridge Facility as provided in subsection (d) of this Section
7.12 in increments of $50,000. All funds provided to STC under the Bridge
Facility shall be used solely to fund ordinary and necessary operating
expenses in accordance with the then current Operating Budget.

(d) In the event that STC elects or is required to borrow funds pursuant to
subsection (c) of this Section 7.12 and provided that no Commitment
Termination Event shall have occurred which reduces the then available Bridge
Facility amount to $0.00, CGI shall, upon the terms and subject to the
conditions set forth herein and in the Bridge Facility Promissory Note, make
advances (the "Advances") to STC at such times as are reasonably requested
until the earlier to occur of (i) the date on which the then available Bridge
Facility amount equals $0.00 and (ii) June 30, 1997 in an aggregate principal
amount not to exceed at any time outstanding $5,000,000. Each Advance shall be
in an amount of $50,000 or an integral multiple of $50,000 in excess thereof.
Each Advance shall be made upon notice (which notice may be included in a
Liquidity Notice) given by STC to CGI not later than 11:00 a.m. San Francisco
time on the second business day prior to the date of the proposed Advance.
Such notice shall specify the date and amount of the proposed Advance and
identify its intended usage. Not later than 2:00 p.m. San Francisco time on
the date of such Advance and upon fulfillment of the applicable conditions set
forth in subsection (e) of this Section 7.12, CGI shall make such Advance
available to STC in same day funds at STC's address specified above.

(e) (i) The obligation of CGI to make its initial Advance under the Bridge
Facility shall be subject to the conditions precedent that CGI shall have
received, on or before the day of such initial Advance, (A) a certificate of
the Secretary or an Assistant Secretary of STC dated the day of such initial
Advance, in form and substance satisfactory to CGI, certifying (1) copies of
the resolutions of the board of directors of STC approving the Bridge Facility
Promissory Note, and of all documents evidencing other necessary corporate
action and governmental approvals, if any, with respect to the Bridge Facility
Promissory Note, and (2) the names and true signatures of the officers of STC
authorized to sign the Bridge Facility Promissory Note and the other documents
to be delivered hereunder; and (B) a counterpart executed by Somatix of the
security agreement in the form previously agreed between the parties, pursuant
to which Somatix shall grant Cell Genesys a security interest in certain
Somatix intellectual property to secure the indebtedness at any time
outstanding under the Bridge Facility.

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(ii) The obligation of CGI to make each Advance (including the initial
Advance) shall be subject to the further conditions precedent that (A) this
Agreement shall have been executed and delivered by the parties hereto and
shall be in full force and effect; (B) the representations and warranties
contained in the Bridge Facility Promissory Note shall be, and CGI shall have
received a certificate signed by a duly authorized officer of STC, dated the
date of such Advance, certifying that such representations and warranties are,
true, complete and correct in all material respects on and as of the date of
such Advance, before and after giving effect to such Advance and to the
application of the proceeds therefrom, as though made on and as of such date;
(C) no event shall have occurred and be continuing, or be reasonably likely to
result from such Advance or from the application of the proceeds therefrom,
which constitutes an Event of Default or would constitute an Event of Default
but for the requirement that notice be given or time elapse or both; and (D)
CGI shall have received a certificate signed by a duly authorized officer of
STC, dated the date of such Advance, certifying the then Projected Cash
Balances and Actual Cash Balances.

(f) STC shall, in consultation with the Steering Committee, revise the
Projected Cash Balances and the Operating Budget from time to time, but in no
event less frequently than monthly; provided, however, that in the event STC
delivers to CGI a revised Operating Budget materially adversely different than
the Operating Budget delivered on the date hereof without the prior written
consent of CGI, CGI's obligations under the Bridge Facility shall be suspended
until such time as the parties hereto agree to a revised Operating Budget.

SECTION 7.13. Audited Financial Statements. As soon as practicable after the
date hereof or, in the case of the fiscal quarter of STC ending March 31,
1997, as soon as practicable after March 31, 1997 if CGI does not then
reasonably expect the Effective Time to occur within 45 days of such date, STC
shall cause its independent certified public accountants to prepare and audit
balance sheets of STC at and as of December 31, 1996 and March 31, 1997,
respectively, and related statements of income, retained earnings,
shareholders' equity and changes in financial position of STC for the six-
month period ended December 31, 1996 and the nine-month period ending March
31, 1997, respectively, and to render its unqualified report thereon. Within
one business day of receipt of the above described audited consolidated
financial statements of STC, STC shall deliver to CGI true, complete and
correct copies of such financial statements, together with the auditor's
reports thereon.

SECTION 7.14. Additional Debt. (a) Notwithstanding the restrictions
contained in Section 6.01 and the provisions of the Bridge Facility referred
to in Section 7.12, STC may incur indebtedness in addition to that in effect
on the date hereof in a principal amount not in excess of $2,000,000 if, and
only if, the following conditions shall have been satisfied to the reasonable
satisfaction of CGI on or prior to the date of incurrence of such additional
indebtedness (a transaction meeting all of the following conditions being
referred to as a "Permitted Financing"):

(i) STC shall have given CGI not fewer than two business days' notice of
its intention to enter into an agreement to incur any additional
indebtedness;

(ii) such additional indebtedness shall be unsecured;

(iii) any shares of STC Capital Stock (or warrants, options or similar
securities convertible into or exchangeable for STC Capital Stock) issued
in connection with such additional indebtedness will, by their terms, be
converted into shares of CGI Common Stock pursuant to the Merger; and

(iv) the other terms and conditions thereof shall be reasonably
satisfactory to CGI; provided that any term that creates any right
whatsoever in any asset or property of STC, or any ongoing obligation or
liability on STC or CGI after repayment in full of such additional
indebtedness, shall be conclusively not satisfactory.

(b) All funds provided to STC under any Permitted Financing shall be used
solely to fund ordinary and necessary operating expenses in accordance with
the then current Operating Budget.

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ARTICLE VIII

CONDITIONS TO THE MERGER

SECTION 8.01. Conditions to the Obligations of Each Party to Consummate the
Merger. The obligations of the parties hereto to consummate the Merger, or to
permit the consummation of the Merger, are subject to the satisfaction or, if
permitted by applicable Law, waiver of the following conditions:

(a) the Registration Statement shall have been declared effective by the
SEC under the Securities Act and no stop order suspending the effectiveness
of the Registration Statement shall have been issued by the SEC and no
proceeding for that purpose shall have been initiated by the SEC and not
concluded or withdrawn;

(b) (i) this Agreement and the Merger shall have been duly approved by
the requisite vote of the stockholders of each of STC and CGI and (ii) the
CGI Amendment shall have been duly approved by the requisite vote of the
stockholders of CGI, in each case in accordance with the General
Corporation Law;

(c) no court of competent jurisdiction shall have issued or entered any
order, writ, injunction or decree, and no other Governmental Entity shall
have issued any order, which is then in effect and has the effect of making
the Merger illegal or otherwise prohibiting its consummation;

(d) any waiting period (and any extension thereof) applicable to the
consummation of the Merger under the HSR Act or any other applicable
competition, merger control or similar Law shall have expired or been
terminated;

(e) all consents, approvals and authorizations legally required to be
obtained to consummate the Merger shall have been obtained from all
Governmental Entities, except where the failure to obtain any such consent,
approval or authorization could not reasonably be expected to result in a
change in or have an effect on the business of STC or CGI that is
materially adverse to the business, assets (including intangible assets),
liabilities (contingent or otherwise), condition (financial or otherwise)
or results of operations of CGI and its subsidiaries, taken as a whole; and

(f) the shares of CGI Common Stock into which the shares of STC Capital
Stock will be converted pursuant to Article III and the shares of CGI
Common Stock issuable upon the exercise of options pursuant to Section 3.05
shall have been authorized for listing on the NMS, subject to official
notice of issuance.

SECTION 8.02. Conditions to the Obligations of STC. The obligations of STC
to consummate the Merger, or to permit the consummation of the Merger, are
subject to the satisfaction or, if permitted by applicable Law, waiver of the
following further conditions:

(a) each of the representations and warranties of CGI contained in this
Agreement that is qualified by materiality shall be true, complete and
correct at and as of the Effective Time as if made at and as of such time
(other than representations and warranties which address matters only as of
a certain date which shall be true, complete and correct as of such certain
date) and each of the representations and warranties that is not so
qualified shall be true, complete and correct in all material respects at
and as of the Effective Time as if made at and as of such time (other than
representations and warranties which address matters only as of a certain
date which shall be true, complete and correct in all material respects as
of such certain date), in each case except as contemplated or permitted by
this Agreement, and STC shall have received a certificate of the Chairman
or President and Chief Financial Officer of CGI to such effect;

(b) CGI shall have performed or complied in all material respects with
all material agreements and covenants required by this Agreement to be
performed or complied with by it on or prior to the Effective Time and STC
shall have received a certificate of the Chairman or President and Chief
Financial Officer of CGI to that effect; and

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<PAGE>

(c) Brobeck, Phleger & Harrison, special counsel to STC, shall have
issued its opinion, such opinion dated on or about the date of the Closing,
addressed to STC, and reasonably satisfactory to it, based upon customary
representations of STC and customary assumptions (including delivery and
non-withdrawal of the opinion referred to in subsection (c) of Section
8.03), to the effect that the Merger will be treated for federal income tax
purposes as a reorganization qualifying under the provisions of Section 368
of the Code and that each of STC, Merger Sub and CGI will be a party to the
reorganization within the meaning of Section 368(b) of the Code, which
opinions shall not have been withdrawn or modified in any material respect.

SECTION 8.03. Conditions to the Obligations of CGI. The obligations of CGI
to consummate the Merger, or to permit the consummation of the Merger, are
subject to the satisfaction or, if permitted by applicable Law, waiver of the
following further conditions:

(a) each of the representations and warranties of STC contained in this
Agreement that is qualified by materiality shall be true, complete and
correct at and as of the Effective Time as if made at and as of such time
(other than representations and warranties which address matters only as of
a certain date which shall be true, complete and correct as of such certain
date) and each of the representations and warranties that is not so
qualified shall be true, complete and correct in all material respects at
and as of the Effective Time as if made at and as of such time (other than
representations and warranties which address matters only as of a certain
date which shall be true, complete and correct in all material respects as
of such certain date), in each case except as contemplated or permitted by
this Agreement, and CGI shall have received a certificate of the Chairman
or President and Chief Financial Officer of STC to such effect;

(b) STC shall have performed or complied in all material respects with
all material agreements and covenants required by this Agreement to be
performed or complied with by it on or prior to the Effective Time and CGI
shall have received a certificate of the Chairman or President and Chief
Financial Officer of STC to that effect;

(c) Shearman & Sterling, special counsel to CGI, shall have issued its
opinion, such opinion dated on or about the date of the Closing, addressed
to CGI, and reasonably satisfactory to it, based upon customary
representations of CGI and customary assumptions (including delivery and
non-withdrawal of the opinion referred to in subsection (c) of Section
8.02), to the effect that the Merger will be treated for federal income tax
purposes as a reorganization qualifying under the provisions of Section 368
of the Code and that each of CGI, Merger Sub and STC will be a party to the
reorganization within the meaning of Section 368(b) of the Code, which
opinions shall not have been withdrawn or modified in any material respect;

(d) the STC Amendment shall have been duly approved by the requisite vote
of the stockholders of STC in accordance with the General Corporation Law;

(e) STC shall have executed and delivered the Bridge Facility Promissory
Note; and

(f) the holder(s) of the Fletcher Warrant shall have elected pursuant to
the Fletcher Notice and in accordance with Section 10 of the Fletcher
Warrant either (i) to resell the Fletcher Warrant to STC for cash or (ii)
to permit CGI to assume the Fletcher Warrant pursuant to Section 3.05;
provided, however, that any disagreement between STC and Fletcher as to the
cash amount so required to be paid shall not constitute a failure of this
condition.

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<PAGE>

ARTICLE IX

TERMINATION, AMENDMENT AND WAIVER

SECTION 9.01. Termination. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time, notwithstanding any
requisite adoption and approval of this Agreement, as follows:

(a) by mutual written consent duly authorized by the boards of directors
of each of CGI and STC;

(b) by either CGI or STC, if the Effective Time shall not have occurred
on or before August 31, 1997; provided, however, that the right to
terminate this Agreement under this Section 9.01(b) shall not be available
to any party whose failure to fulfill any obligation under this Agreement
shall have caused, or resulted in, the failure of the Effective Time to
occur on or before such date;

(c) by either CGI or STC, if any Governmental Order, writ, injunction or
decree preventing the consummation of the Merger shall have been entered by
any court of competent jurisdiction and shall have become final and
nonappealable;

(d) by CGI, if (i) the board of directors of STC withdraws, modifies or
changes its recommendation of this Agreement, the Merger or the Amendment
in a manner adverse to CGI or its stockholders or shall have resolved to do
so, (ii) the board of directors of STC shall have recommended to the
stockholders of STC a Competing Transaction or shall have resolved to do so
or (iii) a tender offer or exchange offer for 15 percent or more of the
outstanding shares of capital stock of STC shall have been commenced and
the board of directors of STC shall have failed to recommend against
acceptance of such tender offer or exchange offer by its stockholders
(including by taking no position with respect to the acceptance of such
tender offer or exchange offer by its stockholders);

(e) by STC, if (i) the board of directors of CGI withdraws, modifies or
changes its recommendation of this Agreement or the Merger in a manner
adverse to STC or its stockholders or shall have resolved to do so, (ii)
the board of directors of CGI shall have recommended to the stockholders of
CGI a Competing Transaction or shall have resolved to do so or (iii) a
tender offer or exchange offer for 15 percent or more of the outstanding
shares of capital stock of CGI shall have been commenced and the board of
directors of CGI shall have failed to recommend against acceptance of such
tender offer or exchange offer by its stockholders (including by taking no
position with respect to the acceptance of such tender offer or exchange
offer by its stockholders);

(f) by CGI or STC, if (i) this Agreement and the Merger shall fail to
receive the requisite votes for approval at the STC Stockholders' Meeting
or any adjournment or postponement thereof or (ii) if this Agreement and
the Merger shall fail to receive the requisite votes for approval at the
CGI Stockholders' Meeting or any adjournment or postponement thereof;

(g) by CGI, upon a breach of any representation, warranty, covenant or
agreement on the part of STC set forth in this Agreement, or if any
representation or warranty of STC shall have become untrue, incomplete or
incorrect, in either case such that the conditions set forth in Section
8.03 would not be satisfied (a "Terminating STC Breach"); provided,
however, that, if such Terminating STC Breach is curable by STC through the
exercise of its reasonable efforts within 60 days and for so long as STC
continues to exercise such reasonable efforts, CGI may not terminate this
Agreement under this Section 9.01(g); and provided further that the
preceding proviso shall not in any event be deemed to extend any date set
forth in paragraph (b) of this Section 9.01;

(h) by STC, upon breach of any representation, warranty, covenant or
agreement on the part of CGI set forth in this Agreement, or if any
representation or warranty of CGI shall have become untrue, incomplete or
incorrect, in either case such that the conditions set forth in Section
8.02 would not be

A-37
<PAGE>

satisfied (a "Terminating CGI Breach"); provided, however, that, if such
Terminating CGI Breach is curable by CGI through the exercise of its
reasonable efforts within 60 days and for so long as CGI continues to
exercise such reasonable efforts, STC may not terminate this Agreement
under this Section 9.01(h); and provided further that the preceding proviso
shall not in any event be deemed to extend any date set forth in paragraph
(b) of this Section 9.01;

(i) by STC, if (A) the board of directors of STC shall have resolved to
accept, accepted or recommended to the shareholders of STC, a Superior
Proposal, and (B) in the case of the termination of this Agreement under
this Section 9.01(i) by STC, STC shall have paid to CGI all amounts owing
by STC to CGI under Section 9.05(b); and

(j) by CGI, if (A) the board of directors of CGI shall have resolved to
accept, accepted or recommended to the shareholders of CGI, a Superior
Proposal, and (B) in the case of the termination of this Agreement under
this Section 9.01(j) by CGI, CGI shall have paid to STC all amounts owing
by CGI to STC under Section 9.05(c).

SECTION 9.02. Effect of Termination. Except as provided in Section 9.05, in
the event of termination of this Agreement pursuant to Section 9.01, this
Agreement shall forthwith become void, there shall be no liability under this
Agreement on the part of CGI or STC or any of their respective officers or
directors, and all rights and obligations of each party hereto shall cease,
subject to the remedies of the parties hereto set forth in Section 9.05(b),
(c), (d) and (e); provided, however, that nothing herein shall relieve any
party hereto from liability for the willful or intentional breach of any of
its representations and warranties or the willful or intentional breach of any
of its covenants or agreements set forth in this Agreement.

SECTION 9.03. Amendment. This Agreement may be amended by the parties hereto
by action taken by or on behalf of their respective boards of directors at any
time prior to the Effective Time; provided, however, that, after the approval
of this Agreement by the stockholders of STC or CGI, as the case may be, no
amendment may be made, except such amendments as have received the requisite
stockholder approval and such amendments as are permitted to be made without
stockholder approval under the General Corporation Law. This Agreement may not
be amended except by an instrument in writing signed by the parties hereto.

SECTION 9.04. Waiver. At any time prior to the Effective Time, any party
hereto may (a) extend the time for or waive compliance with the performance of
any obligation or other act of any other party hereto or (b) waive any
inaccuracy in the representations and warranties contained herein or in any
document delivered pursuant hereto. Any such extension or waiver shall be
valid if set forth in an instrument in writing signed by the party or parties
to be bound thereby.

SECTION 9.05. Expenses. (a) Except as set forth in this Section 9.05, all
Expenses incurred in connection with this Agreement, the STC Stock Option
Agreement, the CGI Stock Option Agreement and the Merger shall be paid by the
party incurring such Expenses, whether or not the Merger is consummated,
except that CGI and STC each shall pay one-half of all Expenses incurred
solely for printing, filing and mailing the Registration Statement and the
Joint Proxy Statement and all SEC and other regulatory filing fees incurred in
connection with the Registration Statement and the Joint Proxy Statement and
any fees required to be paid under the HSR Act.

(b) In the event that CGI shall terminate this Agreement pursuant to Section
9.01(d), (f)(i) or (g), or STC shall terminate this Agreement pursuant to
Section 9.01(f)(i) or (i), then STC shall pay to CGI an amount equal to
$3,000,000 plus all of CGI's Expenses.

(c) In the event that STC shall terminate this Agreement pursuant to Section
9.01(e), (f)(ii) or (h) or CGI shall terminate this Agreement pursuant to
Section 9.01(f)(ii) or (j), CGI shall pay to STC an amount equal to $3,000,000
plus all of STC's Expenses.

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<PAGE>

(d) Any payment required to be made pursuant to Section 9.05(b) or (c) shall
be made to the party entitled to receive such payment not later than two
business days after delivery to the other party of notice of demand for
payment and shall be made by wire transfer of immediately available funds to
an account designated by the party entitled to receive payment in the notice
of demand for payment delivered pursuant to this Section 9.05(d); provided,
however, that, in the event both CGI and STC would otherwise be entitled to
payments under this Section 9.05 in connection with the termination of this
Agreement pursuant to both Sections 9.01(f)(i) and (f)(ii), neither party
shall be required to make any payment under this Section 9.05.

(e) In the event that CGI or STC, as the case may be, shall fail timely to
make any payment on Expense reimbursement required to be made pursuant to
Section 9.05(b) or (c), the amount of any such required payment on Expense
reimbursement shall be increased to include the costs and expenses actually
incurred or accrued by the other (including, without limitation, fees and
expenses of counsel) in connection with the collection under and enforcement
of this Section 9.05, together with interest on such unpaid Expense
reimbursement, commencing on the date that such Expense reimbursement became
due, at a rate equal to the rate of interest publicly announced by Citibank,
N.A., from time to time, in The City of New York, from time to time, as such
bank's base rate plus 3.00 percent per annum.

ARTICLE X

GENERAL PROVISIONS

SECTION 10.01. Non-Survival of Representations and Warranties. The
representations and warranties in this Agreement shall terminate at the
Effective Time or upon the termination of this Agreement pursuant to Section
9.01, as the case may be. Each party agrees that, except for the
representations and warranties contained in this Agreement and the CGI
Disclosure Schedule and the STC Disclosure Schedule, no party hereto has made
any other representations and warranties, and each party hereby disclaims any
other representations and warranties made by itself or any of its officers,
directors, employees, agents, financial and legal advisors or other
representatives, with respect to the execution and delivery of this Agreement
or the Merger contemplated herein, notwithstanding the delivery or disclosure
to any other party or any party's representatives of any documentation or
other information with respect to any one or more of the foregoing.

SECTION 10.02. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by
telecopy or facsimile, by registered or certified mail (postage prepaid,
return receipt requested) or by a nationally recognized courier service to the
respective parties at their addresses set forth on the signature pages to this
Agreement (or at such other address for a party as shall be specified in a
notice given in accordance with this Section 10.02).

SECTION 10.03. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of
Law or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the Merger is not affected in any manner materially adverse
to any party. Upon such determination that any term or other provision is
invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner
to the fullest extent permitted by applicable Law in order that the Merger may
be consummated as originally contemplated to the fullest extent possible.

SECTION 10.04. Assignment; Binding Effect; Benefit. Neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto (whether by operation of Law or otherwise) without
the prior written consent of the other parties hereto. Subject to the
preceding sentence, this Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and
permitted assigns. Notwithstanding anything contained in this Agreement to the
contrary, other than Section 7.06, nothing in this Agreement, expressed or
implied, is intended to confer on any person other than the parties hereto or
their respective successors and permitted assigns any rights or remedies under
or by reason of this Agreement.

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<PAGE>

SECTION 10.05. Incorporation of Exhibits. The CGI Disclosure Schedule, the
STC Disclosure Schedule and all Exhibits attached hereto and referred to
herein are hereby incorporated herein and made a part of this Agreement for
all purposes as if fully set forth herein.

SECTION 10.06. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement
were not performed in accordance with the terms hereof and that the parties
shall be entitled to specific performance of the terms hereof, in addition to
any other remedy at law or in equity.

SECTION 10.07. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE,
WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS.

SECTION 10.08. Waiver of Jury Trial. EACH PARTY HERETO HEREBY IRREVOCABLY
WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY PROCEEDING (WHETHER BASED ON
CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR
ANY TRANSACTION OR AGREEMENT CONTEMPLATED HEREBY OR THE ACTIONS OF ANY PARTY
HERETO IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE OR ENFORCEMENT HEREOF.

SECTION 10.09. Headings. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect
in any way the meaning or interpretation of this Agreement.

SECTION 10.10. Counterparts. This Agreement may be executed and delivered
(including by facsimile transmission) in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when executed
and delivered shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.

SECTION 10.11. Entire Agreement. This Agreement (including the Exhibits, the
CGI Disclosure Schedule and the STC Disclosure Schedule), the STC Stock Option
Agreement and the CGI Stock Option Agreement constitute the entire agreement
among the parties with respect to the subject matter hereof and supersede all
prior agreements and understandings among the parties with respect thereto. No
addition to or modification of any provision of this Agreement shall be
binding upon any party hereto unless made in writing and signed by all parties
hereto.

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<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above by their respective officers
thereunto duly authorized.

CELL GENESYS, INC.

By: /s/ Stephen A. Sherwin
___________________________________
Stephen A. Sherwin, M.D.
Chairman of the Board, President
and Chief Executive Officer

342 Lakeside Drive
Foster City, California 94404
Telephone: (415) 358-9600
Telecopy: (415) 358-0230
Attention: Kathleen Sereda Glaub

with a copy to:

Shearman & Sterling
555 California Street
San Francisco, California 94104-1522
Telephone: (415) 616-1100
Telecopy: (415) 616-1199
Attention: Michael J. Kennedy

S MERGER CORP.

By: /s/ Kathleen Sereda Glaub
___________________________________
Kathleen Sereda Glaub
Chairman of the Board and
President

c/o Cell Genesys, Inc.
342 Lakeside Drive
Foster City, California 94404
Telephone: (415) 358-9600
Telecopy: (415) 358-0230
Attention: Kathleen Sereda Glaub

A-41
<PAGE>

SOMATIX THERAPY CORPORATION

By: /s/ Edward O. Lanphier
___________________________________
Edward O. Lanphier II
Executive Vice President and Chief
Financial Officer

950 Marina Village Parkway
Suite 100
Alameda, California 94501
Telephone: (510) 748-3000
Telecopy: (510) 814-8002
Attention: Edward O. Lanphier

with a copy to:

Brobeck, Phleger & Harrison
2200 Geng Road
Palo Alto, California 94303
Telephone: (415) 424-0160
Telecopy: (415) 496-2885
Attention: J. Stephen Dolezalek

A-42
<PAGE>

APPENDIX B

LEHMAN BROTHERS

January 12, 1997

Board of Directors
Cell Genesys, Inc.
322 Lakeside Drive
Foster City, CA 94404

Members of the Board:

We understand that Cell Genesys, Inc. ("Cell Genesys") and Somatix Therapy
Corporation ("Somatix") have entered into an Agreement and Plan of Merger and
Reorganization dated January 12, 1997 (the "Agreement") pursuant to which a
wholly owned subsidiary of Cell Genesys will merge with and into Somatix and
each outstanding share of common stock of Somatix and each outstanding share
of convertible preferred stock of Somatix, on an as-converted basis, will be
converted into and become exchangeable for 0.3850 shares of common stock of
Cell Genesys (the "Exchange Ratio"), subject to certain adjustments as set
forth in the Agreement (the "Proposed Transaction"). The terms and conditions
of the Proposed Transaction are set forth in more detail in the Agreement.

We have been requested by Cell Genesys to render our opinion with respect to
the fairness, from a financial point of view, to Cell Genesys of the Exchange
Ratio to be offered to the stockholders of Somatix in the Proposed
Transaction. We have not been requested to opine as to, and our opinion does
not in any manner address, the underlying business decision of Cell Genesys to
proceed with or effect the Proposed Transaction.

In arriving at our opinion, we reviewed and analyzed: (1) the Agreement and
the specific terms of the Proposed Transaction, (2) the Form 10-K for the
fiscal year ended December 31, 1995 and the Form 10-Q for the quarter ended
September 30, 1996 of Cell Genesys and the Form 10-K for the fiscal year ended
June 30, 1996 and the Form 10-Q for the quarter ended September 30, 1996 for
Somatix, and such other publicly available information concerning Cell Genesys
and Somatix which we believe to be relevant to our analysis, (3) financial and
operating information with respect to the business, operations and prospects
of Cell Genesys and Somatix furnished to us by Cell Genesys and Somatix, (4)
trading histories of Cell Genesys and Somatix common stock and a comparison of
those trading histories with those of other companies that we deemed relevant,
(5) a comparison of the historical financial results and present financial
condition of Cell Genesys and Somatix with those of other companies that we
deemed relevant, and (6) a comparison of the financial terms of the Proposed
Transaction with the financial terms of certain other transactions that we
deemed relevant. In addition, we have had discussions with the managements of
Cell Genesys and Somatix concerning their respective businesses, operations,
assets, financial conditions and prospects and the operating synergies and
other strategic benefits expected to result from a combination of the
businesses of Cell Genesys and Somatix, and have undertaken such other
studies, analyses and investigations as we deemed appropriate.

In arriving at our opinion, we have assumed and relied upon the accuracy and
completeness of the financial and other information used by us without
assuming any responsibility for independent verification of such information
and have further relied upon the assurances of the managements of Cell Genesys
and Somatix that they are not aware of any facts or circumstances that would
make such information inaccurate or misleading. With respect to the financial
projections of Cell Genesys and Somatix, upon advice of Cell Genesys, we have
assumed that such projections have been reasonably prepared on a basis
reflecting the best currently available estimates and judgment of the
management of Cell Genesys as to the future financial performance of the Cell
LEHMAN BROTHERS
3 WORLD FINANCIAL CENTER NEW YORK, NY 10285-1700
<PAGE>

Genesys and Somatix and that Cell Genesys and Somatix will perform
substantially in accordance with such projections. In arriving at our opinion,
we have not conducted a physical inspection of the properties and facilities
of Cell Genesys or Somatix and have not made or obtained any evaluations or
appraisals of the assets or liabilities of Cell Genesys or Somatix. Upon the
advice of Cell Genesys and its legal and accounting advisors, we have assumed
that the Proposed Transaction will qualify as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended,
and therefore as a tax-free transaction to the stockholders of Cell Genesys
and Somatix. Our opinion necessarily is based upon market, economic and other
conditions as they exist on, and can be evaluated as of, the date of this
letter.

Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view, the Exchange Ratio to be
offered to the stockholders of Somatix in the Proposed Transaction is fair to
Cell Genesys.

We have acted as financial advisor to the Cell Genesys in connection with
the Proposed Transaction and will receive a fee for our services which is
contingent upon the consummation of the Proposed Transaction. In addition,
Cell Genesys has agreed to indemnify us for certain liabilities that may arise
out of the rendering of this opinion. We also have performed various
investment banking services for Cell Genesys in the past and have received
customary fees for such services. In the ordinary course of our business, we
actively trade in the equity securities of Cell Genesys and Somatix for our
own account and for the accounts of our customers and, accordingly, may at any
time hold a long or short position in such securities.

This opinion is for the use and benefit of the Board of Directors of Cell
Genesys and is rendered to the Board of Directors in connection with its
consideration of the Proposed Transaction. This opinion is not intended to be
and does not constitute a recommendation to any stockholder of Cell Genesys as
to how such stockholder should vote with respect to the Proposed Transaction.

Very truly yours,

LEHMAN BROTHERS

B-2
<PAGE>

APPENDIX C

DONALDSON, LUFKIN & JENRETTE
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
277 PARK AVENUE, NEW YORK, NEW YORK 10172 (212) 892-3000

January 12, 1997

Board of Directors
Somatix Therapy Corporation
850 Marina Village Parkway
Alameda, CA 94501-1034

Lady and Gentlemen:

You have requested our opinion as to the fairness from a financial point of
view to the stockholders of Somatix Therapy Corporation (the "Company") of the
consideration to be received by such stockholders pursuant to the terms of the
Agreement and Plan of Merger and Reorganization, dated as of January 12, 1997
(the "Agreement"), among Cell Genesys, Inc. ("Cell Genesys"), S Merger Corp.
("Merger Sub"), a wholly owned subsidiary of Cell Genesys, and the Company,
pursuant to which Merger Sub will be merged (the "Merger") with and into the
Company.

Pursuant to the Agreement, each share of common stock, par value $.01 per
share, of the Company ("Company Common Stock") will be converted into, subject
to certain adjustments, and become exchangeable for a number of shares of
common stock, par value $.001 per share, of Cell Genesys (and the associated
preferred share purchase rights) (together, "Cell Genesys Common Stock") equal
to .3850 minus (i) in the event that the Series B Exchange Ratio (as defined
below) is greater than 16.4384, the Series B Adjustment Amount (as defined
below), (ii) in the event the holder(s) of the warrant (the "Warrant") to
purchase up to 650,000 shares of the Company Common Stock, issued pursuant to
the Subscription Agreement dated September 24, 1996 between the Company and
Fletcher International Limited, elect(s) to put the Warrant to, and have the
Warrant redeemed by, the Company pursuant to the terns of the Warrant, .0063
and (iii) in the event that the Company issues in connection with a financing
permitted pursuant to the Agreement any securities convertible into Cell
Genesys Common Stock pursuant to the Agreement, the New Financing Adjustment
Amount (as defined below) (such number, the "Common Exchange Ratio"); each
share of Series A Preferred (as defined in the Agreement) of the Company will
be converted into, subject to certain adjustments, and become exchangeable for
a number of shares of Cell Genesys Common Stock equal to the product of 6.25
and the Common Exchange Ratio (the "Series A Exchange Ratio"); and each share
of Series B Preferred Stock, (as defined in the Agreement) of the Company will
be converted into, subject to certain adjustments, and become exchangeable for
a number of shares of Cell Genesys Common Stock equal to the quotient of
$150.00 and the average of the daily closing prices of Cell Genesys Common
Stock over tho 30-day period ending three days prior to the effectiveness of
the Merger (the "Series B Exchange Ratio"). The Series B Adjustment Amount
means .3850 minus (I) .3850 multiplied by (II) the quotient of (i) (A) the
aggregate number of shares of Cell Genesys Common Stock issuable to the
holders of the Company Common Stock and the holders of the Series A Preferred
Stock pursuant to the Merger, assuming the Common Exchange Ratio is .3850,
less (B) the product of (l) the aggregate number of shares of Series B
Preferred Stock issued and outstanding immediately prior to the effectiveness
of the Merger and (2) (x) the Series B Exchange Ratio less (y) 16.4384 and;
(ii) the aggregate number of shares of Cell Genesys Common Stock issuable to
the holders of the Company Common Stock and the holders of the Series A
Preferred Stock pursuant to the Merger, assuming the Common Exchange Ratio is
.3850. The new Financing Adjustment Amount means .3850 minus (I) .3850
multiplied by (II) the quotient of (i) (A) the aggregate number of shares of
Cell Genesys Common stock issuable to the holders of the Company Common Stock
and the holders of the Series A Preferred Stock pursuant to the Merger,
assuming the Common Exchange Ratio is .3850 less (B) the

C-1
<PAGE>

aggregate number of shares of Cell Genesys Common Stock issuable upon
conversion of any securities of the Company issued in connection with a
financing permitted pursuant in the Agreement, and (ii) the aggregate number
of shares of Cell Genesys Common Stock issuable to the holders of the Company
Common Stock and the holders of the Series A Preferred Stock pursuant to the
Merger, assuming the Common Exchange Ratio is .3850. For purposes of our
opinion we have assumed that the New Financing Adjustment Amount will not
exceed 0.03.

In arriving at our opinion, we have reviewed the draft dated January 12,
1996 of the Agreement and the exhibits thereto, including the draft Stock
Option Agreements between Cell Genesys and the Company. We also have reviewed
the terms of the Series A Preferred Stock, the Series B Preferred Stock and
the Warrant and financial and other information that was publicly available or
furnished to us by the Company and Cell Genesys including information provided
during discussions with their respective managements. Included in the
information provided during discussions with the respective managements were
certain financial projections of the Company prepared by the management of the
Company and certain financial projections of Cell Genesys prepared by the
management of Cell Genesys. In addition, we have compared certain financial
and securities data of the Company and Cell Genesys with various other
companies whose securities are traded in public markets, reviewed the
historical stock prices and trading volumes of the Company Common Stock and
Cell Genesys Common Stock, reviewed prices and premiums paid in certain other
business combinations and conducted such other financial studies, analyses and
investigations as we deemed appropriate for purposes of this opinion.

In rendering our opinion, we have relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available
to us from public sources, that was provided to us by the Company and Cell
Genesys or their respective representatives, or that was otherwise reviewed by
us. With respect to the financial projections supplied to us, we have assumed
that they have been reasonably prepared on the basis reflecting the best
currently available estimates and judgments of the management of the Company
and Cell Genesys as to the future operating and financial performance of the
Company and Cell Genesys, respectively. With respect to any potential
liabilities of, or other impact on, Cell Genesys related to the litigation in
which Cell Genesys is involved, we have not been requested to and do not
express any opinion regarding the financial impact of these matters on Cell
Genesys and the effect, if any, of such matters on the fairness to the
stockholders of the Company from a financial point of view of the Common
Exchange Ratio, the Series A Exchange Ratio and the Series B Exchange Ratio.
We have not assumed any responsibility for making an independent evaluation of
the Company's assets or liabilities or for making any independent verification
of any of the information reviewed by us. We have further assumed that the
Merger will qualify as tax-free reorganization under the Internal Revenue Code
of 1986, as amended. We have relied as to certain legal matters on advice of
counsel to the Company.

Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as
of, the date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to update,
revise or reaffirm this opinion. We are expressing no opinion as to the prices
at which Cell Genesys Common Stock will actually trade at any time. Our
opinion does not address the relative merits of the Merger and the other
business strategies being considered by the Company's Board of Directors, nor
does it address the Board's decision to proceed with the Merger. Our opinion
does not constitute a recommendation to any stockholder as to how such
stockholder should vote on the proposed transaction.

Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of its
investment banking services, is regularly engaged in the valuation of
businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes.

We understand that this opinion may be included in the joint proxy
statement/prospectus of the Company and Cell Genesys relating to the Merger,
subject to the approval in form and substance by DLJ and its legal counsel of
any description of or reference to DLJ or any summary of this opinion or any
presentation of DLJ included in such joint proxy statement/prospectus.

C-2
<PAGE>

Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that the Common Exchange Ratio is fair to the holders of
Company Common Stock, the Series A Exchange Ratio is fair to the holders of
the Series A Preferred Stock and the Series B Exchange Ratio is fair to the
holders of Series B Preferred Stock, in each case, from a financial point of
view.

Very truly yours,

Donaldson, Lufkin & Jenrette
Securities Corporation

By: /\s/\ Ralph Carlto_______n
Ralph Carlton
Senior Vice President

C-3
<PAGE>

LOGO
RECYCLED PAPER
1163-PS-97
<PAGE>

[RECYCLED PAPER LOGO]
0522-PS-97
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 145 of the General Corporation Law provides that a corporation has
the power to indemnify a director, officer, employee or agent of the
corporation and certain other persons serving at the request of the
corporation in related capacities against amounts paid and expenses incurred
in connection with an action or proceeding to which he or she is or is
threatened to be made a party by reason of such position, if such person has
acted in good faith and in a manner he or she reasonably believed to be in or
not opposed to the best interests of the corporation, and, in any criminal
proceeding, if such person had no reasonable cause to believe his or her
conduct was unlawful; provided that, in the case of actions brought by or in
the right of the corporation, no indemnification may be made with respect to
any matter as to which such person has been adjudged to be liable to the
corporation unless and only to the extent that the adjudicating court
determines that such indemnification is proper under the circumstances.

Cell Genesys' certificate of incorporation provides that no director will be
personally liable to Cell Genesys or its stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to Cell Genesys or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for authorizing the payment of
a dividend or repurchase of stock or (iv) for any transaction in which the
director derived an improper personal benefit.

Cell Genesys' by-laws provide that Cell Genesys must indemnify any person
who was or is 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
Cell Genesys) by reason of the fact that he or she is or was a director or
officer of Cell Genesys, or that such director or officer is or was serving at
the request of Cell Genesys as a director, officer, employee or agent of
another corporation, partnership, joint venture trust or other enterprise
(collectively "Agent"), against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement (if such settlement is
approved in advance by Cell Genesys, which approval may not be unreasonably
withheld) actually and reasonably incurred by him or her in connection with
such action, suit or proceeding if he or she acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of Cell Genesys, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her 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, will not, of itself, create a presumption that the person did not
act in good faith and in a manner which he or she reasonably believed to be in
or not opposed to the best interest of Cell Genesys, and with respect to any
criminal action or proceeding, had reasonable cause to believe that his or her
conduct was unlawful.

Cell Genesys' by-laws provide further that Cell Genesys must indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of Cell
Genesys to procure a judgment in its favor by reason of the fact that he is or
was an Agent against expenses (including attorneys' fees) actually and
reasonably incurred by him or her in connection with the defense or settlement
of such action or suit if he or she acted in good faith and in manner he or
she reasonably believed to be in or not opposed to the best interests of Cell
Genesys and except that no indemnification may be made in respect of any
claim, issue or matter as to which such person has been adjudged to be liable
to Cell Genesys unless and only to the extent that the Delaware Court of
Chancery or the court in which such action or suit was brought determines upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Delaware Court of Chancery or such other
court deems proper.

Pursuant to its by-laws, Cell Genesys has the power to purchase and maintain
a directors and officers liability policy to insure Cell Genesys' officers and
directors against certain liabilities.

II-1
<PAGE>

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) EXHIBITS

The following exhibits are filed herewith or incorporated herein by
reference.

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
2.1 Amended and restated agreement and plan of merger and
reorganization, dated as of January 12, 1997, as amended and
restated as of March 27, 1997, among Cell Genesys, Inc., S Merger
Corp. and Somatix Therapy Corporation (incorporated by reference
to Appendix A to the Joint Proxy Statement/Prospectus included as
part of this registration statement)
5.1 Opinion letter of Shearman & Sterling as to the legality of the
securities being registered by this registration statement
8.1 Opinion letter of Shearman & Sterling as to certain tax matters
8.2 Opinion letter of Brobeck, Phleger & Harrison LLP as to certain
tax matters
13.1 Somatix Therapy Corporation Annual Report on Form 10-K for the
year ended June 30, 1996
13.2 Somatix Therapy Corporation Quarterly Report on Form 10-Q for the
quarter ended December 31, 1996
23.1 Consent of Shearman & Sterling with respect to its opinion as to
the legality of securities being registered by this registration
statement (contained in Exhibit 5.1)
23.2 Consent of Shearman & Sterling with respect to its opinion as to
certain tax matters (contained in Exhibit 8.1)
23.3 Consent of Brobeck, Phleger & Harrison LLP with respect to its
opinion as to certain tax matters (contained in Exhibit 8.2)
23.4 Consent of Ernst & Young LLP, independent auditors, with respect
to financial statements of Cell Genesys
23.5 Consent of Ernst & Young LLP, independent auditors, with respect
to financial statements of Somatix
23.6 Consent of Lehman Brothers Inc. with respect to its fairness
opinion
23.7 Consent of Donaldson, Lufkin & Jenrette Securities Corporation
with respect to its fairness opinion
23.8 Consent of David W. Carter, as a person about to become a director
of the registrant
23.9 Consent of John T. Potts, Jr., M.D., as a person about to become a
director of the registrant
23.10 Consent of Inder M. Verma, Ph.D., as a person about to become a
director of the registrant
23.11 Consent of Thomas E. Shenk, Ph.D., as a person about to become a
director of the registrant
24.1 Power of attorney (included on page II-4)
99.1 Form of Proxy Card of Cell Genesys
99.2 Form of Proxy Card of Somatix
</TABLE>

(b) FINANCIAL STATEMENT SCHEDULES

Financial statements and schedules not included herein have been omitted
because of the absence of conditions under which they are required or because
the required information, where material, is shown in the consolidated
financial statements or notes thereto incorporated by reference in the Joint
Proxy Statement/Prospectus.

Opinions of Lehman Brothers Inc. and Donaldson, Lufkin & Jenrette Securities
Corporation (attached as Appendix B and Appendix C, respectively, to the Joint
Proxy Statement/Prospectus filed as a part of this registration statement).

ITEM 22. UNDERTAKINGS.

(a) The undersigned registrant hereby undertakes (i) to file, during any
period in which offers or sales are being made, a post-effective amendment to
this registration statement (A) to include any prospectus required by Section
10(a)(3) of the Securities Act of 1933; (B) to reflect in the prospectus any
facts or events arising after

II-2
<PAGE>

the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement; and (C) to include any material information with
respect to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in the
registration statement; (ii) that, for the purpose of determining any
liability under the Securities Act of 1933, each such post-effective amendment
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; and (iii) to remove from
registration by means of a post-effective amendment any of the securities
being registered which remain unsold at the termination of the offering.

(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement 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.

(c) The undersigned registrant hereby undertakes that prior to any public
reoffering of the securities registered hereunder through use of a prospectus
which is a part of this registration statement, by any person or party who is
deemed to be an underwriter within the meaning of Rule 145(c), the issuer
undertakes that such reoffering prospectus will contain the information called
for by the applicable registration form with respect to reofferings by persons
who may be deemed underwriters, in addition to the information called for by
the other items of the applicable form.

(d) The undersigned registrant hereby undertakes that every prospectus (i)
that is filed pursuant to paragraph (c) immediately preceding or (ii) that
purports to meet the requirements of Section 10(a)(3) of the Securities Act of
1933 and is used in connection with an offering of securities subject to Rule
415, will be filed as a part of an amendment to the registration statement and
will not be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such post-
effective amendment 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.

(e) 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 Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that such 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
Securities Act of 1933 and will be governed by the final adjudication of such
issue.

(f) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference in the Joint Proxy
Statement/Prospectus pursuant to Item 4, 10(b), 11 or 13 of this form, within
one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of
the registration statement through the date of responding to the request.

(g) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.

II-3
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Foster City, state of
California, on April 30, 1997.

CELL GENESYS, INC.

By /s/ Stephen A. Sherwin
---------------------------------
Stephen A. Sherwin, M.D.
Chairman of the Board, President
and Chief Executive Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Stephen A. Sherwin, M.D. and Kathleen Sereda
Glaub, jointly and severally, his or her attorneys-in-fact, each with the
power of substitution, for such person in any and all capacities to sign any
amendments to the Registration Statement, and to file the same, with exhibits
thereto and other documents in connection therewith, with the Commission,
hereby ratifying and confirming all that each of such attorneys-in-fact, or
his or her substitute or substitutes, may do or cause to be done by virtue
hereof.

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.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Stephen A. Sherwin Chairman of the Board, April 30, 1997
____________________________________ President and Chief
Stephen A. Sherwin, M.D. Executive Officer
/s/ Kathleen Sereda Glaub Senior Vice President, Chief April 30, 1997
____________________________________ Financial Officer and
Kathleen Sereda Glaub Secretary
/s/ James M. Gower Director April 30, 1997
____________________________________
James M. Gower
/s/ Peter Barton Hutt Director April 30, 1997
____________________________________
Peter Barton Hutt
/s/ Raju S. Kucherlapati Director April 30, 1997
____________________________________
Raju S. Kucherlapati, Ph.D.
/s/ Joseph E. Maroun Director April 30, 1997
____________________________________
Joseph E. Maroun
/s/ Eugene L. Step Director April 30, 1997
____________________________________
Eugene L. Step
</TABLE>

II-4
<PAGE>

INDEX TO EXHIBITS

The Exhibit numbers in the following list correspond to the numbers assigned
to such exhibits in Item 601 and Regulation S-K.

II-5

<PAGE>

EXHIBIT 5.1

[SHEARMAN & STERLING LETTERHEAD]

April 29, 1997

Cell Genesys, Inc.
342 Lakeside Drive
Foster City, California 94404

Cell Genesys, Inc.
Registration Statement on Form S-4

Ladies and Gentlemen:

As counsel to Cell Genesys, Inc., a corporation organized under the laws of
the State of Delaware ("Cell Genesys"), we are rendering this opinion in
connection with the registration by Cell Genesys pursuant to the above-
referenced Registration Statement on Form S-4 (the "Registration Statement")
under the Securities Act of 1933, as amended, of the shares (the "Shares") of
common stock, par value $.001 per share, of Cell Genesys to be issued in
connection with the merger of S Merger Corporation, a corporation organized
under the laws of the State of Delaware ("Merger Sub") and a direct wholly
owned subsidiary of Cell Genesys, with and into Somatix Therapy Corporation, a
corporation organized under the laws of the State of Delaware ("Somatix"),
pursuant to the agreement and plan of merger and reorganization, dated as of
January 12, 1997 (as amended and restated as of March 27, 1997, the "Merger
Agreement"), among Cell Genesys, Merger Sub and Somatix.

As such counsel and in connection with the opinion expressed below, we have
examined copies of the Registration Statement, the restated certificate of
incorporation of Cell Genesys dated February 2, 1993, as amended, the restated
by-laws of Cell Genesys, the Merger Agreement, certificates of public
officials and officers of Cell Genesys, and such other documents, instruments
and records as we have deemed necessary or appropriate as a basis for the
opinion expressed below. In such examination, we have assumed the genuineness
of all signatures, the authenticity of all documents submitted to us as
originals and the conformity to original documents of all documents submitted
to us as copies.

Based upon the foregoing, we are of the opinion that the Shares have been
validly authorized and, when issued pursuant to the terms of the Merger
Agreement, will be validly issued, fully paid and non-assessable.

We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption
"Legal Matters" therein.

Very truly yours,

SHEARMAN & STERLING

<PAGE>

EXHIBIT 8.1

[SHEARMAN & STERLING LETTERHEAD]

April 29, 1997

Cell Genesys, Inc.
342 Lakeside Drive
Foster City, California 94404

Ladies and Gentlemen:

We have acted as counsel for Cell Genesys, Inc., a Delaware corporation
("CGI"), in connection with the preparation, execution and delivery of the
agreement and plan of merger and reorganization, dated as of January 12, 1997
(as amended and restated as of March 27, 1997, the "Merger Agreement"), among
CGI, S Merger Corp., a Delaware corporation ("Merger Sub"), and Somatix
Therapy Corporation, a Delaware corporation ("STC"), and documents related or
incidental thereto and transactions to be effected thereunder. You have
requested our opinion concerning certain United States federal income tax
consequences of the exchange by STC stockholders of STC Common Stock,
STC Series A Preferred Stock, and STC Series B Preferred Stock for CGI Common
Stock (the "Exchange"), and the merger of Merger Sub with and into STC (the
"Merger") pursuant to the Merger Agreement. Unless otherwise defined,
capitalized terms used herein have the meanings assigned to them in the Merger
Agreement.

In delivering this opinion, we have reviewed and relied upon facts and
descriptions set forth in the Registration Statement, the Merger Agreement and
related documents pertaining to the Exchange and the Merger. We also have
relied upon certificates of officers of CGI and STC (the "Officers'
Certificates"). We have assumed that the Officers' Certificates have each been
executed and delivered by appropriate officers of CGI and STC and are each
true and correct. We also have assumed that each of the certifications made in
the Officers' Certificates will continue to be true and correct as of the
Effective Time unless we receive written notification from CGI or STC prior to
the Effective Time. In addition, we have assumed that all statements to be
made in the Officers' Certificates "to the best of the knowledge" of any
person or party to the Merger will be correct as if made without such
qualification.

Based on the foregoing and the Code, the Income Tax Regulations issued by
the United States Treasury Department thereunder, rulings of the Internal
Revenue Service and court decisions, all as in effect on the date hereof, we
are of the opinion that if the Exchange and the Merger are completed in
accordance with the terms and conditions of the Merger Agreement, and if the
statements set forth in the Officers' Certificates are true and correct on the
date hereof, on the effective date of the Registration Statement and at the
time of the Exchange and the Merger, for federal income tax purposes:

1. The Merger will constitute a reorganization within the meaning of
section 368 of the Code.

2. CGI, STC and Merger Sub will constitute parties to such
reorganization.

3. No gain or loss will be recognized by CGI, STC or Merger Sub in the
Merger.

4. No gain or loss will be recognized by holders of STC Capital Stock
upon their receipt of CGI Common Stock in exchange for their STC Capital
Stock, except that holders of STC Capital Stock who receive cash proceeds
in lieu of fractional shares of CGI Common Stock will recognize gain or
loss equal to the difference, if any, between such proceeds and the tax
basis of STC Capital Stock allocated to their fractional share interests.
<PAGE>

5. The gain or loss, if any, recognized by the holders of STC Capital
Stock who receive cash proceeds in lieu of fractional shares of CGI Common
Stock will constitute capital gain or loss if the fractional share
interests exchanged are held as capital assets at the time of the Merger,
and such capital gain or loss, if any, will constitute long-term capital
gain or loss if the holding period for the fractional share interests
(including the holding period of STC Capital Stock attributed thereto as
described below) exceeds one year.

6. The tax basis of CGI Common Stock received by holders of STC Capital
Stock will be the same as the tax basis of the STC Capital Stock exchanged
therfor less the tax basis, if any, allocated to fractional shares
interests.

7. The holding period of CGI Common Stock (including fractional share
interests for which cash is received in lieu thereof) in the hands of
holders of STC Capital Stock will include the holding period of their STC
Capital Stock exchanged therfor provided that such STC Capital Stock is
held as a capital asset at the time of the Merger.

8. The discussion entitled "Certain Federal Income Tax Consequences" in
the Joint Proxy Statement/Prospectus of the Registration Statement, insofar
as it relates to statements of law or legal conclusions, is correct in all
material respects.

We hereby consent to the use of our name under the heading "Certain Federal
Income Tax Consequences" in the prospectus and to the filing of this opinion
as Exhibit 8.1 to the Registration Statement.

In accordance with customary practice relating to opinion letters, our
opinions speak only as of the date hereof, and, subject to the assumptions and
conditions set forth above, the time of the Exchange and the Merger, and we
disclaim any duty to update such opinions.

This opinion has been delivered to you solely for the purpose of being
included as an exhibit to the Registration Statement. It may not be relied
upon for any other purpose or by any other person or entity, other than the
shareholders of CGI, and may not be made available to any other person or
entity without our prior written consent.

Very truly yours,

<PAGE>

EXHIBIT 8.2

[BROBECK, PHLEGER & HARRISON LLP LETTERHEAD]

April 29, 1997

Somatix Therapy Corporation
950 Marina Village Parkway
Alameda, CA 94501

Ladies and Gentlemen:

This opinion is being delivered to you in connection with the Agreement and
Plan of Merger and Reorganization dated as of January 12, 1997 (the
"Agreement") among Cell Genesys, Inc., a Delaware corporation ("CGI"), its
wholly owned subsidiary, S Merger Corp., a Delaware corporation ("Sub"), and
Somatix Therapy Corporation, a Delaware corporation ("STC"). Pursuant to the
Agreement, Sub will merge with and into STC (the "Merger"), and STC will
become a wholly owned subsidiary of CGI.

Except as otherwise provided, capitalized terms referred to herein have the
meanings set forth in the Agreement. All section references, unless otherwise
indicated, are to the Internal Revenue Code of 1986, as amended (the "Code").

We have acted as legal counsel to STC in connection with the Merger. For the
purpose of rendering this opinion, we have examined (or will examine on or
prior to the Effective Date) and are relying (or will rely) upon (without any
independent investigation or review thereof) the truth and accuracy, at all
relevant times, of the statements, covenants, representations and warranties
contained in the following documents (including all schedules and exhibits
thereto):

A. The Agreement;

B. Representations made to us in certificates of officers of CGI and STC
(the "Officers' Certificates");

C. Representations made by certain shareholders of STC in "Affiliates
Agreements";

D. The Registration Statement; and

E. Such other instruments and documents related to the formation,
organization and operation of CGI, STC and Sub or to the consummation of
the Merger and the transactions contemplated thereby as we have deemed
necessary or appropriate.

<PAGE>

In connection with rendering this opinion, we have assumed or obtained
representations (and are relying thereon, without any independent
investigation or review thereof) that:

1. Original documents (including signatures) are authentic, documents
submitted to us as copies conform to the original documents, and there has
been (or will be by the Effective Time) due execution and delivery of all
documents where due execution and delivery are prerequisites to
effectiveness thereof;

2. The Merger will be consummated in accordance with the Agreement and
will be effective under the laws of the State of Delaware;

3. The Officers' Certificates have been executed and delivered by
appropriate officers of CGI and STC and are true and correct. We have also
assumed that the certifications made in the Officers' Certificates will
continue to be true and correct as of the Effective Time unless we receive
written notification to the contrary from CGI or STC prior to the Effective
Time. In addition, we have assumed that all statements made in the
Officers' Certificates "to the best of the knowledge" of any person or
party to the Merger will be correct as if made without such qualification;
and

4. No STC shareholder guaranteed any STC indebtedness outstanding during
the period immediately prior to the Merger, and at all relevant times,
including as of the Effective Time, (i) no outstanding indebtedness of STC,
CGI or Sub has or will represent equity for tax purposes and (ii) no
outstanding equity of STC, CGI or Sub has or will represent indebtedness
for tax purposes.

Based on our examination of the foregoing items and subject to the
assumptions, exceptions, limitations and qualifications set forth herein, we
are of the opinion that:

a. The Merger will constitute a "reorganization" within the meaning of
Section 368(a) of the Code.

b. CGI, STC and Sub will each be a "party" to the reorganization within
the meaning of Section 368(b) of the Code.

c. No gain or loss will be recognized by STC or CGI in the Merger.

d. No gain or loss will be recognized by holders of STC Capital Stock
upon their receipt of CGI Common Stock in exchange for their STC Capital
Stock, except that holders of STC Capital Stock who receive cash proceeds
in lieu of fractional shares of CGI Common Stock will recognize gain or
loss equal to the

<PAGE>

difference, if any, between such proceeds and the tax basis of STC Capital
Stock allocated to their fractional share interests.

e. Such gain or loss, if any, will constitute capital gain or loss if the
fractional share interests exchanged are held as capital assets at the time
of the Merger.

f. Such capital gain or loss will be long-term capital gain or loss if
the holding period for the fractional share interests (including the
holding period of STC Capital Stock attributed thereto) exceeds one year.

g. The tax basis of CGI Common Stock received by holders of STC Capital
Stock will be the same as the tax basis of the STC Capital Stock exchanged
therefor less the tax basis, if any, allocated to fractional share
interests.

h. The holding period of CGI Common Stock (including fractional share
interests for which cash is received in lieu thereof) in the hands of
holders of STC Capital Stock will include the holding period of their STC
Capital Stock exchanged therefor, provided that such STC Capital Stock is
held as a capital asset at the time of the Merger.

In addition to the assumptions set forth above, this opinion is subject to
the exceptions, limitations and qualifications set forth below.

(1) This opinion represents and is based upon our best judgment regarding
the application of federal income tax laws arising under the Code, existing
judicial decisions, administrative regulations and published rulings and
procedures. Our opinion is not binding upon the Internal Revenue Service or
the courts, and there is no assurance that the Internal Revenue Service will
not successfully assert a contrary position. Furthermore, no assurance can be
given that future legislative, judicial or administrative changes, on either a
prospective or retroactive basis, would not adversely affect the accuracy of
the conclusions stated herein. Nevertheless, we undertake no responsibility to
advise you of any new developments in the application or interpretation of the
federal income tax laws.

(2) This opinion does not address any federal, state, local or foreign tax
consequences that may result from the Merger or any other transaction
(including any transaction undertaken in connection with the Merger) except as
specifically stated above. In particular, we express no opinion regarding (i)
whether and the extent to which any STC shareholder who has provided or will
provide services to STC, CGI or Sub will have compensation income under any
provision of the Code; (ii) the effects of such compensation income, including
but not limited to the effect upon the basis and holding period of the CGI
stock received by any such shareholder in the Merger; (iii) the

<PAGE>

potential application of the "golden parachute" provisions (Sections 280G,
3121(v)(2) and 4999) of the Code, the alternative minimum tax provisions
(Sections 55, 56 and 57) of the Code or Sections 305, 306, 357, 424, and 708, or
the regulations promulgated thereunder; (iv) other than that the Merger will be
a reorganization within the meaning of Code Section 368 and the consequences
that follow directly and solely from such characterization, the corporate level
tax consequences of the Merger to CGI, Sub or STC, including without limitation
the survival and/or availability, after the Merger, of any of the federal income
tax attributes or elections of STC, after application of any provision of the
Code, as well as the regulations promulgated thereunder and judicial
interpretations thereof; (v) the basis of any equity interest in STC acquired by
CGI in the Merger; (vi) the tax consequences of any transaction in which STC
stock or a right to acquire STC stock was received; (vii) the tax consequences
of the Merger to holders of options or warrants for STC stock; or (viii) the tax
consequences that may be relevant to particular classes of STC stockholders such
as dealers in securities, corporate shareholders subject to the alternative
minimum tax, foreign persons, and holders of shares acquired upon exercise of
stock options or in other compensatory transactions.

(3) No opinion is expressed as to any transaction other than the Merger as
described in the Agreement or as to any transaction whatsoever, including the
Merger, if all the transactions described in the Agreement are not consummated
in accordance with the terms of such Agreement and without waiver or breach of
any material provision thereof or if all of the representations, warranties,
statements and assumptions upon which we relied are not true and accurate at
all relevant times. In the event any one of the statements, representations,
warranties or assumptions upon which we have relied to issue this opinion is
incorrect, our opinion might be adversely affected and may not be relied upon.

(4) This opinion has been delivered to you solely for the purpose of being
included as an exhibit to the Registration Statement. It may not be relied
upon for any other purpose or by any person or entity other than STC and the
STC shareholders, and may not be made available to any other person or entity
without our prior written consent. We hereby consent to the filing of this
opinion as an exhibit to the Registration Statement and further consent to all
references to us in the Registration Statement.

Very truly yours,

BROBECK, PHLEGER & HARRISON LLP

<PAGE>

EXHIBIT 13.1

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

----------------

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

(MARK ONE)

[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1996

[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 0-14758

SOMATIX THERAPY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

94-2762045

DELAWARE

(I.R.S. EMPLOYER
(STATE OR OTHER JURISDICTION OF IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)

850 MARINA VILLAGE PARKWAY, ALAMEDA, CALIFORNIA 94501-1034
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)

(510) 748-3000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

Securities registered pursuant to Section 12(b) of the Act:

<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- ------------------- ---------------------
<S> <C>
None
</TABLE>

Securities registered pursuant to Section 12(g) of the Act:

COMMON STOCK, $0.01 PAR VALUE
(TITLE OF CLASS)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. [_]

The aggregate market value of the voting stock held by non-affiliates of the
registrant as of August 19, 1996 was approximately $124,893,190 based upon the
closing sales price of the registrant's Common Stock as reported on the Nasdaq
National Market System on such date. The number of outstanding shares of the
registrant's Common Stock as of August 19, 1996 was 24,369,403.

DOCUMENTS INCORPORATED BY REFERENCE

Parts of the following documents are incorporated by reference into Parts
III and IV of this Form 10-K Report: The Proxy Statement for the Registrant's
Annual Meeting of Stockholders scheduled to be held on December 18, 1996.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

PART I

ITEM I. BUSINESS

THE COMPANY

Somatix Therapy Corporation ("Somatix" or the "Company") is a leader in the
field of gene therapy. The Company's mission is to research, develop and
commercialize proprietary processes for the genetic modification of cells and
their use in the treatment of human disease. The Company was formed through
the merger and/or acquisition of four companies since 1990: Hana Biologics,
Inc., Somatix Corporation, GeneSys Therapeutics Corporation and Merlin
Pharmaceutical Corporation.

Through the combination of these four companies and its internal development
programs, Somatix has established a substantial scientific and intellectual
property position in the technology of gene transfer. The Company is pursuing
the research and development of gene transfer and human gene therapy utilizing
retroviral, adenoviral, adeno-associated viral and synthetic vector systems.
Somatix is applying its core scientific expertise to the development of novel
treatments for cancer, neurological diseases and genetic diseases.

In August 1995, Bristol-Myers Squibb ("BMS") made an initial $10 million
investment in Somatix in return for certain rights including future rights in
Somatix' cancer programs. In May 1996, BMS made a second $10 million
investment after Somatix achieved a contractual clinical development milestone
in oncology. Pursuant to the terms of the BMS agreement, once Somatix decides
to license any of its internally initiated cancer programs, it must first give
BMS 90 days to review and meet Somatix' terms of such a license. In February,
1996, Somatix made a proposal to BMS regarding its GVAX(TM)* cancer vaccine
programs. At the end of the 90 day period, BMS requested and was granted an
extension to continue its evaluation of the GVAX(TM) cancer vaccine program.

With the exception of fiscal year 1990, when the Company sold its cell
biology and diagnostic product lines, the Company's operations have been
unprofitable since its inception, and will continue to be so in the
foreseeable future, as the Company's research and development programs expand
into preclinical studies and clinical trials.

BACKGROUND OF GENE THERAPY

Gene therapy is the genetic modification of cells for therapeutic benefit.
In ex vivo gene therapy, cells are removed from the patient, genetically
modified and processed using aseptic procedures, tested, and injected or
implanted back into the patient. In vivo gene therapy involves the direct
administration, to a patient, of a gene transfer vector that delivers the gene
into specific cells. In both cases, the product of this "transgene" is
typically a protein which may act therapeutically or otherwise stimulate a
clinically beneficial process (e.g., an antitumor immune response).

Gene transfer vectors are the transport vehicles by which genes are inserted
into cells. To date, genetically engineered viruses have been the most widely
used vectors, because viruses have evolved efficient processes for cell entry
and subsequent expression of their genetic information. There are also efforts
underway in academia, government and industry to develop nonviral methods of
gene delivery. Every viral and nonviral gene transfer system has unique
benefits and unique limitations; these differences are important in evaluating
the scientific and clinical utility of each system.

Cell types may be selected or targeted for genetic modification based on
their ability to secrete proteins systemically or locally, their capability to
integrate into the tissue at the site of implantation and their life spans. As
a result, particular cell types may be better suited than others for the
delivery of a specific protein or for the treatment of a specific disease.
Researchers in the field of gene therapy are primarily working with seven
major cell types as candidates for genetic modification: epithelial cells,
fibroblasts, endothelial cells, neurons, muscle cells, hematopoietic stem
cells, and lymphocytes. These are all somatic cells, which differ from germ
cells in that the genetic information contained in them is not passed on to
future generations.
- --------
* GVAX is a trademark of Somatix Therapy Corporation.

1
<PAGE>

The approaches of gene therapy to treating disease are still in the
development stage. A number of scientific challenges must be met before the
therapeutic potential of gene therapy is realized and gene therapy products
are commercially available. These challenges include attaining sufficient
expression of the desired gene, controlling or regulating the amount of the
desired protein produced, targeting specific cell types for modification and
demonstrating the safety and efficacy of any given approach in human clinical
trials.

In addition to its as yet unproven therapeutic effectiveness, gene therapy
may cause unintended side effects. Because with certain gene transfer methods,
the desired gene may be randomly inserted into a cell's genetic material, it
is theoretically possible that a cancer-causing gene could be activated. The
Company believes oncogene activation is unlikely, and that additional genetic
events are required for tumorigenesis to occur. Another risk is the
possibility that a disabled virus could theoretically reassemble and become
virulent. The Company believes that its process for disabling viruses provides
sufficient safeguards against such an event and that current testing
procedures further reduce this risk. Additional research with respect to such
unintended consequences may be necessary, however, before gene therapy
products can be commercialized.

PLATFORM TECHNOLOGY

Through a strategy of mergers, acquisitions and internal development,
Somatix has built a broad-based research and development capability across
multiple gene transfer systems. The Company has research and development
programs in retroviral, adenoviral, adeno-associated viral and synthetic
vector systems, as well as hematopoietic stem cell gene transfer.

Retroviral Vectors. The retroviral vector is the most advanced system for
the efficient, ex vivo genetic modification of dividing human cells, and is
the vector Somatix is utilizing for the modification of tumor cells,
fibroblasts and hematopoietic stem cells. In addition, Somatix is working on a
second-generation retroviral vector (i.e., lentiviral vector) that will allow
the in vivo delivery of therapeutic genes into nondividing cells. In support
of this effort, Somatix obtained an exclusive, worldwide license to a
lentiviral vector developed by Dr. Inder Verma and colleagues at The Salk
Institute in July, 1996. The lentiviral vector should eventually allow
therapeutic gene transfer into cells, such as neurons, which are clinically
relevant but normally do not divide. Coincident with the licensing of the
lentiviral technology from The Salk Institute, Dr. Verma was nominated to
Somatix' board of directors.

Adenoviral Vectors. With the acquisition of Merlin Pharmaceutical
Corporation in February, 1995, Somatix brought Thomas Shenk, Ph.D., to the
Company as a director and member of the scientific advisory board. The Company
has since expanded its program in the research and development of adenoviral
vectors, which are highly efficient in the short-term genetic modification of
nondividing human cells and have the capacity to carry long segments of
genetic information. The Company is developing a GM-CSF (described further
below) encoding adenovirus that can rapidly modify a wide spectrum of tumor
cells, which may result in faster "turnaround" of the autologous cancer
vaccine and potentially lower manufacturing costs. In addition, Somatix is
developing a proprietary adenovirus which may the avoid the cellular immune
responses triggered by the in vivo administration of first generation
adenoviral vectors. This latter adenovirus is being further modified to allow
chromosomal integration and control of gene expression via the delivery of
oral agents.

Adeno-Associated Viral ("AAV") Vectors. In addition to Dr. Shenk, the
acquisition of Merlin Pharmaceutical Corporation brought Richard Samulski,
Ph.D., to the Company's scientific advisory board and augmented Somatix'
research efforts in adeno-associated viral AAV vectors. The AAV vector is an
important gene transfer tool because it can efficiently and stably insert its
genetic information into the chromosomes of nondividing target cells. Somatix
has developed a number of adeno-associated viral vectors for the in vivo
genetic modification of neurons, muscle cells, and liver cells, and has
detected gene expression for up to twelve months in animal model systems.
Somatix is conducting experiments to define the immunogenecity of AAV vectors,
the extent of vector diffusion after injection into the brain and other
tissues, and to design a system of transgene regulation which can be
controlled through the oral administration of certain well-tolerated agents.
In addition, Somatix is developing a manufacturing process for the production
of clinical grade AAV vectors.

2
<PAGE>

Synthetic Vectors. The Company's synthetic vector program is focused on the
development of lipid and polymer-mediated gene transfer systems for the in
vivo delivery of genetic information to cells via intravenous administration.
The near-term goal of the synthetic vector program is the targeted, nonviral
delivery of therapeutic gene sequences to cells in vivo. Longer-term goals
include the incorporation of viral proteins and genetic elements into these
vectors that will enhance the level and duration of transgene expression while
avoiding the immunogenicity and other limitations of current-generation viral
vectors.

Stem Cell Gene Therapy. Somatix is focusing on the genetic modification of
hematopoietic stem cells ("HSC") as a key strategy for the long-term gene
therapy of chronic disease. HSCs are the precursor cell population from which
the human body's entire complement of blood cells is continuously replenished.
Genetically modified HSCs, therefore, are seen as an ideal cell type for the
long-term, sustained delivery of therapeutic proteins to the circulation
(e.g., factors VIII and IX for the treatment of hemophilia). Furthermore,
there are numerous genetic diseases which result in a deficiency of proteins
required for metabolic activities (e.g., Gaucher's disease, chronic
granulomatous disease, etc.). These diseases are also good candidates for stem
cell gene transfer, and will likely provide the initial "proof of concept" for
stem cell gene therapy. Consequently, Somatix' stem cell gene transfer group
is evaluating several of the Company's proprietary technologies for use in
genetic modification of HSCs. The most advanced effort in this area is gene
therapy of chronic granulomatous disease (see below).

PRODUCT DEVELOPMENT PROGRAMS

The following table summarizes the Company's product development programs:

<TABLE>
<CAPTION>
PRODUCT GENE INDICATION STATUS
------- ------------------ --------------------- -----------
<S> <C> <C> <C>
Autologous GVAX(TM) GM-CSF(1) Renal Cell Carcinoma Phase I/II
Cancer (complete)
Vaccine
Melanoma Phase I/II
Prostate Cancer Phase I
Allogeneic GVAX(TM) GM-CSF Prostate Cancer Preclinical
Cancer Vaccine
GM-CSF Colorectal Cancer Preclinical
Genetically Modified p47phox(2) Chronic Granulomatous Phase I
Hematopoietic Stem Cells Disease (complete)
Genetically Modified TH(3) + GTP-CHI(4) Parkinson's Disease Preclinical
Autologous Fibroblasts
In Vivo Adeno-Associated TH + GTP-CHI Parkinson's Disease Research
Virus
</TABLE>
- --------
(1) Granulocyte-macrophage colony stimulating factor
(2) A protein which is deficient in chronic granulomatous disease
(3) Tyrosine hydroxylase
(4) Guanosine triphosphate cyclohydrolase I

Cancer, the second leading cause of death in the United States, is a disease
in which certain cells grow uncontrolled by the body's normal self-regulatory
mechanisms. Over 1.2 million new cases of cancer are diagnosed each year in
the United States. While there are several dozen forms of cancer, Somatix'
initial targets are melanoma, renal cell carcinoma ("RCC" or "kidney cancer"),
prostate and colorectal cancers. Hundreds of thousands of patients are newly
diagnosed with these cancers each year in the United States, with a large
percentage suffering a recurrence of their disease one to five years after
initial treatment.

3
<PAGE>

The initial preclinical observations suggesting the potential efficacy of a
GM-CSF transduced tumor cell vaccine were reported by Dranoff and coworkers
(Proc. Natl. Acad. Sci. USA 90:3539[1993]). While several cytokine gene-
modified tumor cell vaccines had shown antitumor activity in murine cancer
models, the Dranoff study showed the GM-CSF gene-modified tumor cell vaccine
to be a more potent inducer of systemic antitumor immunity than those vaccines
secreting other effector molecules (e.g., IL-2, IL-4, IFN-[gamma], etc.). The
wide applicability of the GVAX(TM) cancer vaccine to multiple tumor types was
supported by data from several murine tumor models including the colon
carcinoma CT-26, renal carcinoma RENCA, fibrosarcoma CMS-5, Lewis lung
carcinoma, and the Dunning rat model of prostate carcinoma. GM-CSF secreting
tumor cells were more potent inducers of antitumor immunity than unmodified
tumor cells in every model tested.

The Autologous GVAX(TM) Cancer Vaccine began phase I/II clinical testing in
patients with renal cell carcinoma at the Johns Hopkins Oncology Center in
December, 1993. This study was completed in 1995. In May 1994, a second Phase
I/II clinical trial started at the Netherlands Cancer Institute ("NKI")
testing the GVAX(TM) cancer vaccine in patients with advanced melanoma. A
second Phase I/II advanced melanoma study at the Dana Farber Cancer Institute
started in early 1995. The treatment phases of both phase I/II melanoma
studies are expected to be completed in the first quarter of 1997. The Company
has also started a Phase I trial of the autologous GVAX(TM) cancer vaccine in
prostate cancer patients at the Johns Hopkins Oncology Center.

The principal end points of these initial Autologous GVAX(TM) Cancer Vaccine
clinical trials are related to safety and tolerability. To date, phase I/II
investigators have administered approximately 300 vaccinations of the
autologous GVAX(TM) cancer vaccine in over 75 patients. The vaccine has proven
to be safe; adverse events have generally been confined to redness and
swelling at the vaccination site and minor flu-like symptoms of short
duration.

Preliminary indications of therapeutic activity include a marked
infiltration of white blood cells at the vaccination site, as well as cellular
activity at metastatic sites distant from the site of vaccine injection. This
cellular activity has been associated, in some patients, with a reduction in
metastatic tumor size at residual tumor sites. The phase I/II data suggest
that the injection of irradiated, GM-CSF secreting autologous tumor cells can
trigger a systemic antitumor response in some patients with metastatic
disease. However, the critical efficacy endpoint of any therapeutic
investigation in cancer is patient survival, and the autologous vaccine will
require further clinical testing to prove whether or not it can affect this
endpoint in a statistically significant way.

The Allogeneic GVAX(TM) Cancer Vaccine. Somatix is now engaged in the
development of a second generation, genetically modified tumor cell vaccine.
The Allogeneic GVAX(TM) Cancer Vaccine is composed of lethally irradiated, GM-
CSF secreting tumor cells derived from tumor cell lines which are not patient-
specific and can therefore be manufactured at large scale. The vaccine can
thus be produced, tested, distributed and administered without first obtaining
autologous tissue from the cancer patient, reducing manufacturing costs and
promoting ease of use. The Company intends to file an investigational new drug
("IND") application in the first quarter of calendar 1997, for the initial
clinical evaluation of the allogeneic vaccine in prostate cancer. Somatix is
considering additional allogeneic vaccine development for malignant melanoma
and breast, colorectal and ovarian cancers.

Chronic Granulomatous Disease ("CGD"). The Company's initial clinical
evaluation of stem cell gene therapy is in the treatment of chronic
granulomatous disease, an immunodeficiency that compromises the ability of
white blood cells to eradicate bacterial and fungal infections. In
collaboration with Harry Malech, M.D. at the National Institutes of Health
("NIH"), the Company is evaluating the use of gene therapy to treat this
inherited genetic disease. Dr. Malech has completed a Phase I clinical trial,
in which patients received autologous hematopoetic stem cells, genetically
modified to produce the p47phox protein. The study showed that the

4
<PAGE>

p47phox- modified stem cells can be safely administered to humans and
successfully generate functional white blood cells in CGD patients. Somatix is
continuing to develop this product using a primate model system to further
optimize both stem cell gene transfer and engraftment of genetically modified
HSCs.

Gene Therapy of Neurologic Diseases. Diseases of the central nervous system
("CNS") are important targets for new drug development. Pharmaceuticals to
treat CNS diseases are the second largest drug expenditure category behind
cardiovascular drugs. However, the brain is one of the most difficult organs
to treat with drugs since the blood-brain barrier prevents many small
molecules and most proteins from passing out of the blood stream into target
areas for treatment. Additionally the brain is a highly complex, inaccessible
organ which operates as many distinct regions. Thus, systemically administered
drugs often affect multiple systems in the brain, increasing their toxicity.
Therefore, it may be a significant advantage to deliver drugs locally to the
specific region of the brain requiring therapy in order to avoid debilitating
side effects.

Gene therapy, in particular, appears to offer promise because it may be used
to promote cell-based delivery of therapeutic proteins: (i) to specific
regions of the brain; (ii) from inside the blood brain barrier; (iii) in a
continuous fashion; and (iv) for long periods of time. The lack of adequate
drug therapy for major neurodegenerative diseases such as Alzheimer's disease
and Parkinson's disease ("PD") and the discovery of a number of neuronal
growth factors ("neurotrophic factors") that could retard degeneration and
perhaps revitalize damaged neurons, make gene therapy an attractive
experimental approach to these diseases. Gene therapy of PD is the Company's
most advanced CNS program.

Although the neurodegeneration that leads to PD is not well understood, it
is known that the loss of dopamine-producing cells causes the debilitating
movement symptoms of PD. Dopamine levels can be restored through the oral
administration of L-dopa, a precursor that is converted to dopamine, and
significantly alleviates the symptoms of PD. However, the clinical benefit of
L-dopa is attenuated after an average of five years in a majority of patients.
This is due to side effects of the drug relating to global exposure of the
brain to L-dopa, and the increased dosing required to overcome continued
degeneration of dopaminergic neurons.

Somatix is evaluating the use of gene therapy to produce a continuous and
efficacious supply of L-dopa in the brain. Several therapeutic genes may
ultimately be required to treat the disease; however, one key transgene
encodes the rate limiting enzyme in the biosynthesis of L-dopa, tyrosine
hydroxylase ("TH"). Additionally, scientists believe that administration of
neurotrophic factors to the region of the brain containing dopaminergic
neurons may retard their degeneration and keep natural dopamine production at
levels sufficient for normal motor function for a significantly longer period
of time. Recent preclinical data has suggested that neurotrophic factors may
act on such dopaminergic neurons in a potent and specific way. Eventually,
Somatix may introduce a PD therapy combining neurotrophic factors with TH gene
delivery. Somatix may have to license certain genes for these factors in order
to fully exploit a combination therapy.

CNS Program Results and Progress. The Company has conducted extensive
studies of ex vivo and in vivo gene therapy of the CNS in rodent and nonhuman
primate models over the past three years. Ex vivo studies have centered on the
striatal implantation of autologous fibroblasts genetically modified, via
retroviral vector, to produce TH. The fibroblasts are derived from skin
biopsies of the animals and are genetically modified in the Company's gene
transfer laboratories. In vivo experiments have focused on AAV vectors
encoding the TH and GTP cyclohydrolase ("GTP-CHI") enzymes, which are injected
directly into the brain where target cells are genetically modified in situ.
For either strategy, the required stereotaxic surgery has been reduced to a
routine clinical procedure and does not represent a significant technical
barrier.

In late 1995, the Company undertook a large ex vivo preclinical study
involving 24 parkinsonian, nonhuman primates. The study was designed to
measure the longevity of gene expression and, secondarily, the behavioral
effect of implanting TH-modified fibroblasts. Certain primates received the
genetically modified cells while others served as untreated controls. The
experiment was completed after six months and post mortems have been
conducted. While evidence of transgene expression was observed at the longest
time point studied to date (four months), the fibroblast grafts were shown not
to contain sufficient cells for a rigorous efficacy evaluation of the ex vivo
strategy. Experiments are planned to address the technical issues raised by
this study.

5
<PAGE>

COMMERCIAL DEVELOPMENT

In the United States, gene therapy is regulated by the FDA's Center for
Biologics Evaluation and Research ("CBER"). CBER regulation places a statutory
emphasis on manufacturing; that is, the genetic modification and processing of
cells for ex vivo gene therapy, and the manufacture of therapeutic gene
transfer vectors for in vivo gene therapy. To ensure compliance with FDA/CBER
regulation, Somatix carries out the ex vivo modification and processing of
cells at facilities under its own control. Somatix is pioneering the
development of the regulatory and manufacturing systems required for adherence
to biologics regulation as it applies to ex vivo gene therapy. Somatix has
established a pilot cell processing facility designed to operate in compliance
with Good Manufacturing Practices ("GMP"). The production of genetically
modified cells is intensive in its requirements of labor, materials, and
facilities. Any further expansion of Somatix' cell processing capabilities
will require additional investment in the physical, systems and staffing
infrastructure required for the manufacturing of biologics in the United
States.

The Company intends to market and sell certain of its products directly,
while relying on the sales and marketing expertise of potential corporate
partners for other programs. The decision to market products directly or
through corporate partners will be based on a number of factors, including
market size and concentration, the size and expertise of the partner's sales
force in a particular market and the Company's overall strategic objectives.
The Company is currently engaged in discussions with several potential
partners.

COMPETITION

The Company is aware of several development stage and established
enterprises, including prominent pharmaceutical and biotechnology firms, which
are exploring the field of human gene therapy or are actively conducting
research in gene therapy. The Company may also experience competition from
other companies which have acquired or may in the future acquire technology
from universities and other research institutions. As these companies develop,
they may create or acquire proprietary positions involving certain aspects of
gene therapy.

Some disease indications being evaluated for gene therapy by Somatix are
treatable with existing and commercially available medicines. In some cases,
currently available therapies are not completely effective, have significant
toxicity or are very expensive. While Somatix believes that gene therapy has
the potential to provide new and more effective treatments, there is no
assurance that other companies will not develop treatments superior to
Somatix' gene therapy.

PATENTS, PROPRIETARY RIGHTS AND LICENSES

The Company's proprietary position includes rights under patents and patent
applications covering genetically modified cells, gene transfer vectors for
and methods of transferring foreign genes into such cells, and the use of
these genetically modified cells to treat certain diseases. Patent positions
in the field of biotechnology are generally highly uncertain and involve
complex legal and scientific questions. To date, no consistent policy has been
developed by the U.S. Patent and Trademark Office regarding the breadth of
claims allowed in biotechnology patents. Accordingly, there can be no
assurance that patent applications licensed to or submitted by the Company
will result in the issuance of patents, or that, if issued, patents will
afford the Company protection against competitors with similar technology. The
Company also relies upon unpatented proprietary technology. No assurance can
be given that the Company can meaningfully protect its rights with regard to
such unpatented proprietary technology or that competitors will not duplicate
or independently develop substantially equivalent technology.

The Company believes that there may be litigation involving patent and other
intellectual property rights in the gene therapy area. If the Company were
involved, regardless of the outcome, a substantial portion of the Company's
financial and human resources could be involved. The Company's processes and
potential future products may be found to infringe patents which have been or
may be granted to competitors or research institutions. As the biotechnology
industry expands and more patents are issued, the possibility of infringement

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may increase. Should this occur, legal action could be brought against the
Company, damages sought, and certain research and products enjoined, if a
competitor's patents were found by a court of competent jurisdiction to be
valid, enforceable and infringed. If such action were successful, in addition
to any potential liability for damages, the Company could be required to
obtain a license in order to continue to use the affected process or
manufacture the affected product, or to cease using such process or product.
There can be no assurance that the Company would prevail in such litigation,
or that any required license would be made available on acceptable terms, or
at all.

One of the Company's competitors holds an exclusive license to a United
States patent issued to the National Institutes of Health covering ex vivo
gene therapy (U.S. Patent No. 5,399,346 to Anderson, et al.). This patent is
exclusively licensed to Genetic Therapy Inc., which in 1995 was acquired by
Sandoz Pharmaceuticals. The United States Patent and Trademark Office ("PTO")
has declared an interference between a pending patent application exclusively
licensed to the Company, a patent application of another company, and the
Anderson et al. patent. The PTO will conduct an interference proceeding, which
is primarily intended to determine the priority of the invention rights among
the three parties, and, in addition, will review the validity and
patentability of the parties' patent filings. Somatix' application has been
accorded senior party status based on its priority filing date of July 5,
1985. The outcome of these proceedings is uncertain, and is expected to take
at least a year. However, there can be no assurance that the Anderson et al.
patent or the third party patent application will not prevail, and that, if
one or the other of them prevails, that any rights under such will be
available to the Company on commercially reasonable terms.

In addition, the Company is aware that a competitor has licensed pending
patent applications relating to certain types of genetically modified cells.
In particular, the Company is aware of a pending application covering certain
genetically modified endothelial cells and their use in gene therapy. The
patent application is assigned to the U.S. government, and the Company
believes that it is exclusively licensed to such competitor. This application
has a filing date later than the filing date of the endothelial cell patent
licensed to the Company. Nevertheless, many issues will have to be resolved
before priority is determined.

Because patent applications in the United States are maintained in secrecy
until patents issue, and because publication of discoveries in the scientific
or patent literature often lags behind the actual discoveries, Somatix cannot
be certain that its licensors were the first creators of inventions covered by
its pending patent applications or that they were the first to file such
applications.

In order to manufacture and market its potential products, the Company may
be required to obtain licenses to patents or other proprietary rights of third
parties. There can be no assurance that the Company will be able to obtain a
license to any third party technology that it may require to conduct its
business or that, if obtainable, such technology can be licensed at a
reasonable cost. If the Company does not obtain such licenses, it could
encounter delays in introducing any such potential products while it attempts
to design around such patents, or it could find that the development,
manufacture or sale of such products could be foreclosed. Failure by the
Company to obtain a license to any technology that it may require to
commercialize its technologies or potential products may have a material
adverse effect on the Company. In addition, the Company could incur
substantial costs in defending itself in suits brought against it on such
patents or in suits in which the Company's patents may be asserted by it
against another party.

Somatix' policy is to file, where appropriate, patent applications based on
its own research to protect technology, inventions, and improvements that are
important to the development of its business. The Company also relies upon
trade secrets, expertise, continuing technological innovations, and licensing
opportunities to develop and maintain its competitive position. Somatix plans
to aggressively pursue patent applications to issuance and to defend its
patents against third parties. To date, Somatix' proprietary position also
includes patents and patent applications licensed from academic institutions
and a corporation. The Company's proprietary position is as follows:

Gene Transfer Methodology. Somatix has exclusively licensed from the
Whitehead Institute patent applications that have been filed in the United
States, Europe, Japan, Canada, and several other countries. These

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applications cover vectors (modified disabled retroviruses used to transfer
genes into cells) that the Company is developing in its gene therapy programs.

In connection with its acquisition of Merlin Pharmaceutical Corporation in
February 1995, the Company acquired rights to novel adeno-associated virus
vector methodology, including licenses from DNX, Inc., the University of
Pittsburgh and the State University of New York. Under such licenses, the
Company has exclusive rights to several important inventions and patent
applications for AAV vectors, and to the production of those vectors for gene
therapy applications.

The Company is also developing adenovirus and non-viral, synthetic vectors
for use in gene therapy, expanding its technology platform to five distinct
types of gene transfer system. The Company has filed, and will continue to
file, patent applications on technology developed internally, where
appropriate.

Cell Types. Somatix has an exclusive license from The Whitehead Institute to
two U.S. patents, and a pending U.S. patent application, covering genetically
modified epithelial cells and methods for creating them; a European patent has
also been issued. Somatix also has an exclusive, worldwide license from the
Whitehead Institute to a U.S. patent, and to a U.S. patent application and a
related European patent, covering genetically modified fibroblasts fixed in an
extracellular matrix for implantation in patients.

Somatix also has an exclusive, worldwide license from The Whitehead
Institute to patent applications for genetically modified hepatocytes and
endothelial cells as well as methods for their creation and use in gene
therapy. A European patent has issued on the creation and use of genetically
modified endothelial cells.

Gene Therapy Applications. Somatix has an exclusive, worldwide license from
the University of California to an issued patent and a U.S. patent application
covering methods for treating diseases of the central nervous system using
genetically modified cells. The Company also has an exclusive license to a
patent application covering the genetic modification of cells to express GTP
cyclohydrolase, which may be useful for the gene therapy treatment of PD.

Somatix also has an exclusive, worldwide license from The Johns Hopkins
University and the University of Texas to a patent application, and an issued
European patent, for the use of genetically modified cells for cancer
vaccines. The Company also has an exclusive, worldwide license from the
Whitehead Institute to their interest in a patent application for the use of
genetically modified tumor cells expressing GM-CSF for use as cancer vaccines.

Additionally, the Company is currently negotiating or has obtained exclusive
rights to patents and patent applications covering the use of AAV vectors for
gene therapy via muscle tissue, cardiac tissue, the central nervous system,
and the gut, which may be useful in the Company's programs.

The Company has acquired significant proprietary rights under license
agreements that permit the licensors to terminate those agreements in the
event of certain material breaches by the Company. Although the Company has no
reason to believe it is currently in default under any of these agreements,
there can be no assurance that such defaults will not occur in the future.
Should a default occur, and should any of those agreements be terminated in
the future, the Company could lose the right to continue to develop one or
more of these potential products. Patent prosecution involves collaboration
between Somatix' in-house patent counsel and outside intellectual property
counsel.

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ACCESS TO PROPRIETARY GENES

Some of the genes used by the Company in its gene therapy products are or
may become patented by third parties. As a result, the Company may be required
to obtain licenses under such patents in order to conduct certain research or
to manufacture or market products that contain proprietary genes. There can be
no assurances that these licenses will be granted. The Company is aware of
proceedings to determine rights to the human GM-CSF cDNA sequence in the
United States and Europe. In the United States, in the most recent public
disclosure of which the Company is aware, the Board of Patent Appeals and
Interferences granted a motion by a third party in an interference proceeding
stating that the human GM-CSF cDNA sequence is not patentable over the prior
art. In Europe, a hearing in an opposition proceeding initiated by a third
party to invalidate a European patent covering the human GM-CSF cDNA was
unsuccessful. The decision by the European Patent Office Opposition Division
upholding the patent has been appealed by this third party. There can be no
assurance of the outcome of these proceedings or the outcome of these
proceedings on appeal, or that, if required, a license of rights to the gene
sequence will be available to the Company on commercially reasonable terms, if
at all.

GOVERNMENT REGULATION

The Company's potential products will be subject to regulation by the FDA
and will require FDA approval before being commercially marketed for human
therapeutic use in the United States. Similar regulatory approval is also
required in foreign countries. The Company believes that its potential
products will be regulated by the FDA as biologic products. In order to
initiate the clinical trials needed to obtain supporting data for marketing
approval, the Company must file an IND with the FDA. An IND includes the
results of preclinical studies, methods of manufacturing and the proposed plan
for clinical trials. If the FDA finds deficiencies in the proposed plan, or
otherwise concludes that it would not be reasonably safe to proceed with the
planned studies, it may require changes in the IND before allowing the
clinical studies to begin.

Clinical trials are usually conducted in three phases that may take several
years to complete. The initial Phase I clinical studies are primarily
conducted to establish safety; however, some Phase I clinical studies that
involve terminal diseases may include preliminary efficacy evaluations as
well. Phase I studies may last from six months to over one year, and usually
involve 15 to 50 people. Once safety parameters are established, Phase II
studies are initiated to determine therapeutic activity, as well as optimal
dosing and route of administration. Phase II studies may involve 20 to 100
people or more. Phase III studies are conducted to demonstrate therapeutic
efficacy in a statistically significant manner at the optimal dose, route and
schedule of administration. These studies may include 200 to 1,000 patients.
During all phases of clinical trails, the FDA must be given periodic progress
reports and must be notified regarding adverse reactions, clinical protocol
changes and product changes. The FDA may suspend clinical studies if clinical
data indicate that patients are being subjected to unreasonable risks. The
uncertainty of the regulatory and clinical research process could adversely
affect the Company's ability to clinically test, manufacture or market
products.

Once clinical trials are completed, the product must receive FDA marketing
approval. The Company must submit a Product License Application ("PLA") and
Establishment License Application ("ELA"). Generally, the FDA takes between
one and five years to review these applications, and once approved, continues
to monitor the effects of the treatment. Even if a product is made
commercially available, the FDA has the power to limit or prevent further
production, based on findings of its surveillance program.

Additionally, the NIH has established guidelines for research involving
recombinant DNA molecules, which Somatix uses. The Company now complies with,
and intends to continue to comply with these guidelines. Until recently,
guidelines stated that proposals to conduct clinical research involving gene
therapy be reviewed by the NIH's Recombinant DNA Advisory Committee (the
"RAC"). Somatix' renal cell carcinoma, prostate cancer and U.S. melanoma
protocols were approved by this body. However, new guidelines are being
developed that may remove RAC's oversight responsibilities for many gene
therapy protocols. The impact of these new guidelines on the cost of or timing
of clinical trials cannot be determined at this time.

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As discussed, gene therapy is a novel approach to treating disease. Since it
has not been tested extensively in humans, regulatory requirements governing
its testing are subject to review. The uncertainty of these requirements may
result in extensive delays in initiating clinical trials and in the regulatory
approval process. Regulatory requirements ultimately imposed could adversely
affect the Company's ability to test, manufacture or market products.

COMPLIANCE WITH ENVIRONMENTAL LAWS

The Company's business is subject to regulation under state and federal laws
regarding environmental protection and hazardous substances control. The
Company believes that its compliance with these laws has had no adverse impact
upon its capital expenditures, earnings or competitive position. Federal and
state agencies and congressional committees have expressed interest in further
regulation of biotechnology. The Company is unable to estimate the extent and
impact of regulation in the biotechnology field resulting from such future
federal, state or local legislation or administrative action.

This Form 10-K contains, in addition to historical information, forward-
looking statements that involve risks and uncertainties. The Company's actual
results could differ materially from the results discussed in the forward-
looking statements. Factors that could cause or contribute to such differences
include those discussed in "Risk Factors" as well as those discussed elsewhere
in this Form 10-K.

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RISK FACTORS

FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING

The Company anticipates that its existing cash and interest income will be
adequate to satisfy its capital requirements for at least the next 12 months.
The Company's future capital requirements will depend on many factors,
including the progress of the Company's research and development, the scope
and results of preclinical studies and clinical trials, the cost of obtaining
regulatory approvals, the rate of technological advances, determinations as to
the commercial potential of the Company's products under development, the
status of competitive products and the establishment of manufacturing
capacity. The Company anticipates that it will be required to raise
substantial additional funds, including funds raised through collaborative
relationships and public or private financings. Because of the Company's
significant long-term capital requirements, it may seek to access the public
equity markets whenever conditions are favorable, even if it does not have an
immediate need for additional capital at that time. No assurance can be given
that additional financing will be available on acceptable terms, or at all. If
adequate funds are not available, the Company will be required to curtail
significantly its research and development programs or may be required to
discontinue its programs in their entirety and liquidate its assets.

EARLY STAGE OF DEVELOPMENT; NO DEVELOPED OR APPROVED PRODUCTS

Somatix' potential gene therapy products are in research and development. No
revenues have been generated from the sale of any of such products, nor are
any such revenues expected for at least the next several years. The products
currently under development by the Company will require significant additional
research and development efforts, including extensive preclinical and clinical
testing and regulatory approval, prior to commercial use. There can be no
assurance that the Company's research and development efforts will be
successful, that any of the Company's potential gene therapy products will
prove to be safe and effective in clinical trials or that any commercially
successful products will ultimately be developed by the Company. Even if
developed, these products may not receive regulatory approval or be
successfully introduced and marketed at prices that would permit the Company
to operate profitably.

TECHNOLOGICAL UNCERTAINTY

Gene therapy is a new technology, and existing preclinical and clinical data
on the safety and efficacy of gene therapy are very limited. Data relating to
the Company's specific gene therapy approaches are even more limited. The
Company's GVAX(TM) cancer vaccine product is being tested in Phase I human
clinical trials primarily to determine its safety; none of the other products
under development at the Company are in human clinical trials. The results of
preclinical studies do not predict safety or efficacy in humans. Possible
serious side effects of gene therapy include viral infections, the initiation
of cancers and possible autoimmune diseases in the patient. There can be no
assurance that unacceptable side effects will not be discovered during
preclinical and clinical testing of the Company's potential products or
thereafter. There are many reasons that potential products that appear
promising at an early stage of research or development do not result in
commercialization. Although the Company is testing one of its proposed
products in Phase I clinical trials, there can be no assurance that the
Company will be permitted to undertake human clinical trials for any of its
other products or that the results of such testing will demonstrate safety or
efficacy. Even if clinical trials are successful, there is no assurance that
the Company will obtain regulatory approval for any indication, or that an
approved product can be produced in commercial quantities at reasonable costs,
or be successfully marketed. The Company has also recently begun development
of in vivo approaches to gene therapy that will target specific cells. There
can be no assurance that the desired specificity will be attained or that such
products will not have serious side effects.

OPERATING LOSS AND ACCUMULATED DEFICIT

The Company has incurred net losses since its inception. At June 30, 1996,
the Company's accumulated deficit was approximately $170.2 million. Such
losses have resulted principally from expenses incurred in the Company's
research and development programs, the acquisition of new technology, and to a
lesser extent, from

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general and administrative expenses. The Company incurred a loss of $20.7
million in fiscal 1996 and expects to incur substantial and increasing losses
for at least the next several years due primarily to the expansion of its
research and development programs, including preclinical studies, clinical
trials and manufacturing. The Company expects that losses will fluctuate from
quarter to quarter and that such fluctuations may be substantial. There can be
no assurance that the Company will successfully develop, commercialize,
manufacture or market its products or ever achieve or sustain product revenues
or profitability.

VOLATILITY OF STOCK PRICE

The market prices for securities of biopharmaceutical and biotechnology
companies (including the Company) have historically been highly volatile, and
the market has from time to time experienced significant price and volume
fluctuations that are unrelated to the operating performance of particular
companies. Factors such as fluctuations in the Company's operating results,
announcements of technological innovations or new therapeutic products by the
Company or its competitors, governmental regulation, developments in patent or
other proprietary rights, public concern as to the safety of products
developed by the Company or others and general market conditions may have a
significant effect on the market price of the Common Stock.

UNCERTAINTY OF GOVERNMENT REGULATORY REQUIREMENTS; LENGTHY APPROVAL PROCESS

Because gene therapy is a relatively new technology and has not been
extensively tested in humans, the regulatory requirements governing gene
therapy products are uncertain and may be subject to substantial further
review by various regulatory authorities in the United States and abroad.
These uncertain requirements may result in extensive delays in initiating
clinical trials and in the regulatory approval process. Regulatory
requirements ultimately imposed could adversely affect the Company's ability
to clinically test, manufacture or market products.

The Company believes that its potential products will be regulated by the
FDA as biologics. Each potential product for a specific disease application
may be subject to regulation as a separate biologic, depending on its intended
use and FDA policy. The regulatory process for new therapeutic products,
including the required preclinical and clinical testing, is lengthy and
expensive, and there can be no assurance that FDA approvals will be obtained
in a timely manner, if at all. Future United States or foreign legislative or
administrative actions could also prevent or delay regulatory approval of the
Company's products. There can be no assurance that the Company will be able to
obtain the necessary authorizations to initiate clinical trials or approvals
to market any of its potential products. Even if FDA regulatory approvals are
obtained, a marketed product is subject to continual review. Later discovery
of previously unknown problems or failure to comply with the applicable
regulatory requirements may result in product marketing restrictions or
withdrawal of the product from the market, as well as possible civil or
criminal sanctions. In addition, many academic institutions and companies
doing research in the gene therapy field are using a variety of approaches and
technologies. Any adverse results obtained by such researchers in preclinical
or clinical studies could adversely affect the regulatory environment for gene
therapy products generally, possibly leading to delays in the approval process
for the Company's potential products.

On October 25, 1993, the vaccines and related biological products advisory
committee to the Center for Biologics Evaluation and Research ("CBER") of the
FDA met to review issues related to gene therapy, including the use of
retroviruses and adenoviruses. The committee did not recommend limiting the
use of viral vectors in gene therapies and made certain recommendations that
will be incorporated into a revision of the FDA's 1991 "Points to Consider"
document related to gene therapies and somatic cell therapies. There can be no
assurance, however, that new guidelines will not be instituted, or that
Somatix will be able to continue to comply with existing or future
regulations.

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can be no assurance that this situation will continue. Federal and state
agencies and congressional committees have expressed interest in further
regulation of biotechnology. The Company is unable to estimate the extent and
impact of regulation in the biotechnology field resulting from any future
federal, state or local legislation or administrative action.

DEPENDENCE UPON KEY PERSONNEL AND COLLABORATIVE RELATIONSHIPS

The Company's success is highly dependent on the retention of principal
members of its management and scientific staff and the recruitment of
additional qualified personnel. The loss of key personnel or the failure to
recruit necessary additional qualified personnel could have an adverse effect
on the operations of the Company. There is intense competition from other
companies, research and academic institutions and other organizations for
qualified personnel in the areas of the Company's activities. There is no
assurance that Somatix will be able to continue to attract and retain the
qualified personnel necessary for the development of its business. These
activities are expected to require the addition of new personnel with
expertise in the areas of clinical testing, manufacturing, marketing and
distribution and the development of additional expertise by existing
personnel. The failure to acquire such personnel or develop such expertise
could adversely affect prospects for the Company's success.

The Company has clinical trial arrangements with The Johns Hopkins
University covering a Phase I clinical trial to treat kidney cancer patients,
now in progress, and a Phase I/II clinical trial to treat prostate cancer
patients for which RAC approval has been obtained, but for which no patients
have yet been enrolled. The Company has additional arrangements with the
Netherlands Cancer Institute and the Dana Farber Cancer Center to treat
melanoma patients in two separate Phase I clinical trials. Both trials are
currently in progress. In the event that any of these relationships are
terminated, the completion and evaluation of clinical trials could be
adversely affected. In addition, the Company has an arrangement with the
Parkinson's Institute of Santa Clara, California to provide animal facilities,
animals and consulting services in connection with preclinical testing of its
gene therapy product for PD. If the relationship were terminated, progress of
preclinical testing would be adversely affected.

The Company depends in part on the continued availability of outside
scientific collaborators performing research, which may be funded by the
Company, in certain areas relevant to the Company's research. These
relationships generally may be terminated at any time by the collaborator,
typically by giving 30 days' notice to the Company. The Company's scientific
collaborators are not employees of the Company. As a result, the Company has
limited control over their activities and can expect that only limited amounts
of their time will be dedicated to Company activities. The Company's
agreements with these collaborators as well as those with the Company's
scientific consultants provide that any rights the Company obtains as a result
of the research efforts of these individuals will be subject to the rights of
the research institutions in such work. In addition, some of these
collaborators have consulting or other advisory arrangements with other
entities that may conflict with their obligations to the Company. For these
reasons, there can be no assurance that inventions or processes discovered by
the Company's scientific collaborators or scientific consultants will become
the property of the Company.

PATENTS, PROPRIETARY RIGHTS AND LICENSES

Patent positions in the field of biotechnology are generally highly
uncertain and involve complex legal and scientific questions. To date, there
has emerged no consistent policy regarding the breadth of claims allowed in
biotechnology patents, especially in the area of gene therapy. Accordingly,
there can be no assurance that patent applications and patents licensed to the
Company will result in patents being issued or that, if and when issued, the
patents will afford protection against competitors with similar technology.
The Company has licensed two U.S. patents covering the ex vivo modification of
cells to treat diseases of the central nervous system, and all three patents
have filing dates earlier than the filing date of the competitor's patent.
However, there can be no assurance that the competitor's patent will not
remain in force, and if it does, that any rights under the patent will be
available to the Company on commercially reasonable terms. The Company also
relies upon unpatented proprietary technology. No assurance can be given that
the Company can meaningfully protect its rights in such

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unpatented proprietary technology or that others will not duplicate or
independently develop substantially equivalent technology.

The Company's processes and potential products may conflict with patents
which have been or may be granted to competitors, academic institutions,
universities or others. As the biotechnology industry expands and more patents
are issued, the risk increases that the Company's processes and potential
products may give rise to claims that they infringe the patents of others.
Such other persons could bring legal actions against the Company claiming
damages and seeking to enjoin certain research, manufacturing and marketing of
the affected process or potential product. If any such actions are successful,
in addition to any potential liability for damages, the Company could be
required to obtain a license in order to continue to use the affected process
or to manufacture or use the affected product or cease using such product or
process if enjoined by a court. There can be no assurance that the Company
would prevail in any such action or that any license required under any such
patent would be made available on acceptable terms, or at all. The Company
believes that there may be significant litigation in the industry regarding
patent and other intellectual property rights. If the Company becomes involved
in such litigation, it could consume a substantial portion of the Company's
financial and human resources, regardless of the outcome of such litigation.

One of the Company's competitors has been granted an exclusive license to a
United States patent issued to the National Institute of Health covering ex
vivo gene therapy. While the Company has licensed two U.S. patents covering
the ex vivo modification of epithelial cells and one U.S. patent covering the
ex vivo modification of cells to treat diseases of the central nervous system,
and while all three patents' filing dates are earlier than the filing date of
the competitor's licensed patent, there can be no assurance that the
competitor's patent will not prevail and that if it prevails, that any rights
under such will be available to the Company on commercially reasonable terms,
if at all.

In addition, the Company is aware of pending patent applications which have
been licensed to another competitor of the Company relating to certain types
of genetically modified cells. For example, the Company is aware of a pending
application covering genetically modified endothelial cells and their use in
gene therapy. The patent application is assigned to the United States
Government, and it is believed that the patent application is exclusively
licensed to a competitor. There is no assurance that a license to this or
related patent applications will be available to the Company. Furthermore, as
gene therapy becomes more established, others may enter the field who have
patent rights to genes and technology which may be used in gene therapy. If
the Company is unable to obtain licenses to such patents, its business may be
substantially and adversely affected. In addition, since patent applications
in the United States are maintained in secrecy until patents issue, and since
publication of discoveries in the scientific or patent literature often lags
behind actual discoveries, Somatix cannot be certain that its licensors were
the first creators of inventions covered by its pending patent applications or
that they were the first to file patent applications for such inventions.

In order to manufacture and market its products, the Company may be required
to obtain licenses to patents or other proprietary rights of third parties.
There can be no assurance that the Company will be able to obtain a license to
any third party technology that it may require to conduct its business or
that, if obtainable, such technology can be licensed at a reasonable cost. If
the Company does not obtain such licenses, it could encounter delays in
introducing any such potential products while it attempts to design around
such patents, or it could find that the development, manufacture or sale of
such potential products could be adversely effected. Failure by the Company to
obtain a license to any technology that it may require to commercialize its
technologies or potential products may have a material adverse effect on the
Company. In addition, the Company could incur substantial costs in defending
itself in lawsuits brought against it on such patents or in lawsuits in which
the Company's patents may be asserted by it against another party.

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Although the rights to the DNA Sequence for the Form of Factor VIII used by
the Company have not yet been determined, the Company is aware of United
States patents for factor VIII DNA sequences that have been licensed to
competitors for exclusive use in their gene therapy programs. Unless the
Company can similarly license such sequences or other sequences, the Company
may not be able to commercialize its hemophilia program. The Company is aware
of proceedings to determine rights to the human GM-CSF cDNA sequence in the
United States and Europe. In the United States, in the most recent public
disclosure of which the Company is aware, the Board of Patent Appeals and
Interferences granted a motion by a third party in an interference proceeding
stating that the human GM-CSF cDNA sequence is not patentable over the prior
art. In Europe, an Opposition proceeding initiated by a third party to
invalidate a European patent covering human GM-CSF cDNA was unsuccessful. The
decision by the European Patent Office Opposition Division upholding the
patent has been appealed by this third party. There can be no assurance of the
outcome of these proceedings or the outcome of these proceedings on appeal, or
that, if required, a license of rights to the gene sequence will be available
to the Company on commercially reasonable terms, if at all.

The Company has acquired significant proprietary rights under license
agreements that permit the licensors to terminate those agreements in the
event of certain material breaches by the Company. Although the Company is not
currently in default under any of these agreements, there can be no assurance
that such defaults will not occur in the future. Should a default occur, and
should any of those agreements be terminated in the future, the Company could
lose the right to continue to develop one or more of these potential products.

COMMERCIALIZATION: LACK OF MANUFACTURING OR MARKETING EXPERIENCE

The Company intends to market and sell some of its potential products
directly, while relying on sales and marketing expertise of potential
corporate partners for other programs. The Company has no experience in sales,
marketing or distribution of biopharmaceutical products and has not developed
a specific sales and marketing plan with respect to any of its potential
products. The decision to market products directly or through corporate
partners will be based on a number of factors including market size and
concentration, the size and expertise of the partner's sales force in a
particular market and the Company's overall strategic objectives. The Company
is currently engaged in various stages of discussions with potential partners.
There can be no assurance that the Company will be able to establish such
relationships on acceptable terms and conditions, or at all.

The Company's current commercialization strategy is to sell genetically
modified cells to hospitals and clinics. The Company will be required to
operate facilities in which each patient's cells are genetically modified,
processed and tested in compliance with the Good Manufacturing Practices
published in the U.S. Code of Federal Regulations. Currently, the Company can
manufacture genetically modified cells in quantities sufficient to meet its
needs for clinical testing but does not have the capability to manufacture
sufficient quantities to meet large-scale commercial requirements. The Company
believes that its processes can be scaled-up efficiently to meet its
anticipated future requirements, but there can be no assurance that problems
or delays will not arise in such scale-up. The manufacture of sufficient
quantities of the Company's potential products can be an expensive, time-
consuming and complex process. If the Company is unable to develop such
manufacturing capabilities, the Company's ability to commercialize its
products will be adversely affected. This could prevent or delay submission of
products for regulatory approval and initiation of new development programs,
which would have a material adverse effect on the Company.

COMPETITION

The gene therapy field is relatively new and rapidly evolving, and it is
expected to continue to undergo significant and rapid technological change.
Rapid technological development could result in the Company's potential
products, services or processes becoming obsolete before the Company recovers
a significant portion of its related research, development and capital
expenditures. The Company will experience competition both from other
companies in the field of gene therapy and from companies which have other
forms of treatment for the diseases targeted by the Company. The Company is
aware of several development stage and established enterprises, including
major pharmaceutical and biotechnology firms as well as several major
universities, which

15
<PAGE>

are exploring the field of human gene therapy or are actively engaged in
research and development in areas including both retroviral vectors and other
methods of gene transfer. To the Company's knowledge, at least one of these
companies and several universities have participated in clinical trials using
retroviral vectors. The Company may also experience competition from companies
that have acquired or may acquire technology from such universities and other
research institutions. As these companies develop their technologies, they may
develop proprietary positions in certain aspects of gene therapy. Certain
competitors and potential competitors of the Company have substantially
greater product development capabilities and financial, scientific, marketing
and human resources than the Company, and other competitors of the Company may
enter into collaborative relationships with other companies having such
greater resources. Other companies may succeed in developing products earlier
than the Company, obtaining FDA approvals for such products more rapidly than
the Company, or developing products that are more effective than those
proposed to be developed by the Company. There can be no assurance that
research and development by others will not render the Company's technology or
products obsolete or non-competitive or result in treatments superior to any
therapy developed by the Company, or that any therapy developed by the Company
will be preferred to any existing or newly developed technologies.

PRODUCT LIABILITY AND INSURANCE

Clinical trials or marketing of any of the Company's potential products may
expose the Company to liability claims resulting from the use of such
products. These claims might be made directly by consumers, health care
providers or by others selling such products. The Company currently maintains
product liability insurance with respect to its former product lines and this
coverage includes clinical trials. The policy coverage is $5 million and is on
a claims made basis. There can be no assurance that the Company will be able
to maintain such insurance or, if maintained, that sufficient coverage can be
acquired at a reasonable cost. An inability to maintain insurance at
acceptable cost or at all could prevent or inhibit the clinical testing or
commercialization of products developed by the Company. A product liability
claim or recall could have a material adverse effect on the business or
financial condition of the Company.

HAZARDOUS MATERIALS; ENVIRONMENTAL MATTERS

The Company's research and development activities involve the controlled use
of hazardous materials, chemicals, viruses and various radioactive compounds.
The Company is subject to federal, state and local laws and regulations
governing the use, manufacture, storage, handling and disposal of such
materials and certain waste products. Although the Company believes that its
safety procedures for handling and disposing of such materials comply with the
standards prescribed by such laws and regulations, the risk of accidental
contamination or injury from these materials cannot be completely eliminated.
In the event of such an accident, the Company could be held liable for any
damages that result and any such liability could exceed the resources of the
Company. The Company may be required to incur significant costs to comply with
environmental laws and regulations in the future. The Company's operations,
business or assets may be materially or adversely affected by current or
future environmental laws or regulations.

REIMBURSEMENT

In both domestic and foreign markets, sales of the Company's potential
products will depend in part upon coverage and reimbursement from third-party
payors, including health care organizations, including government agencies,
private health care insurers and other health care payors such as health
maintenance organizations, self-insured employee plans and the Blue Cross/Blue
Shield plans. There is considerable pressure to reduce the cost of drug
products. In particular, reimbursement from government agencies and insurers
and large health organizations may become more restricted in the future. The
Company's potential products represent a new mode of therapy, and, while the
cost-benefit ratio of the products may be favorable, the Company expects that
the costs associated with its products will be substantial. There can be no
assurance that the Company's proposed products, if successfully developed,
will be considered cost-effective by third party payors, that insurance
coverage will be available or, if available, that such payors' reimbursement
policies will not adversely affect the Company's ability to sell its products
on a profitable basis. In addition, there can be no assurance that insurance
coverage

16
<PAGE>

will be provided by such payors at all or without substantial delay, or, if
such coverage is provided, that the approved reimbursement will provide
sufficient funds to enable the Company to become profitable.

UNCERTAINTY OF PHARMACEUTICAL PRICING AND RELATED MATTERS

The future revenues and profitability of and availability of capital for
biotechnology companies may be affected by the continuing efforts of
governmental and third party payors to contain or reduce the costs of health
care through various means. For example, in certain foreign markets pricing or
profitability of prescription pharmaceuticals is subject to government
control. In the United States, there have been, and the Company expects that
there will continue to be, a number of federal and state proposals to
implement similar government control. While the Company cannot predict whether
any such legislative or regulatory proposals will be adopted, the announcement
or adoption of such proposals could have a material adverse effect on the
Company's prospects.

ITEM 2. PROPERTIES

The Company operates a laboratory facility in Alameda, California. This
facility houses the research and development staff and laboratories of the
Company. The Company has occupied this facility since March 1987 and believes
that it is well maintained and generally adequate for the Company's present
needs and intended uses. The facility is located in a building of
approximately 40,000 square feet at 850 Marina Village Parkway, Alameda,
California 94501. The facility is leased through February 2007, at an
approximate annual rent of $633,000. In addition, on July 1, 1994 the Company
leased approximately 16,000 square feet of office space for the corporate
headquarters and administrative staff at 950 Marina Village Parkway and on
March 1, 1994 leased 26,000 square feet of shell space at 2060 Challenger
Drive, Alameda for a prospective manufacturing site which has been subleased
for the balance of the lease. The approximate annual rents are $237,000 and
$425,000, respectively, through February 2004. The Company has a one-time
option to terminate these leases after five years. On January 25, 1996 the
Company leased approximately 13,000 square feet for an animal facility at 2061
Challenger Drive, Alameda through February 2007 at an approximate annual rent
of $197,000. Office space at 1301 Marina Village Parkway, consisting of 13,000
square feet, leased at an approximate annual rent of $211,000 until September
1993 and $277,000 per year thereafter through November 1997 has been subleased
for the remainder of the lease.

ITEM 3. LEGAL PROCEEDINGS

(a) No material legal proceedings to which Somatix was a party or of which
any of its property was the subject were pending during fiscal 1996.

(b) No material legal proceedings were terminated in the fourth quarter of
fiscal 1996.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS

No matters were submitted to a vote of the Company's stockholders during the
last quarter of the fiscal year ended June 30, 1996.

17
<PAGE>

PART II

ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Shares of the Company's common stock commenced trading in the over-the-
counter market on the Nasdaq National Market on June 5, 1986, under the symbol
"HANA". On March 15, 1991, as a result of the Merger of Hana and Somatix and
the subsequent name change to Somatix Therapy Corporation, the trading symbol
was changed to "SOMA". As of June 30, 1996, there were approximately 961
holders of record of the Company's common stock.

The Company has never paid cash dividends on its common stock and does not
anticipate paying cash dividends on its common stock in the foreseeable
future. See Note 3 to Financial Statements.

The following table sets forth, for fiscal periods indicated, the range of
high and low closing sale prices available for the fiscal years 1996 and 1995.

<TABLE>
<CAPTION>
HIGH LOW
------- ------
<S> <C> <C>
1996
Fourth Quarter................................................. $9 3/4 $6
Third Quarter.................................................. 7 1/4 5 1/8
Second Quarter................................................. 6 1/2 3 3/4
First Quarter.................................................. 7 5/8 3 7/8
<CAPTION>
HIGH LOW
------- ------
<S> <C> <C>
1995
Fourth Quarter................................................. $5 1/16 $3
Third Quarter.................................................. 5 1/4 2 7/8
Second Quarter................................................. 5 1/2 2 7/8
First Quarter.................................................. 6 5/8 4 1/8
</TABLE>

18
<PAGE>

ITEM 6. SELECTED FINANCIAL DATA

Consolidated Statements of Operations Data:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues:
Licensing agreement....... $ -- $ -- $ 2,000 $ -- $ --
Research agreements....... -- 250 900 -- --
Contract manufacturing.... -- -- -- -- 69
-------- -------- -------- -------- --------
Total revenues.......... -- 250 2,900 -- 69
Costs and Expenses:
Cost of revenues.......... -- -- -- -- 1,035
Research and development.. 17,509 18,395 13,186 12,732 7,444
General and
administrative........... 4,035 4,699 3,895 3,903 2,568
Restructuring costs....... -- 2,752 -- -- --
In-process technology..... -- 13,679 -- -- 33,038
-------- -------- -------- -------- --------
Total costs and
expenses............... 21,544 39,525 17,081 16,635 44,085
-------- -------- -------- -------- --------
Operating loss.............. (21,544) (39,275) (14,181) (16,635) (44,016)
Other income, net........... 856 222 474 964 793
-------- -------- -------- -------- --------
Net loss.................... $(20,688) $(39,053) $(13,707) $(15,671) $(43,223)
======== ======== ======== ======== ========
Net loss per share.......... $ (.90) $ (2.34) $ (0.95) $ (1.19) $ (4.43)
======== ======== ======== ======== ========
Shares used in calculation
of net loss per share...... 22,971 16,661 14,418 13,191 9,752
Consolidated Balance Sheet
Data:
Total assets................ $ 19,370 $ 19,128 $ 25,747 $ 23,524 $ 38,755
Capital lease obligations,
noncurrent portion......... 1,217 1,692 1,627 176 330
Stockholders' equity........ 12,203 10,489 21,846 21,552 36,510
</TABLE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

Overview. In February 1995, the Company completed the acquisition of Merlin
Pharmaceutical Corporation ("Merlin") a privately held gene therapy company,
pursuant to a stock transaction whereby a subsidiary of the Company was merged
into Merlin. As a result of the Merlin acquisition, the Company wrote-off to
operations an amount equal to $13.7 million in fiscal year 1995. With the
exception of fiscal year 1990, when the Company sold its cell biology and
diagnostic product line, the Company has been unprofitable since its inception
and expects to continue to incur operating losses in future periods due to
continued requirements for product development, clinical trials, regulatory
activities and other areas. As of June 30, 1996, the Company had an
accumulated deficit of $170.2 million.

Results of Operations. There were no revenues for the fiscal year ending
June 30, 1996 compared to $250,000 in fiscal year 1995. Revenues in fiscal
year 1994 were $2,900,000. Revenue in fiscal year 1995 was derived from a
research agreement with Baxter Healthcare Corporation. In fiscal year 1994,
revenues were derived from research and licensing agreements with Baxter
Healthcare Corporation and a private group of investors.

On June 29, 1995, the Company completed a restructuring and cost savings
program separating its research and development infrastructure into two
groups. The development group will focus on clinical trials and product
development and the research group will focus on gene transfer technologies
for various medical applications. As a result of the restructuring, the
Company recorded in fiscal year 1995 a restructuring charge of $2,752,000,

19
<PAGE>

consisting principally of employee severance pay, the accrual of future rent
obligations including the write-off of leasehold improvements, and the write-
down of certain assets.

Research and development expenses decreased by $886,000 in fiscal year 1996
and increased by $5,209,000 in fiscal year 1995. The decrease in research and
development expenses in fiscal year 1996 was primarily due to restructuring
and cost saving programs. The increase in research and development expenses in
fiscal year 1995 was primarily due to increased staffing, recruitment costs,
patent legal services, technology license fees, supplies, and research
contracts to meet the requirements of increased preclinical and clinical
activities in progress. The Company expects research and development expenses
to increase in future periods as the Company's preclinical and clinical
activities progress.

General and administrative expenditures decreased $664,000 in fiscal year
1996 and increased $804,000 in fiscal year 1995. The increase in fiscal year
1995 was primarily due to the write-off of $741,000 of future rent expenses
and leasehold improvements associated with the former corporate headquarters
which the Company is currently marketing for sublease. The Company expects
general and administrative expenses to increase in future periods due to
expanded research and development efforts.

Other income consists principally of interest income earned on the Company's
cash balances. Changes in other income are due to fluctuations in cash
balances available for investment and returns on cash invested in recent
periods.

Liquidity and Capital Resources. On June 30, 1996, the Company had cash,
cash equivalents, and marketable securities of $15,036,000 compared with
$14,576,000 on June 30, 1995. Subsequent to June 30, 1996, the Company
received $5 million in cash from a private placement of convertible preferred
stock (see Note 9 to the Consolidated Financial Statements). Operating
expenses have exceeded revenues every fiscal year, except 1990, since the
Company's inception. For the year ending June 30, 1996, capital expenditures
were $1,207,000. The Company expects its cash requirements and net losses to
increase significantly in future periods due to higher research and
development costs, the cost of Phase III clinical trials due to start December
31, 1996 and other expenses. The Company has no material capital commitments.

The Company anticipates that its existing cash will be sufficient to meet
its cash requirements for at least the next 12 months. The Company has
financed its operations since inception principally through the sale of equity
securities, contract research revenues, license fees and interest income. The
Company's future capital requirements will depend on many factors, including
the progress of the Company's research and development, the scope and results
of preclinical studies and clinical trials, the cost of obtaining regulatory
approvals, the rate of technological advances, determinations as to the
commercial potential of the Company's products under development, the status
of competitive products and the establishment of manufacturing capacity. The
Company anticipates that it will be required to raise substantial additional
funds, including funds raised through collaborative relationships and public
or private financings. Because of the Company's significant operating and
capital requirements, it may be required to seek additional financings. It may
also seek to access the public equity markets whenever conditions are
favorable, even if it does not have an immediate need for additional capital
at that time. No assurance can be given that additional financing will be
available on acceptable terms, or at all. If adequate funds are not available,
the Company will be required to curtail significantly its research and
development programs or may be required to discontinue its programs in their
entirety and liquidate its assets.

20
<PAGE>

ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
FINANCIAL STATEMENTS: PAGE
- --------------------- -----
<S> <C>
Report of Independent Auditors.......................................... 22
Consolidated Balance Sheets at June 30, 1996 and 1995................... 23
Consolidated Statements of Operations for Years Ended June 30, 1996,
1995, and 1994......................................................... 24
Consolidated Statements of Stockholders' Equity for Years Ended June 30,
1996, 1995, and 1994................................................... 25
Consolidated Statements of Cash Flows for Years Ended June 30, 1996,
1995, and 1994......................................................... 26
Notes to Consolidated Financial Statements.............................. 27-34
</TABLE>

All financial statement schedules of the registrant for the years ended June
30, 1996, 1995, and 1994 have been omitted since the information is not
required or is not so material as to require submission of the schedule, or
because the information required is included in the consolidated financial
statements or the notes thereto.

21
<PAGE>

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Somatix Therapy Corporation

We have audited the accompanying consolidated balance sheets of Somatix
Therapy Corporation as of June 30, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended June 30, 1996. 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 in accordance with generally accepted auditing
standards. 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 audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Somatix
Therapy Corporation at June 30, 1996 and 1995, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended June 30, 1996, in conformity with generally accepted accounting
principles.

Ernst & Young LLP

Walnut Creek, California
July 25, 1996 except for Note 9, as
to which the date is September 25,
1996

22
<PAGE>

SOMATIX THERAPY CORPORATION

CONSOLIDATED BALANCE SHEETS

ASSETS
<TABLE>
<CAPTION>
JUNE 30
----------------------------
1996 1995
------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents...................... $ 6,703,000 $ 14,326,000
Marketable securities.......................... 7,738,000 250,000
Other current assets........................... 889,000 726,000
------------- -------------
Total current assets......................... 15,330,000 15,302,000
Marketable securities............................ 595,000 --
Restricted cash.................................. 650,000 300,000
Equipment and improvements, at cost:
Laboratory and production equipment............ 4,136,000 3,942,000
Equipment under capital leases................. 3,435,000 3,078,000
Furniture and office equipment................. 1,266,000 1,115,000
Leasehold improvements......................... 4,286,000 3,781,000
------------- -------------
Total equipment and improvements............. 13,123,000 11,916,000
Less accumulated depreciation and
amortization.................................. 10,459,000 8,523,000
------------- -------------
Net equipment and improvements............... 2,664,000 3,393,000
Other assets..................................... 131,000 133,000
------------- -------------
Total assets................................. $ 19,370,000 $ 19,128,000
============= =============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities....... $ 2,237,000 $ 2,642,000
Accrued compensation and related expenses...... 1,169,000 992,000
Capital lease obligations, current portion..... 861,000 718,000
Accrued restructuring costs, current portion... 414,000 859,000
Other current liabilities...................... 186,000 186,000
------------- -------------
Total current liabilities.................... 4,867,000 5,397,000
Capital lease obligations, net of current
portion......................................... 1,217,000 1,692,000
Accrued restructuring costs, net of current
portion......................................... 834,000 1,288,000
Other liabilities................................ 249,000 262,000
Commitments and contingencies
Stockholders' equity:
Series A preferred stock, par value $0.01 per
share; liquidation preference of $5,995,275 in
1996, $6,350,000 in 1995; authorized 1,000,000
shares, issued and outstanding 239,811 shares
in 1996 and 254,000 in 1995................... 2,000 3,000
Common stock, par value $0.01 per share;
40,000,000 shares, issued and outstanding
24,369,403 shares in 1996 and 20,991,996
shares in 1995................................ 244,000 210,000
Additional paid-in capital..................... 182,118,000 159,749,000
Accumulated deficit............................ (170,161,000) (149,473,000)
------------- -------------
Total stockholders' equity....................... 12,203,000 10,489,000
------------- -------------
Total liabilities and stockholders' equity... $ 19,370,000 $ 19,128,000
============= =============
</TABLE>

See accompanying notes.

23
<PAGE>

SOMATIX THERAPY CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEARS ENDED JUNE 30
----------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Licensing agreement............... $ -- $ -- $ 2,000,000
Research agreements............... -- 250,000 900,000
------------ ------------ ------------
Total revenues.................. -- 250,000 2,900,000
------------ ------------ ------------
Costs and Expenses:
Research and development.......... 17,509,000 18,395,000 13,186,000
General and administrative........ 4,035,000 4,699,000 3,895,000
In-process technology............. -- 13,679,000 --
Restructuring costs............... -- 2,752,000 --
------------ ------------ ------------
Total costs and expenses........ 21,544,000 39,525,000 17,081,000
------------ ------------ ------------
Operating loss...................... (21,544,000) (39,275,000) (14,181,000)
Other income, net................... 856,000 222,000 474,000
------------ ------------ ------------
Net loss............................ $(20,688,000) $(39,053,000) $(13,707,000)
============ ============ ============
Net loss per share.................. $ (0.90) $ (2.34) $ (0.95)
============ ============ ============
Shares used in calculation of net
loss per share..................... 22,971,053 16,660,528 14,417,679
============ ============ ============
</TABLE>

See accompanying notes.

24
<PAGE>

SOMATIX THERAPY CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

YEARS ENDED JUNE 30, 1996, 1995 AND 1994

<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL TOTAL
---------------- ------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT EQUITY
------- ------- ---------- -------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, June 30,
1993................... -- -- 13,266,606 $133,000 $118,132,000 $ (96,713,000) $ 21,552,000
Issuance of shares of
common stock under
stock option and
purchase plans......... -- -- 13,521 -- 69,000 -- 69,000
Private investment in
public equity financing
at $5.85 per share, net
of issuance costs...... -- -- 2,005,483 20,000 10,842,000 -- 10,862,000
Issuance of common stock
to investors at $6.88
per share, net of
issuance costs......... -- -- 232,558 2,000 1,582,000 -- 1,584,000
Issuance of common stock
to investors at $6.50
per share, net of
issuance costs......... -- -- 230,769 2,000 1,484,000 -- 1,486,000
Net loss................ -- -- -- -- -- (13,707,000) (13,707,000)
------- ------- ---------- -------- ------------ ------------- ------------
Balances, June 30,
1994................... -- -- 15,748,937 $157,000 $132,109,000 $(110,420,000) $ 21,846,000
Issuance of shares of
common stock under
stock option and
purchase plans......... -- -- 215,782 2,000 30,000 -- 32,000
Issuance of common stock
to and assumptions of
options and warrants
upon the acquisition of
Merlin Pharmaceutical
Corporation............ -- -- 2,257,385 23,000 12,574,000 -- 12,597,000
Private placement of
common stock at $3.68
per share, net of
issuance costs......... -- -- 2,769,892 28,000 8,689,000 -- 8,717,000
Private placement of
preferred stock at
$25.00 per share, net
of issuance costs...... 254,000 $ 3,000 -- -- 6,347,000 -- 6,350,000
Net loss................ -- -- -- -- -- (39,053,000) (39,053,000)
------- ------- ---------- -------- ------------ ------------- ------------
Balance, June 30, 1995.. 254,000 $ 3,000 20,991,996 $210,000 $159,749,000 $(149,473,000) $ 10,489,000
Issuance of shares of
common stock under
stock option and
purchase plans......... -- -- 323,666 3,000 857,000 -- 860,000
Paid in kind dividends
for preferred stock.... 16,354 -- -- -- -- -- --
Conversion of preferred
stock into common
stock.................. (30,543) (1,000) 190,893 2,000 (1,000) -- --
Exercise of warrants to
purchase common stock.. -- -- 559,627 6,000 1,572,000 -- 1,578,000
Purchase of common stock
by Bristol-Myers
Squibb, net of issuance
costs.................. -- -- 2,303,221 23,000 19,941,000 -- 19,964,000
Net loss................ -- -- -- -- -- (20,688,000) (20,688,000)
------- ------- ---------- -------- ------------ ------------- ------------
Balances, June 30,
1996................... 239,811 $ 2,000 24,369,403 $244,000 $182,118,000 $(170,161,000) $ 12,203,000
======= ======= ========== ======== ============ ============= ============
</TABLE>

See accompanying notes.

25
<PAGE>

SOMATIX THERAPY CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
----------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss........................... $(20,688,000) $(39,053,000) $(13,707,000)
Adjustments to reconcile net loss
to net cash used in operating
activities
Depreciation and amortization.... 1,936,000 1,965,000 1,466,000
Write-off of acquired in-process
technology...................... -- 13,679,000 --
Write-off of leasehold
improvements.................... -- 324,000 --
Decrease (increase) in other
current assets.................. (163,000) 198,000 (140,000)
Decrease (increase) in other
assets.......................... 2,000 55,000 (54,000)
Increase (decrease) in accounts
payable and accrued
liabilities..................... (405,000) 119,000 244,000
Increase (decrease) in accrued
compensation and related
expenses........................ 177,000 681,000 (45,000)
Increase (decrease) in other
current liabilities............. -- 171,000 (17,000)
Increase (decrease) in accrued
restructuring costs............. (899,000) 2,147,000 --
Increase (decrease) in other
liabilities..................... (13,000) 249,000 (48,000)
------------ ------------ ------------
Net cash used in operating
activities.................... (20,053,000) (19,465,000) (12,301,000)
Cash flows from investing activities:
Maturities of marketable securities
and changes in restricted cash.... 11,490,000 25,975,000 9,625,000
Purchases of marketable
securities........................ (19,923,000) (6,830,000) (16,198,000)
Purchases of equipment and
improvements...................... (1,207,000) (1,496,000) (1,359,000)
------------ ------------ ------------
Net cash (used in) provided by
investing activities.......... (9,640,000) 17,649,000 (7,932,000)
Cash flows from financing activities:
Borrowings under sale/leaseback
agreements........................ 519,000 971,000 2,000,000
Principal payments under capital
lease obligations................. (851,000) (705,000) (205,000)
Net proceeds from issuance of
capital stock..................... 22,402,000 15,099,000 14,001,000
------------ ------------ ------------
Net cash provided by financing
activities.................... 22,070,000 15,365,000 15,796,000
Net (decrease) increase in cash.... (7,623,000) 13,549,000 (4,437,000)
Cash and cash equivalents, beginning
of period........................... 14,326,000 777,000 5,214,000
------------ ------------ ------------
Cash and cash equivalents, end of
period.............................. $ 6,703,000 $ 14,326,000 $ 777,000
============ ============ ============
Cash paid for interest............... $ 309,000 $ 300,000 $ 132,000
Supplemental disclosures of non-cash
investing and financing activities:
Conversion of preferred stock into
common stock...................... $ 743,000 $ -- $ --
</TABLE>

See accompanying notes.

26
<PAGE>

SOMATIX THERAPY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 1996

NOTE 1. THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES

Company and Basis of Presentation. Somatix Therapy Corporation ("Somatix" or
the "Company") is a leader in the emerging field of gene therapy. Somatix is
applying its gene therapy expertise to research and develop therapies to treat
a variety of diseases. The Company is the result of three transactions. The
first transaction, which was consummated in March 1991, combined Somatix
Corporation and Hana Biologics, Inc. The second transaction occurred in
January 1992, when the Company acquired GeneSys Therapeutics Corporation. The
third transaction occurred in February 1995, when the Company acquired Merlin
Pharmaceutical Corporation (see Note 2). The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. All
intercompany accounts and transactions have been eliminated.

The Company anticipates that it will be required to raise substantial
additional funds, including funds raised through collaborative relationships
and public or private financings. Because of the Company's significant
operating and capital requirements, it may be required to seek additional
financings. It may also seek to access the public equity markets whenever
conditions are favorable, even if it does not have an immediate need for
additional capital at that time. No assurance can be given that additional
financing will be available on acceptable terms, or at all. If adequate funds
are not available, the Company will be required to curtail significantly its
research and development programs or may be required to discontinue its
programs in their entirety and liquidate its assets.

Cash and Cash Equivalents. At June 30, 1996, cash equivalents consist of
government securities totaling $4,600,000 and short-term corporate debt
securities totaling $1,500,000 with maturities at the date of acquisition of
three months or less. Cash equivalents are stated at cost which approximates
fair value.

Revenue Recognition. License revenue is recorded as revenue when all
contractual obligations have been met. Research revenue is recorded when
earned as defined under the term of the respective agreements. Payments
received which are related to future performance are deferred and recognized
as income when earned.

Use of Estimates. The preparation of the 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.

Marketable Securities. At June 30, 1996, current marketable securities
consist of government securities totaling $6,698,000 and corporate debt
securities totaling $1,040,000 having maturities between three months and one
year. Non-current marketable securities consist of government securities
having maturities greater than one year. Marketable securities are stated at
cost which approximates fair value and the unrealized gains and losses at June
30, 1996 are not significant.

In May 1993, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115"). The Company adopted
the provisions of the new standard for investments held as of or acquired
after July 1, 1994. In accordance with SFAS 115, prior period financial
statements have not been restated to reflect the change in accounting
principle. The Company has classified its entire investment portfolio as held-
to-maturity. There is no impact of adopting SFAS 115 on results of operations
or financial position because the difference between cost and fair value was
not significant.

In accordance with SFAS 115, debt securities are classified as held-to-
maturity when the Company has the positive intent and ability to hold the
securities to maturity. 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 investment income.

27
<PAGE>

SOMATIX THERAPY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

JUNE 30, 1996

It is the Company's policy to invest funds not required for current
operations in financial instruments with strong credit ratings. The Company
has not experienced significant losses to date on these investments.

Equipment and Improvements. Depreciation of equipment and furniture is
provided over estimated useful lives of three to ten years using the straight-
line method. Assets under capital leases are amortized by the straight-line
method over their useful lives of three to five years. Leasehold improvements
are amortized over the remaining lives of the applicable leases.

Retirement Plan. On January 1, 1993, the Company established a defined
contribution plan which covers all employees 21 years and older. The Company's
contributions to the plan are at the discretion of the Company's Board of
Directors. Amounts contributed to the plan for the years ended June 30, 1996,
1995, and 1994 were $74,000, $61,000 and $46,000, respectively.

Stock-Based Compensation. The Company accounts for its stock option plan in
accordance with the provisions of the Accounting Principles Board's Opinion
No. 25 ("APB 25"), "Accounting for Stock Issued to Employees". In 1995, the
Financial Accounting Standards Board released the Statement of Financial
Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation". SFAS 123 provides an alternative method of accounting for
stock-based compensation to APB 25 and is effective for the fiscal years
beginning after December 15, 1995. The Company expects to continue to account
for its stock-based compensation in accordance with the provision of APB 25.
Accordingly, SFAS 123 is not expected to have any material impact on the
Company's financial position or results of operations. The Company will make
the proforma disclosures required by FAS 123 in fiscal year 1997.

Income Taxes. The liability method is used in accounting for income taxes.
Under this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.

Per Share Information. Per share information is based on the weighted
average number of common shares outstanding during each period. Shares
issuable upon the exercise of stock options and warrants and the conversion of
preferred stock are not included since their inclusion would be anti-dilutive.
In addition, the paid in kind dividends on the preferred stock are excluded as
their impact would also be anti-dilutive.

NOTE 2. ACQUISITION OF MERLIN PHARMACEUTICAL CORPORATION

On February 13, 1995, the Company completed its acquisition (the
"Acquisition") of Merlin Pharmaceutical Corporation ("Merlin"), a privately-
held gene therapy company. The Company issued 2,257,385 shares of common stock
in exchange for all of the outstanding capital stock of Merlin and assumed
options and warrants to purchase an aggregate of 743,371 shares of the
Company's common stock at exercise prices between $0.01 and $1.94 per share.

The transaction was accounted for as a purchase and the consideration issued
by the Company was allocated to the tangible assets and intangible in-process
technology acquired based on their estimated fair values on the Acquisition
date. The aggregate purchase price of $13,702,000 consisted of (in thousands):

<TABLE>
<S> <C>
Fair value of common stock issued................................... $ 9,144
Fair value of warrants and options assumed.......................... 3,110
Acquisition costs................................................... 900
Liabilities assumed................................................. 548
-------
Total purchase price.............................................. $13,702
=======
</TABLE>

28
<PAGE>

SOMATIX THERAPY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

JUNE 30, 1996

The aggregate purchase price exceeded the fair value of Merlin's tangible
assets by $13,679,000. This amount was allocated to acquired in-process
technology and charged to operations in fiscal year 1995. The allocation of
the aggregate purchase price was as follows (in thousands):

<TABLE>
<S> <C>
Current assets....................................................... $ 23
In-process technology................................................ 13,679
-------
$13,702
=======
</TABLE>

NOTE 3. STOCKHOLDERS' EQUITY

T-body Technology Research and Development Agreement

On April 29, 1994, the Company signed collaborative research and equity
purchase agreements with Baxter Healthcare Corporation ("Baxter") to jointly
research, develop and commercialize T-body technology for the treatment of
cancer. Under the terms of the agreements, the Company and Baxter will be
responsible for their own research expenditures. In fiscal year 1994, the
Company received a non-refundable technology license fee of $400,000, as well
as $1,600,000 for the sale of 232,558 shares of common stock to Baxter at
$6.88/share. Baxter agreed to purchase $1,000,000 in common stock at the then-
market price along with making a milestone payment of $1,000,000 after the
first patient has been treated in a phase I clinical trial. Before initiating
phase III clinical trials, the companies will have the opportunity to form a
joint venture to complete clinical development and commercialization of this
technology. The funding supported by each party at that time will determine
the ownership of the joint venture; provided, however, that each party can
supplement its funding contributions so that the total amount funded by each
party equals at least 30 percent and up to 50 percent of the total
expenditures under the program.

Colorectal Cancer Treatment Research and Development Agreement

On May 12, 1994, the Company signed an agreement with a private group of
investors (the "Investors") to develop the Company's GVAX(TM) cancer vaccine
technology for the treatment of colorectal cancer. Under the terms of the
agreement, the Company received $500,000 to fund preclinical research and
$1,500,000 for the sale of 230,769 shares of common stock to the Investors, at
$6.50 per share. These initial research funds have been used to finance
staffing, overhead, and supply costs associated with the Company's preclinical
development of the GVAX(TM) cancer vaccine for colorectal cancer. Upon filing
an IND, the Investors have agreed to provide an additional $2,500,000
consisting of research funding of $1,250,000 and $1,250,000 from the sale of
additional shares of common stock at the then-current market price. In
exchange for funding the program, the Investors will receive royalty payments
of 2% of net sales of the colorectal product, although such payments are to be
terminated when the Investors have received aggregate payments of $1,750,000,
therefore recovering research funding under the agreement.

Bristol-Myers Squibb Equity Investment

On August 14, 1995, the Company entered into an agreement with Bristol-Myers
Squibb to evaluate possible areas for collaboration in gene therapy and the
Company received an initial equity investment of $10 million for 1,195,572
shares of common stock or $8.36 per share. Upon obtaining protocol clearance
from the Food and Drug Administration (FDA) for a Phase III clinical trial for
GVAX(TM) cancer vaccine in April 1996, the Company received a second equity
investment of $10 million for 1,107,649 shares of common stock or $9.03 per
share. In addition, Bristol-Myers Squibb received one board of directors seat.
The agreement also allows Bristol-Myers Squibb a five year right of first
offer with regard to collaborations with the Company in any of its internally
initiated oncology programs.

29
<PAGE>

SOMATIX THERAPY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

JUNE 30, 1996

Other Benefit or Bonus Plans

1992 Stock Option Plan. Under the 1992 Stock Option Plan, 3,200,000 shares
have been authorized for the grant to employees of either non-qualified or
incentive stock options and the grant to consultants of non-qualified options.
Incentive stock options are to be granted with exercise prices not less than
the fair market value of common stock at the date of grant and non-qualified
options at not less than 85% of fair market value. Options are exercisable as
determined by the Board of Directors, and the Company may be granted the right
to repurchase shares acquired in diminishing amounts over varying periods of
time (none through June 30, 1996). The following table summarizes the activity
under the Plan for the years ended June 30, 1996, 1995, and 1994:

<TABLE>
<CAPTION>
OPTIONS EXERCISE
FOR THE YEARS ENDED JUNE 30, OUTSTANDING PRICE
---------------------------- ----------- -------------
<S> <C> <C>
1993
Balance............................................. 1,399,045 $ 2.44-$25.00
1994
Options granted..................................... 483,538 $ 5.63-$ 6.88
Options canceled.................................... (56,737) $ 3.75-$25.00
Options exercised................................... (13,521) $ 2.88-$ 7.00
--------- -------------
Balance............................................. 1,812,325 $ 2.44-$25.00
1995
Options granted..................................... 763,500 $ 3.00-$ 5.63
Options canceled.................................... (189,820) $ 2.88-$25.00
Options exercised................................... (3,200) $ 2.88-$ 3.00
--------- -------------
Balance............................................. 2,382,805 $ 2.44-$25.00
========= =============
1996
Options granted..................................... 423,000 $ 5.69-$ 6.94
Options canceled.................................... (165,581) $ 3.00-$ 8.50
Options exercised................................... (263,444) $ 3.00-$ 6.88
--------- -------------
Balance............................................. 2,376,780 $ 2.44-$25.00
========= =============
</TABLE>

Of the options outstanding at June 30, 1996, options to purchase 1,355,596
shares were exercisable at prices from $2.44 to $18.72; 101,561 would be
subject to repurchase rights if exercised, and 1,021,184 were unvested and
unexercisable.

Other Option Plans. As a result of the mergers and acquisitions described in
Note 1 and 2, the Company adopted additional option plans. At June 30, 1996,
options to purchase 479,436 shares were outstanding with an exercise price
ranging from $0.0116 to $14.04 per share. All shares are exercisable; 9,375
are subject to repurchase rights.

Stock Option Cancellation/Regrant

On December 14, 1994, the Compensation Committee of the Board of Directors
approved a stock option cancellation/regrant program for employees with stock
option exercise prices in excess of the then current fair value of the
Company's common stock, or $3.00 per share. The holders of such options were
offered new options with an exercise price of $3.00 per share in exchange for
the cancellation of the old options.

30
<PAGE>

SOMATIX THERAPY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

JUNE 30, 1996

Private Placement of Common and Preferred Stock

On June 29, 1995 the Company closed a private placement of units of common
and preferred stock in the aggregate amount of $16,543,000, before issuance
costs of $1,476,000. The financing consisted of $10,100,000 in common stock
units of the Company ("Common Stock Units"; 2,769,892 shares) and $6,400,000
in preferred stock units of the Company ("Preferred Stock Units"; 254,000
shares).

The Common Stock Units were priced at $3.68, and consisted of one share of
the Company's common stock ("Common Stock") and a warrant to purchase 0.56 of
a share of Common Stock. The Preferred Stock Units were priced at $25.00, and
consisted of one share of the Company's convertible preferred stock (the
"Preferred Stock"), convertible to 6.25 shares of Common Stock at $4.00 per
share, and warrants for 3.5 shares of Common Stock. In both cases the warrants
have exercise prices of $4.00 per share and have three year terms.

The Preferred Stock terms include a paid-in-kind dividend paid quarterly
until converted to common stock at the rate of 7% per year, a liquidation
preference of $25.00 per share, extraordinary voting rights in the event the
Company's net cash position, as defined, falls below $5,000,000, and a
conversion price reset provision. Under the reset provision, thirteen months
after closing, the conversion price may be reset to the lower of the current
conversion price or the twenty day average closing price of the Common Stock
in the thirteenth month. The conversion price after reset may not be less than
$2.00 per share. Purchasers of the Preferred Stock Units have agreed to
certain trading restrictions during this measurement period. The Preferred
Stock will automatically convert to Common Stock at any time after two and
one-half years after closing if the Common Stock trades at a 100% premium to
the then-applicable conversion price.

Outstanding Warrants

As of June 30, 1996 and 1995, the Company had outstanding warrants to
purchase 2,290,781 and 3,099,168 shares of common stock, respectively, at
prices ranging from $0.01 to $7.25 per share. The outstanding warrants
resulted from the private placement of preferred and common stock during
fiscal year 1995 and the sale/leaseback agreements entered into during fiscal
year 1994 (see Note 6). The warrants became exercisable in 1995 and expire at
various dates through 1999. At June 30, 1996 and 1995, 2,290,781 and 3,099,168
shares of common stock respectively, were reserved for that purpose.

Shares Reserved

At June 30, 1996 and 1995, common stock was reserved for the following
reasons:

<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Exercise of stock warrants............................... 2,290,781 3,099,168
Conversion of preferred stock............................ 1,498,820 1,587,500
Stock option plans....................................... 3,200,355 3,525,021
--------- ---------
6,989,956 8,211,689
========= =========
</TABLE>

NOTE 4. JOINT RESEARCH AND DEVELOPMENT AGREEMENT

On November 2, 1993, Baxter and the Company signed an agreement to jointly
research and develop a gene therapy approach for the treatment of hemophilia.
Under the terms of the agreement, the Company received a non-refundable
technology license fee of $2,000,000 in fiscal year 1994. The agreement grants
Baxter worldwide marketing rights to products developed.

31
<PAGE>

SOMATIX THERAPY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

JUNE 30, 1996

As a part of this relationship, Baxter and the Company will collaborate in
areas of research and manufacturing and Baxter will make certain milestone
payments to the Company. Baxter will conduct clinical trials and market the
product worldwide. The Company will receive royalties on product sales. The
Company has also agreed to provide Baxter with a right of first negotiations
for certain other approaches for the treatment of hemophilias A and B.

NOTE 5. INCOME TAXES

Significant components of the Company's deferred tax assets (in thousands)
are as follows at June 30, 1996 and 1995:

<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Net operating loss carryforward................. $ 37,000,000 $ 29,400,000
Research and development credit carryforward.... 4,600,000 4,600,000
Capitalized research and development............ 2,900,000 2,100,000
Restructuring costs............................. 500,000 800,000
------------ ------------
Gross deferred tax assets....................... 45,000,000 36,900,000
Valuation allowance............................. (45,000,000) (36,900,000)
------------ ------------
Net deferred tax asset.......................... $ 0 $ 0
------------ ------------
</TABLE>

The valuation allowance increased $8,100,000 and $9,200,000 in the fiscal
years 1996 and 1995, respectively.

At June 30, 1996 the Company has net operating loss carryforwards for
federal and state income tax purposes of approximately $103,000,000 and
$32,000,000, respectively, which expire in the years 1996 through 2010. The
Company has federal tax credit carryforwards of approximately $3,700,000 which
will expire in the years 1996 through 2010.

Because of "change in ownership" provisions of the Tax Reform Act of 1986, a
portion of the Company's net operating loss carryforwards and tax credits will
be subject to an annual limitation regarding their utilization against taxable
income in future periods.

32
<PAGE>

SOMATIX THERAPY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

JUNE 30, 1996

NOTE 6. COMMITMENTS

The Company leases certain laboratory, production, and office equipment
under capital leases, and all office and laboratory space under operating
leases. The operating lease agreements generally require the Company to pay
operating costs including property taxes, insurance and maintenance.

Future minimum lease payments under capital and operating leases at June 30,
1996 are as follows:

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
---------- -----------
<S> <C> <C>
1997................................................. $1,109,000 $ 1,678,000
1998................................................. 1,037,000 1,517,000
1999................................................. 271,000 1,214,000
2000................................................. 86,000 780,000
2001................................................. -- 803,000
Thereafter........................................... -- 5,017,000
---------- -----------
Total minimum lease payments......................... $2,503,000 $11,009,000
===========
Less amount representing interest.................... 425,000
----------
Present value of minimum lease payments.............. 2,078,000
Less current portion................................. 861,000
----------
Long-term portion.................................... $1,217,000
==========
</TABLE>

At June 30, 1996, the Company has certificates of deposit totaling $650,000
which secure obligations under certain operating leases.

Rent expense was $1,033,000, $1,438,000, and $1,051,000 for fiscal years
1996, 1995, and 1994, respectively. At June 30, 1996, the net book value of
equipment under capital leases is $1,307,000 ($1,683,000 in 1995). Certain
other facilities are sub-leased under a non-cancelable lease for terms
substantially identical to the original lease.

In May 1994, the Company entered into a $2,000,000 sale/leaseback
transaction for equipment used in the Company's operations. The Company's
resulting gain of $358,000 has been recorded on the accompanying balance
sheets as an offset to equipment under capital leases and is being amortized
over the lease term. The lessor also received warrants, exercisable until May
24, 1999, to purchase 25,000 shares of the Company's common stock at an
exercise price of $7.00 per share.

In June 1994, the Company entered into a $2,000,000 lease line for equipment
used in the Company's operations and such line expires December 31, 1996. As
of June 30, 1996, the Company had borrowed a total of $1,490,000 under this
line in the form of sale/leaseback transactions. The lessor also received
warrants that became exercisable in fiscal year 1995. Such warrants expire on
December 31, 1999, and grant the lessor the right to purchase 19,310 shares of
the Company's common stock at an exercise price equal to the lesser of $7.25
per share or the closing sales price per share of the Company's common stock
as listed on the NASDAQ National Market on the date the warrants become
exercisable, but in no event less than $6.00 per share.

33
<PAGE>

SOMATIX THERAPY CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

JUNE 30, 1996

NOTE 7. OTHER INCOME

Other income is comprised of the following:

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Interest income............................. $ 863,000 $ 525,000 $ 731,000
Interest expense............................ (309,000) (300,000) (132,000)
Other income (expense), net................. 302,000 (3,000) (125,000)
--------- --------- ---------
$ 856,000 $ 222,000 $ 474,000
========= ========= =========
</TABLE>

NOTE 8. RESTRUCTURING COSTS

In June 1995, the Company initiated certain changes in the structure of its
research and development efforts. These changes included a selective reduction
in the Company's overall research, clinical and administrative work force.
Accordingly, the Company recorded restructuring costs of $2,752,000 in the
fourth quarter of fiscal year 1995, which included employee severance costs
for 20 employees, totaling $314,000, of which $176,000 was paid during 1995.
Restructuring costs also included the write-down of certain assets to net
realizable value and the accrual of future rent obligations on vacated
buildings and other such future costs related to the restructuring. As of June
30, 1996, the remaining accrued costs amounted to $1,248,000 which relate to
future rent obligations.

NOTE 9. SUBSEQUENT EVENTS

On September 25, 1996, the Company sold 33,333 shares of convertible Series
B-1 preferred stock ("Preferred Stock") in a private placement pursuant to
Regulation S under the Securities Act of 1933, as amended, for an aggregate
consideration of $5,000,000 in cash. In addition, the Company has the right to
sell up to $10,000,000 in additional shares of Preferred Stock during the
three (3) year period ending September 25, 1999. No more than $5,000,000 may
be sold during any given six month period. The Preferred Stock is not entitled
to dividends and is convertible into common stock at a premium over an average
of the market price of the Company's Common Stock on the earlier of (i) the
investor's option, (ii) immediately following any sixty (60) day trading
period after March 1997 in which the Company's common stock has traded above
130% of the closing price of the common stock on September 24, 1996, or (iii)
September 25, 1999. The Company also issued to the investor a warrant to
purchase 650,000 shares of the Company's common stock at a price equal to 130%
of the closing price of the Company's common stock on September 24, 1996. Such
warrant is exercisable between March 1998 and September 2002.

34
<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this Item 10 with respect to the identification
of Directors is hereby incorporated by reference from the information under
the caption "Proposal One--Election of Directors" in the Company's Proxy
Statement for its Annual Meeting of Stockholders to be held on November 21,
1996 (the "Proxy Statement").

The information required by Section 16(a) is hereby incorporated by
reference from the information under the caption "Compliance with Section
16(a) of the Securities Exchange Act of 1934" in the Proxy Statement.

EXECUTIVE OFFICERS OF THE COMPANY

The following table sets forth certain information with respect to the
executive officers of the Company:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
David W. Carter......... 56 Chairman, President and Chief Executive
Officer
Edward O. Lanphier II... 40 Executive Vice President, Commercial
Development; Chief Financial Officer since
August 15, 1996
Richard C. Mulligan, 41 Executive Vice President, Research and
Ph.D.(1)............... Chief Scientific Officer
Jan I. Drayer, M.D., 50 Executive Vice President, Gene Therapy
Ph.D................... Development
Mark N.K. Bagnall(2).... 39 Vice President, Finance and Chief Financial
Officer
</TABLE>
- --------
(1) Dr. Mulligan resigned from the Company effective as of November 30 1995.
(2) Mr. Bagnall resigned from the Company effective as of August 15, 1996.

Mr. Carter has been President and Chief Executive Officer of the Company
since September 1991, and has served as a director of the Company since 1988.
In September 1994, Mr. Carter was appointed Chairman of the Board of Directors
of the Company. From 1986 until joining Somatix in 1991, he was President and
Chief Operating Officer of Northfield Laboratories, a company developing an
artificial blood product. Mr. Carter is a member of the Board of Directors of
Northfield Laboratories.

Mr. Lanphier joined the Company in July 1992 as Executive Vice President,
Commercial Development. Since August 15, 1996, Mr. Lanphier has also served as
the Company's Chief Financial Officer. From December 1991 to July 1992, he was
Senior Vice President of Business Development and Marketing at Celtrix
Pharmaceuticals, Inc., a pharmaceutical company. From 1988 to 1991 he was
President and Chief Executive Officer of BioGrowth, Inc., a pharmaceutical
company. Mr. Lanphier previously has held positions with Biotherapeutics,
Inc., Synergen, Inc. and Eli Lilly & Company.

In November 1995, Dr. Richard Mulligan resigned his position as Director and
Executive Vice President, Research and Chief Scientific Officer to accept a
position as a Howard Hughes Professor at Harvard University. Dr. Mulligan, a
founder and a director of Somatix Corporation from its formation in January
1988 to November 1995, is currently a consultant to Somatix and chairman of
the Scientific Advisory Board. He will remain active on the Company's
Scientific Advisory Board.

35
<PAGE>

Dr. Drayer joined Somatix in March 1995. From 1990 to March, 1995, he served
as Senior Vice President of Scientific Affairs at G.H. Besselaar, a leading
clinical research organization, where he worked closely with Somatix in the
areas of clinical development and regulatory affairs. Dr. Drayer was also with
Boeringer Ingelheim as Director of Clinical Research. He sits on the editorial
boards of several clinical development journals.

Mr. Bagnall resigned as Vice President, Finance, and Chief Financial Officer
of Somatix in August 1996, a position he had held since July 1992. From
September 1990 to July 1992, Mr. Bagnall served as Treasurer and Secretary
after joining the Company as the Controller in May 1988. Mr. Bagnall remained
secretary of the Company until his resignation in 1996. Prior to joining the
Company, Mr. Bagnall held positions in high technology companies as well as
with Arthur Young and Company. Mr. Bagnall is a certified public accountant.

Officers are appointed to serve, at the discretion of the board of
directors, until their successors are appointed. There are no family
relationships among any of the executive officers of the Company.

EMPLOYEES

As of June 30, 1996, the Company employed 110 individuals full-time, of whom
16 hold Ph.D. degrees, and 8 hold M.D. degrees. Of these employees, 41 were
engaged in research, 52 in gene therapy development, and 17 in finance and
administration. None of the Company's employees is represented by a labor
union or is the subject of a collective bargaining agreement. The Company has
never experienced a work stoppage and believes that it maintains good
relations with its employees.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this item is hereby incorporated by reference
from the information under the captions "Proposal One--Election of Directors",
"Summary of Cash and Certain Other Compensation", "Stock Options" and "Option
Holdings" in the Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is hereby incorporated by reference
from the information under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item is incorporated by reference from the
information under the caption "Certain Relationships and Related Transactions"
in the Proxy Statement.

36
<PAGE>

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K

(a) 1. Financial Statements

See Index to Financial Statements under Item 8.

2. Financial Statement Schedules

All financial statement schedules of the registrant for the years ended June
30, 1996, 1995, and 1994 have been omitted since the information is not
required or is not so material as to require submission of the schedule, or
because the information requested is included in the consolidated financial
statements or the notes thereto.

(b) Reports on Form 8-K

None

The following documents are referenced or included in this report.

<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
3.1(1) Amended and Restated Certificate of Incorporation effective May 16, 1986.
Reference Exhibit 3.1.
3.2(1) Certificates of Determination. Reference Exhibit 3.2.
3.3(2) Bylaws. Reference Exhibit 3.3.
3.4(8) Certificate of Amendment of Certificate of Incorporation effective January
22, 1987. Reference Exhibit 3.2.
3.5(8) Certificate of Amendment of Restated Certificate of Incorporation effective
March 15, 1991. Reference Exhibit 3.4.
3.6(8) Certificate of Amendment of Restated Certificate of Incorporation effective
January 17, 1992. Reference Exhibit 3.5.
3.7(8) Certificate of Designation of Preferences of Preferred Shares effective
December 12, 1988. Reference Exhibit 3.3
3.8(15) Certificate of Amendment of Restated Certificate of Incorporation effective
December 16, 1993.
3.9(19) Amended and Restated Certificate of Incorporation effective November 29,
1994. Reference Exhibit 3.1.
3.10(22) Certificate of Designation of Preferences of Preferred Shares effective June
27, 1995. Reference Exhibit 3.3.
3.11 Certificate of Designation of Preferences of Series B-1 Preferred Stock
effective September 23, 1996.
3.12(19) Bylaws, as amended and restated September 29, 1994. Reference Exhibit 3.2.
3.13(23) Bylaws, as amended and restated September 14, 1995. Reference Exhibit 3.3.
10.1(2) Lease Agreement dated June 16, 1986, between Hana Biologics, Inc. and
Alameda Marina Village Associates. Reference Exhibit 10.37.
10.2(3) 1988 Directors Stock Option Plan. Reference Exhibit 10.67.
</TABLE>

37
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
10.3(4) Trade Secrets Agreement dated September 13, 1989, between Hana Biologics,
Inc. and Irvine Scientific Sales Company, Inc. Reference Exhibit 3.
10.4(4) License Agreement dated September 13, 1989, between Hana Biologics, Inc. and
Irvine Scientific Sales Company, Inc. Reference Exhibit 4.
10.5(4) Manufacturing and Supply Agreement dated September 13, 1989, between Hana
Biologics, Inc. and Irvine Scientific Sales Company, Inc. Reference Exhibit
5.
10.6(5) Development Agreement dated May 1, 1990, between Hana Biologics, Inc. and
The Polymer Technology Group, Incorporated. Reference Exhibit 10.68.
10.7(6) License Agreement dated February 1, 1988, between Somatix Corporation and
the Massachusetts Institute of Technology. Reference Exhibit 10.1.
10.8(6) Somatix Corporation's 1988 Stock Option Plan, as amended, and forms of
agreement currently used thereunder. Reference Exhibit 10.2.
10.9(7) Consulting Agreement dated March 14, 1991, between the Company and Dr.
Richard Mulligan. Reference Exhibit 10.29.
10.10(8) Lease Agreement dated September 7, 1990, between GeneSys Therapeutics
Corporation and Ventana Leasing, Inc. Reference Exhibit 10.49.
10.11(8) License Agreement dated October 1, 1990, between GeneSys Therapeutics
Corporation and Washington University. Reference Exhibit 10.34.
10.12(8) License Agreement dated April 4, 1991, between GeneSys Therapeutics
Corporation and the Regents of the University of California. Reference
Exhibit 10.37.
10.13(8) Warrant Agreement dated April 15, 1991, between GeneSys Therapeutics
Corporation and Ventana Leasing, Inc. Reference Exhibit 10.50.
10.14(8) Letter Agreement dated April 17, 1991, between GeneSys Therapeutics
Corporation and the Regents of the University of California, as amended by
that Letter Agreement dated May 10, 1991. Reference Exhibit 10.51.
10.15(8) License Agreement dated June 7, 1991, between GeneSys Therapeutics
Corporation and the Fred Hutchinson Cancer Research Center. Reference
Exhibit 10.38.
10.16(8) License Agreement No. 1 dated August 20, 1991, between GeneSys Therapeutics
Corporation and The Salk Institute for Biological Studies. Reference
Exhibit 10.39.
10.17(8) Scientific Consulting Agreement dated November 8, 1991, between Somatix and
Dr. Theodore Friedmann. Reference Exhibit 10.41.
10.18(8) Scientific Consulting Agreement dated November 8, 1991, between Somatix and
Dr. Frederick Gage. Reference Exhibit 10.42.
10.19(8) Scientific Consulting Agreement dated November 8, 1991, between Somatix and
Dr. Inder Verma. Reference Exhibit 10.43.
10.20(8) Consulting Agreement dated November 13, 1991, between Somatix and Dr. Harry
F. Hixson, Jr. Reference Exhibit 10.44.
10.21(8) Warrant Agreement dated November 9, 1991, between GeneSys Therapeutics
Corporation and Kleiner Perkins Caufield & Byers V. Reference Exhibit
10.45.
10.22(8) Agreement dated January 15, 1992, between Somatix and The Board of Trustees
of the Leland Stanford Jr. University. Reference Exhibit 10.46.
</TABLE>

38
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
10.23(8) Registration Rights Agreement dated January 17, 1992, among Somatix
and certain Investors as set forth on Exhibit A thereto. Reference
Exhibit 10.47.
10.24(8) Shareholder Agreement dated January 21, 1992, among Somatix,
GeneSys Therapeutics Corporation and Kleiner Perkins Caufield &
Byers V. Reference Exhibit 10.48
10.25(9) License Agreement dated March 4, 1992, by and among Somatix, The
Johns Hopkins University and The University of Texas System.
Reference Exhibit 10.56.
10.26(9) Lease Agreement dated July 15, 1992, between Somatix and Alameda
Real Estate Investments. Reference Exhibit 10.58.
10.27(9) 1992 Stock Option Plan, as amended and restated. Reference Exhibit
10.63.
10.28(10) GeneSys Therapeutics Corporation 1991 Stock Option Plan and forms
of agreement currently used thereunder. Reference Exhibit 28.5.
10.29(11) Sublease Agreement dated March 26, 1992, by and among GeneSys
Therapeutics Corporation, Del Mar Plaza, Ltd. and Ligand
Pharmaceuticals, Inc.; Consent to Sublease Agreement dated April
10, 1992. Reference Exhibit 10.57.
10.30(11) Employment Agreement dated July 10, 1992, between Somatix and Dr.
Krzysztof S. Bankiewicz. Reference Exhibit 10.66.
10.31(12) Agreement dated January 15, 1993, by and between Somatix and the
Regents of the University of California on behalf of its Davis
Campus. Reference Exhibit 10.70.
10.32(12) Agreement dated February 10, 1993, by and between Somatix and the
California Parkinson's Foundation. Reference Exhibit 10.71.
10.33*(12) Letter Agreement dated March 16, 1993, between Somatix and Vector
Securities International, Inc. Reference Exhibit 10.72.
10.34(12) Employment Agreement dated July 1, 1993, between Somatix and David
Carter. Reference Exhibit 10.73.
10.35(12) Agreement dated August 30, 1993, by and between Somatix and Ludwig
Institute for Cancer Research. Reference Exhibit 10.74.
10.36(13) Employment Agreement dated November 11, 1993, between Somatix and
Richard Mulligan. Reference Exhibit 10.76.
10.37(14) Property Lease Agreement dated February 8, 1994, between Somatix
and Alameda Real Estate Investments. Reference Exhibit 10.77.
10.38(15) Property Lease Agreement dated May 5, 1994, between Somatix and
Alameda Real Estate Investments. Reference Exhibit 10.55.
10.39*(15) Research Collaboration Agreement dated April 29, 1994, by and
between Somatix and Baxter Healthcare Corporation. Reference
Exhibit 10.53.
10.40(15) Stock Purchase Agreement dated April 29, 1994, by and between
Somatix and Baxter Healthcare Corporation. Reference Exhibit
10.54.
10.41(15) Stock Purchase Agreement dated May 12, 1994, by and between Somatix
and Health Care Partners, LLC. Reference Exhibit 10.56.
10.42(15) Common Stock Purchase Agreement dated November 29, 1993, among
Somatix and the Investors listed on the Schedule of Investors
attached thereto. Reference Exhibit 10.52.
</TABLE>

39
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
10.43(15) Amended and Restated Registration Rights Agreement dated May 12,
1994, among Somatix and the parties listed on Schedule A attached
thereto. Reference Exhibit 10.57.
10.44(15) Master Equipment Lease Agreement dated May 24, 1994, between
Somatix and Aberlyn Capital Management Limited Partnership.
Reference Exhibit 10.58.
10.45(15) Agreement to Issue Warrant dated May 24, 1994, between Aberlyn
Capital Management Limited Partnership and Somatix. Reference
Exhibit 10.59.
10.46(15) Agreement to Issue Warrant dated May 24, 1994, between Aberlyn
Capital Management Limited Partnership and Somatix. Reference
Exhibit 10.60.
10.47(15) Master Equipment Lease Agreement dated June 30, 1994, between
Financing for Science International, Inc. and Somatix. Reference
Exhibit 10.61.
10.48(15) Warrant dated July 30, 1994, issued by Somatix to Financing for
Science International, Inc. Reference Exhibit 10.62.
10.49*(16) Agreement dated November 2, 1993, by and between Somatix and Baxter
Healthcare Corporation together with Amendment No. 1 dated
September 30, 1994. Reference Exhibit 10.75.
10.50(17) Employment Agreement dated August 1, 1993, between Somatix and
Arlene Jordan-Levy.
10.51(17) Employment Agreement dated August 1, 1993, between Somatix and
Lawrence Cohen.
10.52(17) Employment Agreement dated November 1, 1993, between Somatix and
Edward Oliver Lanphier II.
10.53(17) Employment Agreement dated December 30, 1993, between Somatix and
Mark N.K. Bagnall.
10.54*(17) Non-Exclusive License Agreement dated April 20, 1994 by and between
the Fred Hutchinson Cancer Research Center and Somatix.
10.55(17) Research Agreement dated June 1, 1994 between Baxter Healthcare
Corporation and Somatix.
10.56*(17) Letter Agreement dated September 1, 1994 between Baxter Healthcare
Corporation and Somatix.
10.57(18) Amendment #1 to the Warrant Agreement and Shareholder Agreement
dated November 7, 1994 by and among Somatix, GeneSys Therapeutics
Corporation and Kleiner Perkins Caufield & Byers V.
10.58*(19) Agreement and Plan of Reorganization dated December 19, 1994 as
amended on January 18, 1995 and January 31, 1995 among Somatix,
STC Acquisition Co. and Merlin Pharmaceutical Corporation.
Reference Exhibit 3.
10.59(19) Escrow Agreement, dated as of February 3, 1995, by and between STC
Acquisition Company, The First National Bank of Boston and the
stockholders of Merlin Pharmaceutical Corporation. Reference
Exhibit 4.
10.60*(19) Consulting and Repurchase Agreement, dated February 3, 1995,
between Somatix and Samuel D. Waksal. Reference Exhibit 5.
10.61*(19) Consulting and Repurchase Agreement, dated January 21, 1995,
between Somatix and Thomas Shenk. Reference Exhibit 6.
10.62*(19) Consulting and Repurchase Agreement, dated February 3, 1995,
between Somatix and R. Jude Samulski. Reference Exhibit 7.
</TABLE>

40
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
10.63*(19) Consulting and Repurchase Agreement, dated February 3, 1995,
between Somatix and Michael Kaplitt. Reference Exhibit 8.
10.64*(19) Consulting and Repurchase Agreement, dated February 3, 1995,
between Somatix and Matthew During. Reference Exhibit 9.
10.65(19) Indemnification Agreement, dated as of December 19, 1994, as
amended by Amendment No. 1, dated as of February 3, 1995, among
Merlin Pharmaceutical Corporation and Samuel D. Waksal. Reference
Exhibit 10.
10.66(19) Promissory Note, dated February 2, 1995, by and between Samuel D.
Waksal and Somatix. Reference Exhibit 11.
10.67(20) Merlin Pharmaceutical Corporation 1993 Stock Option Plan.
Reference Exhibit 99.1.
10.68(20) Non-Qualified Stock Option Agreement to be generally used in
connection with Merlin Pharmaceutical Corporation 1993 Stock
Option Plan. Reference Exhibit 99.2.
10.69(20) Stock Option Assumption Agreement--Installment Option. Reference
Exhibit 99.3.
10.70(20) Stock Option Assumption Agreement--Immediately Exercisable Option.
Reference Exhibit 99.4.
10.71*(21) License Agreement, dated January 10, 1994, between Merlin
Pharmaceutical Corporation and University of Florida Research
Foundation. Reference Exhibit 10.13.
10.72*(21) License Agreement, dated May 1, 1994, between Merlin
Pharmaceutical Corporation and University of Pittsburgh--of the
Commonwealth System of Higher Education. Reference Exhibit 10.14.
10.73*(21) License Agreement, dated August 11, 1994, between Merlin
Pharmaceutical Corporation and The Research Foundation of State
University of New York. Reference Exhibit 10.15.
10.74*(21) License Agreement, dated August 17, 1994, between Merlin
Pharmaceutical Corporation and University of Pittsburgh--of the
Commonwealth System of Higher Education. Reference Exhibit 10.16.
10.75(21) Sublease Agreement, dated December 1, 1994, between Merlin
Pharmaceutical Corporation and ICAgen, Inc. Reference Exhibit
10.17.
10.76*(21) Amendment dated February 15, 1995 to License Agreement dated May
1, 1994, between Merlin Pharmaceutical Corporation and University
of Pittsburgh--of the Commonwealth System of Higher Education.
Reference Exhibit 10.18.
10.77(21) Employment Agreement, dated April 7, 1995, between Somatix and Jan
Drayer, M.D. Reference Exhibit 10.19.
10.78(22) Common Stock Purchase Agreement, dated June 17, 1995. Reference
Exhibit 10.20.
10.79(22) Preferred Stock Purchase Agreement, dated June 17, 1995. Reference
Exhibit 10.21.
10.80(22) Form of Warrant to Purchase Shares of Common Stock. Reference
Exhibit 10.22.
10.81**(24) Stock Purchase Agreement, dated August 15, 1995, between Somatix
Therapy Corporation and Bristol-Myers Squibb Company. Reference
Exhibit 5.2.
10.82(25) Engagement Letter, dated April 27, 1995, between Somatix Therapy
Corporation and Merrill Lynch & Co. of Merrill Lynch, Pierce,
Fenner & Smith Incorporated.
10.83(26) Amendment No. 2 to the Warrant Agreement and Shareholder
Agreement, dated November 9, 1995, by and among Somatix Therapy
Corporation and Kleiner Perkins Caufield and Byers V. Reference
Exhibit 10.1
</TABLE>

41
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
10.84(26) Mutual Termination Agreement, dated September 29, 1995, between
Somatix Therapy Corporation and Baxter Healthcare Corporation.
Reference Exhibit 10.2.
10.85 Subscription Agreement, dated September 24, 1996, by and between
Somatix Therapy Corporation and Fletcher International Limited.
10.86 Warrant, dated September 25, 1995, issued by Somatix Therapy
Corporation to Fletcher International Limited.
22.1(3) Subsidiaries of the Registrant.
23.1 Consent of Independent Auditors.
24.1 Power of Attorney (see pages 45 and 46).
27 Financial Data Schedule.
</TABLE>
- --------
(1) Incorporated by reference to exhibit of the registrant's Registration
Statement on Form S-1 (File No. 33-4795) as filed with the SEC on April
14, 1986.
(2) Incorporated by reference to exhibit filed with the registrant's Annual
Report on Form 10-K for fiscal year ended June 30, 1986.
(3) Incorporated by reference to exhibit filed with the registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1989.
(4) Incorporated by reference to exhibit filed with the registrant's Form 8-K
dated September 13, 1989.
(5) Incorporated by reference to exhibit filed with the registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1990.
(6) Incorporated by reference to exhibit of the registrant's Registration
Statement on Form S-4 (File No. 33-4795) as filed with the SEC on January
14, 1991.
(7) Incorporated by reference to exhibit filed with the registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1991.
(8) Incorporated by reference to exhibit of the registrant's Registration
Statement on Form S-1 (File No. 33-4795) as filed with the SEC on January
21, 1992.
(9) Incorporated by reference to exhibit filed with the registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1992.
(10) Incorporated by reference to exhibit of the registrant's Registration
Statement on Form S-8 as filed with the SEC on August 17, 1992.
(11) Incorporated by reference to exhibit filed with the registrant's
Quarterly Report on Form 10-Q for quarter ended September 30, 1992.
(12) Incorporated by reference to exhibit filed with the registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1993.
(13) Incorporated by reference to exhibit filed with the registrant's
Quarterly Report on Form 10-Q for the quarter ended December 31, 1993.
(14) Incorporated by reference to exhibit filed with the registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1994.
(15) Incorporated by reference to exhibit filed with the registrant's Annual
Report on Form 10-K for the fiscal year ended June 30, 1994.
(16) This agreement was originally filed as Exhibit 10.75 to the registrant's
Quarterly Report on Form 10-Q for the quarter ended December 31, 1993,
has not been changed and is being filed with Amendment No. 1 thereto for
convenience of reference.
(17) Incorporated by reference to exhibit filed with the registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1994.
(18) Incorporated by reference to exhibit filed with the registrant's
Quarterly Report on Form 10-Q for the quarter ended December 31, 1994.

42
<PAGE>

(19) Incorporated by reference to exhibit filed with registrant's Amendment
No. 1 to Current Report on Form 8-K/A as filed with the SEC on February
14, 1995.
(20) Incorporated by reference to exhibit of the registrant's Registration
Statement on Form S-8 as filed with the SEC on March 3, 1995.
(21) Incorporated by reference to exhibit filed with the registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1995.
(22) Incorporated by reference to exhibit of the registrant's Registration
Statement on Form S-3 (File No. 33-60873) as filed with the SEC on June
19, 1995.
(23) Incorporated by reference to exhibit filed with the registrant's
Quarterly Report on Form 10-Q for the quarter year ended June 30, 1995.
(24) Incorporated by reference to exhibit filed with registrant's Current
Report on Form 8-K as filed with the SEC September 20, 1995.
(25) Incorporated by reference to exhibit filed with the registrant's Annual
Report on Form 10-K for the fiscal ended September 30, 1995.
(26) Incorporated by reference to exhibit filed with the registrant's
Quarterly Report on Form 10-Q for the quarter ended December 31, 1995.
* Confidential treatment has been granted as to certain portions of this
agreement.
** Confidential treatment has been requested as to certain portions of this
agreement. Such omitted confidential information has been designated by an
asterisk and has been filed separately with the Commission pursuant to
Rule 24b-2 under the Securities Exchange Act of 1934, as amended, pursuant
to an application for confidential treatment.

43
<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, (THE "EXCHANGE ACT") THE REGISTRANT HAS DULY
CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO
DULY AUTHORIZED.

Dated: September 27, 1996

Somatix Therapy Corporation

David W. Carter
By: _________________________________
David W. Carter
Chairman, President and Chief
Executive Officer

KNOW ALL MEN BY THESE PRESENTS, that each person who signature appears below
constitutes and appoints jointly and severally, David W. Carter and Edward O.
Lanphier II, or either of them as his or her true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution, for him or her
and in his or her name, place and stead, in any and all capacities, to sign
any and all amendments (including post-effective amendments) to this Report on
Form 10-K, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.

IN WITNESS WHEREOF, each of the undersigned has executed this Power of
Attorney as of the date indicated.

PURSUANT TO THE REQUIREMENTS OF THE EXCHANGE ACT, THIS REPORT HAS BEEN
SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE
CAPACITIES AND ON THE DATES INDICATED.

SIGNATURE TITLE DATE

/s/ David W. Carter Chief Executive September 27,
- ------------------------------------- Officer (Principal 1996
(DAVID W. CARTER) Executive Officer)

/s/ Edward O. Lanphier II Vice President, September 27,
- ------------------------------------- Finance (Principal 1996
(EDWARD O. LANPHIER II) Financial and
Accounting Officer)

/s/ Karen Davis Director September 27,
- ------------------------------------- 1996
(KAREN DAVIS, PH.D)

44
<PAGE>

SIGNATURE TITLE DATE

/s/ Michael R. Eisenson Director September 27,
- ------------------------------------- 1996
(MICHAEL R. EISENSON)

/s/ Fred H. Gage Director September 27,
- ------------------------------------- 1996
(FRED H. GAGE, PH.D.)

/s/ Harry F. Hixson, JR. Director September 27,
- ------------------------------------- 1996
(HARRY F. HIXSON JR., PH.D.)

/s/ John T. Potts Director September ,
- ------------------------------------- 1996
(JOHN T. POTTS, PH.D., M.D.)

/s/ Leon E. Rosenberg Director September 27,
- ------------------------------------- 1996
(LEON E. ROSENBERG, M.D.)

/s/ Thomas E. Shenk Director September 27,
- ------------------------------------- 1996
(THOMAS E. SHENK, PH.D)

/s/ Inder M. Verma Director September 27,
- ------------------------------------- 1996
(INDER M. VERMA, PH.D.)

/s/ Samuel D. Waksal Director September 27,
- ------------------------------------- 1996
(SAMUEL D. WAKSAL, PH.D.)

45
<PAGE>

0522-AR-97

<PAGE>

EXHIBIT 13.2

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

----------------

FORM 10-Q

(MARK ONE)

[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1996

[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 0-14758

SOMATIX THERAPY CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 94-2762045
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)

850 MARINA VILLAGE PARKWAY, ALAMEDA, CALIFORNIA 94501
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)

(510) 748-3000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
- -------------------------------------------------------------------------------
FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT

INDICATE BY CHECK [X] WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTIONS 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [_]

THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF COMMON
STOCK AS OF:

<TABLE>
<CAPTION>
CLASS OUTSTANDING AT DECEMBER 31, 1996
----- --------------------------------
<S> <C>
Common Stock, $0.01 Par Value 24,476,848
Preferred Stock, $0.01 Par Value 280,984
</TABLE>
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE NO.
--------
<C> <S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements.
Consolidated Balance Sheets as of December 31, 1996 and
June 30, 1996............................................. 1, 2
Consolidated Statements of Operations for the Three and
Six Months Ended
December 31, 1996 and 1995................................ 3
Consolidated Statements of Cash Flows for the Three and
Six Months Ended
December 31, 1996 and 1995................................ 4
Notes to Consolidated Financial Statements................ 5
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 7
Risk Factors.............................................. 9
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings......................................... 17
ITEM 2. Changes in Securities..................................... 17
ITEM 3. Defaults upon Senior Securities........................... 17
ITEM 4. Submission of Matters to a Vote of Security Holders....... 17
ITEM 5. Other Information......................................... 17
ITEM 6. Exhibits and Reports on Form 8-K.......................... 18
Signatures................................................ 19
</TABLE>

i
<PAGE>

PART I. FINANCIAL INFORMATION.

ITEM 1. FINANCIAL STATEMENTS

SOMATIX THERAPY CORPORATION

----------------

CONSOLIDATED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1996
(UNAUDITED)
------------ -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................ $ 5,786,000 $ 6,703,000
Marketable securities ................................ 3,905,000 7,738,000
Other current assets ................................. 998,000 889,000
----------- -----------
Total current assets ................................ 10,689,000 15,330,000
Marketable Securities ................................. 0 595,000
Restricted cash ....................................... 300,000 650,000
Equipment and improvements, at cost:
Laboratory and production equipment .................. 4,173,000 4,136,000
Equipment under capital leases ....................... 3,737,000 3,435,000
Furniture and office equipment ....................... 1,136,000 1,266,000
Leasehold improvements ............................... 4,465,000 4,286,000
----------- -----------
13,511,000 13,123,000
Less accumulated depreciation and amortization....... 11,495,000 10,459,000
----------- -----------
Net equipment and improvements ...................... 2,016,000 2,664,000
----------- -----------
Other assets .......................................... 513,000 131,000
----------- -----------
$13,518,000 $19,370,000
=========== ===========
</TABLE>

See accompanying notes.

1
<PAGE>

SOMATIX THERAPY CORPORATION

----------------

CONSOLIDATED BALANCE SHEETS--CONTINUED

LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1996
(UNAUDITED)
------------- -------------
<S> <C> <C>
Current liabilities:
Accounts payable and accrued liabilities ....... $ 2,095,000 $ 2,237,000
Accrued compensation and related expenses ...... 801,000 1,169,000
Capital lease obligations ...................... 983,000 861,000
Accrued restructuring costs .................... 1,096,000 414,000
Other current liabilities ...................... 239,000 186,000
------------- -------------
Total current liabilities ..................... 5,214,000 4,867,000
Capital lease obligations, net of current por-
tion............................................ 992,000 1,217,000
Accrued restructuring costs, net of current por-
tion ........................................... 634,000 834,000
Other liabilities ............................... 78,000 249,000
Stockholders' equity
Preferred stock, par value $0.01 per share,
1,000,000 shares
authorized; Series A, 247,651 shares, issued
and outstanding
(239,811 at June 30, 1996); Series B, 33,333
shares, issued
and outstanding (none at June 30, 1996) ....... 3,000 2,000
Common stock, par value $0.01 per share,
40,000,000 shares
authorized, 24,476,848 issued and outstanding
(24,369,403 at June 30, 1996) ................. 245,000 244,000
Additional paid-in capital ..................... 187,401,000 182,118,000
Accumulated deficit ............................ (181,049,000) (170,161,000)
------------- -------------
Total stockholders' equity .................... 6,600,000 12,203,000
------------- -------------
$ 13,518,000 $ 19,370,000
============= =============
</TABLE>

See accompanying notes.

2
<PAGE>

SOMATIX THERAPY CORPORATION

----------------

CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------- ---------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Research Agreement ..... $ -- $ -- $ -- $ --
Costs and expenses:
Research and development
....................... 3,582,000 4,244,000 7,639,000 8,131,000
General and administra-
tive .................. 1,337,000 1,063,000 2,703,000 1,970,000
Restructuring costs .... -- -- 1,060,000 --
------------ ------------ ------------- -------------
Total costs and ex-
penses 4,919,000 5,307,000 11,402,000 10,101,000
------------ ------------ ------------- -------------
Operating loss .......... (4,919,000) (5,307,000) (11,402,000) (10,101,000)
Other income, net ....... 209,000 203,000 515,000 421,000
------------ ------------ ------------- -------------
Net loss .............. $(4,710,000) $(5,104,000) $(10,887,000) $ (9,680,000)
============ ============ ============= =============
Net loss per share ...... $ (0.19) $ (0.22) $ (0.45) $ (0.43)
============ ============ ============= =============
Shares used in calcula-
tion of
net loss per share ..... 24,428,977 22,744,967 24,402,640 22,282,529
</TABLE>

See accompanying notes.

3
<PAGE>

SOMATIX THERAPY CORPORATION

----------------

CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER
31,
--------------------------
1996 1965
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss ......................................... $(10,887,000) $ (9,680,000)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization ................... 1,036,000 931,000
Increase in other current assets ................ (109,000) (60,000)
Increase in other assets ........................ (382,000) (25,000)
Decrease in accounts payable and accrued liabili-
ties ........................................... (143,000) (695,000)
Decrease in accrued compensation and related ex-
penses ......................................... (368,000) (166,000)
Increase (decrease) in accrued restructuring cost
................................................ 482,000 (704,000)
Decrease in other liabilities ................... (118,000) (64,000)
------------ ------------
Net cash used in operating activities .......... (10,489,000) (10,463,000)
Cash flows from investing activities:
Maturities of marketable securities.............. 4,440,000 1,700,000
Purchase of marketable securities ............... (12,000) (13,120,000)
Decrease (increase) in restricted cash........... 350,000 (350,000)
Purchase of equipment and improvements .......... (388,000) (246,000)
------------ ------------
Net cash provided by (used in) investing activi-
ties .......................................... 4,390,000 (12,016,000)
Cash flows from financing activities:
Borrowings under sale/leaseback agreement ....... 398,000 179,000
Principal payments under capital lease obliga-
tions .......................................... (501,000) (394,000)
Net proceeds from issuance of common stock ...... 5,285,000 11,550,000
------------ ------------
Net cash provided by financing activities....... 5,182,000 11,335,000
Net increase (decrease) in cash .................. (917,000) (11,144,000)
Cash and cash equivalents, beginning of period ... 6,703,000 14,326,000
------------ ------------
Cash and cash equivalents, end of period ......... $ 5,786,000 $ 3,182,000
============ ============
Cash paid for interest ........................... $ 139,000 $ 162,000
</TABLE>

See accompanying notes.

4
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 1996

1.BASIS OF PRESENTATION.

The information at December 31, 1996 and 1995, and for the periods then
ended, is unaudited, but includes all adjustments (consisting only of normal
recurring entries) which the Company's management believes to be necessary for
the fair presentation of the financial position, results of operations and
changes in cash flows for the periods presented. Interim results are not
necessarily indicative of results for a full year. The accompanying
consolidated financial statements should be read in conjunction with the
Company's audited financial statements for the fiscal year ended June 30,
1996.

2.RECLASSIFICATIONS

Certain prior period balances have been reclassified to conform to current
year presentation.

3.PER SHARE INFORMATION

Per share information is based on the weighted average number of shares of
common stock outstanding during each period. Series A Preferred shares
convertible into 6.25 shares of common stock for each share of Series A
Preferred, Series B Preferred shares convertible into common stock on basis of
weighted average price of common stock at time of conversion (see Note 4
below) and shares issuable upon the exercise of outstanding options and
warrants to purchase shares of the Company's common stock (common stock
equivalents) are not included in the calculation of the net loss per share for
the three month periods ended December 31, 1996 and 1995, since their
inclusion would be anti-dilutive.

4.EQUITY INVESTMENT

On September 25, 1996 the Company sold 33,333 shares of convertible Series
B-1 preferred stock ("Preferred Stock") in a private placement pursuant to
Regulation S under the Securities Act of 1933, as amended, for an aggregate
consideration of $5,000,000 in cash. In addition, the Company has the right to
sell up to $10,000,000 in additional shares of Preferred Stock during the
three (3) year period ending September 25, 1999. No more than $5,000,000 may
be sold during any given six month period. The Preferred Stock is not entitled
to dividends and is convertible into common stock at a premium over an average
of the market price of the Company's Common Stock on the earlier of (i) the
investor's option, (ii) immediately following any sixty (60) day trading
period after March 1997 in which the Company's common stock has traded above
130% of the closing price of the common stock on September 24, 1996, or (iii)
September 25, 1999. The Company also issued to the investor a warrant to
purchase 650,000 shares of the Company's common stock at a price equal to 130%
of the closing price of the Company's common stock on September 24, 1996. Such
warrant is exercisable between March 1998 and September 2002.

5.RESTRUCTURING COSTS

On September 24, 1996, the Company implemented a cost reduction program,
delaying a Phase III clinical trial for its Autologus GVAXTM Cancer Vaccine
and significantly reduced the clinical development staff. Accordingly, the
Company recorded restructuring costs of $1,060,000 in the first quarter of
fiscal 1997, which included employee severance costs for 25 employees totaling
$853,000. Severance costs totaling $405,000 were paid through December 31,
1996.

6.SUBSEQUENT EVENTS

The Company entered into an Agreement and Plan of Merger and Reorganization
(the "Merger Agreement") with Cell Genesys, Inc. and S Merger Corp. (a wholly-
owned subsidiary of Cell Genesys) dated as of January 12, 1997. Pursuant to
the Merger Agreement, S Merger Corp. will be merged with and into the Company
such that the Company will become a wholly-owned subsidiary of Cell Genesys
and the Company's stockholders shall become stockholders of Cell Genesys. The
pendency of the merger may have a material and adverse effect on the Company's
liquidity and capital resources in the event the merger is, for any reason,
not consummated. See "Risk Factors-Completion of Merger."

5
<PAGE>

Subsequent to December 31, 1996, the Company incurred approximately $2
million in cash expenditures relating to restructuring costs from its
September 1996 reduction in force and certain other expenses, which
expenditures may have an adverse effect upon the Company's liquidity. See--
Note 5 to Notes to Consolidated Financial Statements.

6
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Somatix Therapy Corporation ("Somatix" or the "Company") is a research and
development company in the field of gene therapy. Absent significant funding
from research collaborations, the Company expects costs and expenses to exceed
revenues in future periods. This will result in increasing losses for the next
several years.

There were no revenues for the three and six month periods ended December
31, 1996 or in the same period in the prior fiscal year.

Research and development expenses for the three and six month periods ended
December 31, 1996 decreased by $662,000 and $492,000 respectively, from the
same periods in the prior fiscal year. The decrease is due to the Company's
restructuring and cost savings program.

General and administrative expenses for the three-month period ending
December 31, 1996 increased by $274,000 from the same period in the prior
fiscal year. The increase is due to higher legal and other corporate costs,
associated with intensive corporate negotiations.

Other income consists principally of interest income earned on the Company's
cash reserves. The increase, to $515,000 in the six months of fiscal year
1997, from $421,000 for the same period in fiscal year 1996, was primarily due
to sublease rental income received.

LIQUIDITY AND CAPITAL RESOURCES

On December 31, 1996, the Company had cash, cash equivalents, and marketable
securities of $9,691,000, compared with $15,036,000 on June 30, 1996. On
December 31, 1996, the Company had working capital of $5,475,000 compared with
$10,463,000 on June 30, 1996. In the six months ended December 31, 1996 the
Company's operating cash and investments outflow was $6,202,000, and the
Company generated $5,285,000 from equity transactions. See--Note 4 to Notes to
Consolidated Financial Statements. Operating expenses have exceeded revenues
for a number of years. For the six-month period ended December 31, 1996,
capital expenditures amounted to $388,000. The Company has no material capital
commitments. Absent the consummation of the merger described under the heading
"Subsequent Events" below, the Company will need to either substantially
reduce its expenses and/or obtain substantial additional financing immediately
after any termination of the proposed merger in order to finance its on-going
operations. The Company has the right, under the private placement dated
September 25, 1996, to put certain shares of its Common Stock to a non-U.S.
investor for up to $5 million in proceeds after March 1997; however, the
number of shares to be put and the actual amount of this additional financing
will be determined by many factors, including the price of the Company's stock
(which, at the merger price, would limit such proceeds to approximately $4
million), most of which are beyond the control of the Company. (See Note 4 to
Notes to Consolidated Financial Statements.) Other sources of capital may be
pursued by the Company depending upon the progression of the merger and
stockholder approval thereof. See "Risk Factors--Future Capital Needs;
Uncertainty of Additional Funding."

If the Company's cash, cash equivalents and marketable securities drops to
less than $5,000,000, holders of the Company's Series A Preferred Stock have
the right, as a class, to remove and replace a majority of the Company's Board
of Directors. Unless the Company raises additional financing in the third
quarter of fiscal 1997, this condition may be triggered either late in the
third quarter or early in the fourth quarter.

SUBSEQUENT EVENTS

7
<PAGE>

stockholders shall become stockholders of Cell Genesys. The pendency of the
Merger may have a material and adverse effect on the Company's liquidity and
capital resources in the event the Merger is, for any reason, not consummated.
See "Risk Factors--Completion of Merger."

This Form 10-Q contains, in addition to historical information, forward-
looking statements that involve risks and uncertainties. The Company's actual
results could differ materially from the results discussed in the forward-
looking statements. Factors that could cause or contribute to such differences
include those discussed in "Risk Factors" as well as those discussed elsewhere
in this Form 10-Q.

8
<PAGE>

RISK FACTORS

COMPLETION OF MERGER

The Company has entered into an Agreement and Plan of Merger and
Reorganization (the "Merger Agreement") with Cell Genesys, Inc. and S Merger
Corp. (a wholly-owned subsidiary of Cell Genesys) dated as of January 12,
1997. Pursuant to the Merger Agreement, the Company has agreed to certain
covenants regarding the operation of its business pending stockholder approval
of the Merger, which covenants prohibit the sale or other transfer of Company
intellectual property or other assets and limit the amount and types of
financing the Company may obtain during the pendency of the Merger. Although
the Company believes that it has sufficient access to capital to fund its
operations through the consummation of the Merger or any termination of the
Merger Agreement, such covenants limit the Company's flexibility in raising
further capital and would therefore materially and adversely affect the
Company's operations if the Merger is not consummated. The Merger Agreement
also requires the Company, under certain limited circumstances, to pay a $3
million breakup fee to Cell Genesys if the Merger Agreement is terminated.
Such a payment would severely and adversely affect the Company's liquidity and
its ability to fund its operations.

FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING

The Company's future capital requirements will depend on many factors,
including the progress of the Company's research and development, the scope
and results of preclinical studies and clinical trials, the cost of obtaining
regulatory approvals, the rate of technological advances, determinations as to
the commercial potential of the Company's products under development, the
status of competitive products and the establishment of manufacturing
capacity. The Company anticipates that it will be required to raise
substantial additional funds, including funds raised through collaborative
relationships and public or private financings. Because of the Company's
significant long-term capital requirements, it may seek to access the public
equity markets whenever conditions are favorable, even if it does not have an
immediate need for additional capital at that time. No assurance can be given
that additional financing will be available on acceptable terms, or at all. If
adequate funds are not available, the Company will be required to curtail
significantly its research and development programs or may be required to
discontinue its programs in their entirety and liquidate its assets. See Item
2 "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

EARLY STAGE OF DEVELOPMENT; NO DEVELOPED OR APPROVED PRODUCTS

TECHNOLOGICAL UNCERTAINTY

9
<PAGE>

that unacceptable side effects will not be discovered during preclinical and
clinical testing of the Company's potential products or thereafter. There are
many reasons that potential products that appear promising at an early stage
of research or development do not result in commercialization. There can be no
assurance that the Company will be permitted to undertake human clinical
trials for any of its other products or that the results of such testing will
demonstrate safety or efficacy. Even if clinical trials are successful, there
is no assurance that the Company will obtain regulatory approval for any
indication, or that an approved product can be produced in commercial
quantities at reasonable costs, or be successfully marketed. The Company has
also recently begun development of in vivo approaches to gene therapy, some of
which will target specific cells. There can be no assurance that the desired
specificity will be attained or that such products will not have serious side
effects.

OPERATING LOSS AND ACCUMULATED REPORT

The Company has incurred net losses since its inception. At December 31,
1996, the Company's accumulated deficit was approximately $181.0 million. Such
losses have resulted principally from expenses incurred in the Company's
research and development programs, the acquisition of new technology, and to a
lesser extent, from general and administrative expenses. The Company incurred
a loss of $20.7 million in fiscal 1996 and expects to incur substantial and
increasing losses for at least the next several years due primarily to the
expansion of its research and development programs, including preclinical
studies, clinical trials and manufacturing. The Company expects that losses
will fluctuate from quarter to quarter and that such fluctuations may be
substantial. There can be no assurance that the Company will successfully
develop, commercialize, manufacture or market its products or ever achieve or
sustain product revenues or profitability.

PATENTS AND TRADE SECRETS

The patent positions of pharmaceutical and biotechnology firms, including
Somatix, are generally uncertain and involve complex legal and factual
questions. While Somatix is actively prosecuting its patent applications, it
does not know whether any given application will result in the issuance of a
patent or, if any patent is issued, whether it will provide significant
proprietary protection or will be invalidated. Because patent applications in
the United States are confidential until patents issue and publication of
discoveries in the scientific or patent literature tends to lag behind actual
discoveries by several months, Somatix can not be certain it was the first
creator of inventions covered by pending patent applications or that it was
the first to file patent applications for such inventions.

The commercial success of Somatix will also depend in part on not infringing
the patents or proprietary rights of others and not breaching licenses granted
to Somatix. Somatix may be required to obtain licenses to third party
technology necessary to conduct its business. Any failure by Somatix to
license at reasonable cost any technology required to commercialize its
technologies or products may have an adverse impact on Somatix.

Litigation, which could result in substantial cost to Somatix, may also be
necessary to enforce any patents issued to Somatix, or to determine the scope
and validity of other parties' proprietary rights. To determine the priority
of inventions, interference proceedings are frequently declared by the United
States Patent Office that could result in substantial costs to Somatix and may
result in an adverse decision as to the patentability of Somatix' inventions.
Somatix is currently involved in an interference proceeding and may be
involved in others in the future. Somatix believes that there will continue to
be significant litigation in the industry regarding patent and other
intellectual property rights. See "--Legal Proceedings."

For example, one of Somatix competitors has been granted an exclusive
license to a United States patent recently issued to the National Institutes
of Health, covering ex vivo gene therapy. The United States Patent and
Trademark Office recently declared an interference between the competitor's
patent, a patent application exclusively licensed to Somatix, and a patent
application of a third party. Somatix has been accorded Senior Party status,
because the application licensed to Somatix has a priority date earlier than
that of either the patent issued to the National Institutes of Health or the
patent application of the third party. The interference proceeding

10
<PAGE>

is in its early stages. It is expected that the proceedings may last for
several years. While Somatix believes it has a strong position, nothing can be
predicted about the outcome of the proceedings, and the Company believes that
an adverse result could have a material adverse effect on Somatix'
intellectual property portfolio or its business.

Somatix also relies on unpatented trade secrets and improvements, unpatented
know-how and continuing technological innovation to develop and maintain its
competitive position. No assurance can be given that others will not
independently develop substantially equivalent proprietary information and
techniques, or otherwise gain access to Somatix' trade secrets or disclose
such technology, or that Somatix can meaningfully protect its rights to its
unpatented trade secrets.

Somatix requires its employees and consultants to execute a confidentiality
agreement upon the commencement of an employment or consulting relationship
with it. These agreements provide that all confidential information developed
by or made known to an individual during the course of the employment or
consulting relationship generally must be kept confidential. In the case of
employees, the agreements provide that all inventions conceived by the
individual while employed by Somatix, relating to its business, are the
exclusive property of Somatix. These agreements may not provide meaningful
protection for Somatix' trade secrets in the event of unauthorized use or
disclosure of such information.

A number of the DNA sequences which the Company expects to use in its gene
therapy products are or may become patented by third parties. As a result, the
Company may be required to obtain licenses under such patents in order to
conduct certain research, to manufacture or to market products that contain
proprietary genes. There can be no assurance that such licenses will be
available on commercially reasonable terms, if at all. The Company is aware of
proceedings to determine rights to the human GM-CSF cDNA sequence in the
United States and Europe. In the United States, in the most recent public
disclosure of which the Company is aware, the Board of Patent Appeals and
Interferences granted a motion by a third party in an interference proceeding
stating that the human GM-CSF cDNA sequence is not patentable over the prior
art. In Europe, an Opposition proceeding initiated by a third party to
invalidate a European patent covering human GM-CSF cDNA was unsuccessful. The
decision by the European Patent Office Opposition Division upholding the
patent has been appealed by this third party. There can be no assurance of the
outcome of these proceedings or the outcome of these proceedings on appeal, or
that, if required, a license of rights to the gene sequence will be available
to the Company on commercially reasonable terms, if at all.

The Company has acquired significant proprietary rights under license
agreements that permit the licensors to terminate those agreements in the
event of certain material breaches by the Company. Although the Company is not
currently in default under any of these agreements, there can be no assurance
that such defaults will not occur in the future. Should a default occur, and
should any of those agreements be terminated in the future, the Company could
lose the right to continue to develop one or more of these potential products.

COMPETITION

Competition in the field of gene therapy from other biotechnology and
pharmaceutical companies and from research and academic institutions is
intense an expected to increase. There are numerous competitors working on
products to treat each of the diseases for which Somatix is seeking to develop
therapeutic products. Some competitors are pursuing a product development
strategy competitive with Somatix. Certain of these competitive products are
in substantially more advanced stages of product development and clinical
trials. Somatix' competitors may develop technologies and products that are
more effective than those being developed by Somatix or that would render
Somatix' technology and products less competitive or obsolete. Many of these
competitors have substantially greater financial resources and larger research
and development staffs than Somatix has. In addition, many of these
competitors may have significantly greater experience than Somatix in
developing products, in undertaking preclinical testing and human clinical
trials of new pharmaceutical products, in obtaining United States Food and
Drug Administration (the "FDA") and other regulatory approvals of products,
and in manufacturing and marketing such products. Accordingly, Somatix'
competitors may succeed in obtaining patent protection, receiving FDA approval
or commercializing products more rapidly than the

11
<PAGE>

Company. There can be no assurance that the Company will be able to obtain
certain biological materials necessary to support its research, development or
manufacturing of any of the Company's planned therapies. If Somatix is
permitted to commence commercial sales of products, it will also be competing
with respect to marketing capabilities and manufacturing efficiency, areas in
which it has limited or no experience. It is anticipated that Somatix will
build additional clinical scale and commercial sale manufacturing facilities
to the extent that contract facilities are not available in order to
commercialize its products. It is also anticipated that the Company will
secure funding for these and other product development activities through its
partners and future potential partners. Somatix also competes with
universities and other research institutions in the development of products,
technologies and processes. In many instances, Somatix compete with other
commercial entities in acquiring products or technology from universities.

Somatix expects that competition among products approved for sale will be
based, among other things, on product efficacy, safety, reliability,
availability, price, patent position, and sales, marketing and distribution
capabilities. Somatix' competitive position also depends upon its ability to
attract and retain qualified personnel, obtain patent protection and otherwise
develop proprietary products or processes and secure sufficient capital
resources for the often substantial period between product conception and
commercial sales.

The levels of revenues and profitability of biotechnology and pharmaceutical
companies such as the Company may be affected by the continuing efforts of
governmental and third party payors to contain or reduce the costs of health
care through various means. In the United States there have been, and Somatix
expects that there will continue to be, a number of federal and state
proposals to control health care costs. Somatix can not predict the effect
health care reforms may have on its business, and no assurance can be given
that any such reforms will not have a material adverse effect on Somatix. In
the United States and elsewhere, sales of therapeutic products are dependent
in part on the availability of reimbursement to the consumer from third party
payors, such as government and private insurance plans. If Somatix succeeds in
bringing one or more products to the market, there can be no assurance that
these products will be considered cost effective and that reimbursement to the
consumer will be available or will be sufficient to allow or the Company to
sell its products on a competitive basis.

VOLATILITY OF STOCK PRICE

DEPENDENCE UPON KEY PERSONNEL AND COLLABORATIVE RELATIONSHIPS

12
<PAGE>

The Company has clinical trial arrangements with The Johns Hopkins
University covering a Phase I clinical trial to treat kidney cancer patients,
completed as of May 1995, and a Phase I/II clinical trial to treat prostate
cancer patients which is ongoing. The Company has additional arrangements with
the Netherlands Cancer Institute and the Dana Farber Cancer Center to treat
melanoma patients in two separate Phase I clinical trials. Both trials are
currently in progress. The Company has also completed a Phase I clinical trial
in the treatment of chronic granulomatous disease ("CGD") using hematopoietic
stem cells in a clinical trial, in conjunction with laboratories at the
National Institutes of Health. In the event that any of these relationships
are terminated, the completion and evaluation of clinical trials could be
adversely affected. In addition, the Company has an arrangement with the
Parkinson's Institute of Santa Clara, California to provide animal facilities,
animals and of preclinical testing might be adversely affected. consulting
services in connection with preclinical testing of its gene therapy product
for Parkinson's Disease. If the relationship were terminated, progress of
preclinical testing might be adversely affected.

COMMERCIALIZATION: LACK OF MANUFACTURING OR MARKETING EXPERIENCE

The Company's current commercialization strategy is to sell genetically
modified cells to hospitals and clinics. The Company will be required to
operate facilities in which each patient's cells are genetically modified,
processed and tested in compliance with the Good Manufacturing Practices
published in the U.S. Code of Federal Regulations. Currently, the Company can
manufacture genetically modified cells in quantities sufficient to meet its
needs for clinical testing but does not have the capability to manufacture
sufficient quantities to meet large-scale commercial requirements. The Company
believes that its processes can be scaled-up efficiently to meet its
anticipated future requirements, but there can be no assurance that problems
or delays will not arise in such scale- up. The manufacture of sufficient
quantities of the Company's potential products can be an expensive, time-
consuming and complex process. If the Company is unable to develop such
manufacturing capabilities, the Company's ability to commercialize its
products will be adversely affected. This could prevent or delay submission of
products for regulatory approval and initiation of new development programs,
which would have a material adverse effect on the Company.

GOVERNMENT REGULATION

13
<PAGE>

Regulation by governmental authorities in the United States and foreign
countries is a significant factor in the manufacture and marketing of Somatix'
proposed products and its research and development activities. All of Somatix'
products will require regulatory approval by governmental agencies prior to
commercialization. In particular, human therapeutic products must undergo
rigorous preclinical and clinical testing and other premarket approval
procedures by the FDA and similar authorities in foreign countries Since
certain of Somatix' potential products involve the application of new
technologies, regulatory approvals may take longer than for products produced
using more conventional methods. Various federal and, in some cases, state
statutes and regulations also govern or influence the manufacturing, safety,
labeling, storage, record keeping and marketing of such products. The lengthy
process of seeking these approvals, and the subsequent compliance with
applicable federal statutes and regulations, requires the expenditure of
substantial resources. Any failure by Somatix or its collaborators or
licensees to obtain, or any delay in obtaining, regulatory approvals could
adversely affect the marketing of any products developed by the Company and
its ability to receive product or royalty revenue.

The activities required before a pharmaceutical agent may be marketed in the
United States begin with preclinical testing. Preclinical tests include
laboratory evaluation of potential products and animal studies to assess the
potential safety and efficacy of the product and its formulations. The results
of these studies and other information must be submitted to the FDA as part of
an investigational new drug application, which must be reviewed and approved
by the FDA before proposed clinical testing can begin. Clinical trials involve
the administration of the investigational new drug to healthy volunteers or to
patients under the supervision of a qualified principal investigator. Clinical
trials are conducted in accordance with Good Clinical Practices under
protocols that detail the objectives of the study, the parameters to be used
to monitor safety and the efficacy criteria to be evaluated. Each protocol
must be submitted to the FDA as part of the investigational new drug
application. Further, each clinical study must be conducted under the auspices
of an independent institutional review board at the institution at which the
study will be conducted. The institutional review board will consider, among
other things, ethical factors and the safety of human subjects. In addition,
certain protocols involving the use of genetically modified human cells must
also be reviewed by the Recombinant Advisory Committee of the National
Institutes of Health.

Typically, clinical testing involves a three-phase process. In Phase I,
clinical trials are conducted with a small number of subjects to determine the
early safety profile and pharmacology of the new therapy. Although the
preliminary Phase I clinical testing results reported to date of Somatix'
GVAX(TM) cancer vaccine product have shown no treatment-related safety
problems, there can be no assurance that such therapy or product will be
tolerated at higher doses or that the clinical efficacy of such therapy or
product will be demonstrated. In Phase II, clinical trials are conducted with
groups of patients afflicted with a specific disease in order to determine
preliminary efficacy, optimal dosages and expanded evidence of safety. In
Phase III, large scale, multicenter, comparative clinical trials are conducted
with patients afflicted with a target disease in order to provide enough data
for the statistical proof of efficacy and safety required by the FDA and
others. In the case of products for life-threatening diseases, the initial
human testing is generally done with diseased patients rather than with
healthy volunteers. Since these patients are already afflicted with the target
disease, it is possible that such studies may provide results traditionally
obtained in Phase II trials. These trials are frequently referred to as Phase
I/II trials.

14
<PAGE>

satisfy its regulatory approval criteria. Approvals may not be granted on a
timely basis, if at all, or if granted may not cover all the clinical
indications for which Cell Genesys, Somatix or the Combined Company is seeking
approval or may contain significant limitations in the form of warnings,
precautions or contraindications with respect to conditions of use.

In addition to laws and regulations enforced by the FDA, Somatix is and will
be, subject to regulation under the Occupational Safety and Health Act, the
Environmental Protection Act, the Toxic Substances Control Act, the Resource
Conservation and Recovery Act and other present and potential future federal,
state or local laws and regulations. Somatix' research and development
involves the controlled use of hazardous materials, chemicals, viruses and
various radioactive compounds. Although Somatix believes that its safety
procedures for handling and disposing of such materials comply with the
standards prescribed by state and federal regulations, the risk of accidental
contamination or injury from these materials cannot be completely eliminated.
In the event of such an accident, Somatix could be held liable for any damages
that result and any such liability could exceed the resources of Somatix.

Somatix manufacturing facility for production of clinical quantities of its
products was licensed in 1993 by the California Department of Health Services.
The California Department of Health Services may inspect the facility
annually. Manufacture of clinical quantities of Somatix products does not
require an FDA license, although the FDA may at any time inspect the facility.
The continued operation of this facility requires compliance with FDA
standards for this type of manufacturing. A separate license from the FDA is
required for commercial manufacturing of any products. During 1995 and 1996,
Somatix completed construction of its clinical scale cell processing facility.
The facility was expanded in anticipation of a large efficacy trial of the
GVAX(TM) cancer vaccine.

For marketing outside the United States, Somatix is and will be, subject to
foreign regulatory requirements governing human clinical trials and marketing
approval for drugs and devices. The requirements governing the conduct of
clinical trials, product licensing, pricing and reimbursement vary greatly
from country to country.

PRODUCT LIABILITY AND INSURANCE

HAZARDOUS MATERIALS; ENVIRONMENTAL MATTERS

15
<PAGE>

REIMBURSEMENT

UNCERTAINTY OF PHARMACEUTICAL PRICING AND RELATED MATTERS

16
<PAGE>

PART II. OTHER INFORMATION.

ITEM 1. LEGAL PROCEEDINGS. NONE.

ITEM 2. CHANGES IN SECURITIES. NONE.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES. NONE.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

On December 18, 1996, at the Company's 1996 Annual Meeting of Security
Holders, the following matters were submitted and voted on by security holders
and were adopted:

A. The election of: David W. Carter; Karen Davis Ph.D.; Michael R. Eisenson;
Fred H. Gage, Ph.D.; John T. Potts, Jr., M.D.; Thomas E. Shenk, Ph.D.; Samuel
D. Waksal, Ph.D.; Leon E. Rosenberg, M.D.; Inder M. Verma by the stockholders
to serve on the board of directors.

The results of the vote are as follows:

<TABLE>
<CAPTION>
TOTAL VOTE FOR TOTAL VOTE WITHHELD
EACH DIRECTOR FROM EACH DIRECTOR
-------------- -------------------
<S> <C> <C>
David W. Carter........................ 18,778,857 1,876,903
Karen Davis, Ph.D...................... 18,797,807 1,857,953
Michael R. Eisenson.................... 18,790,857 1,864,903
Fred H. Gage, Ph.D..................... 18,799,357 1,856,403
John T. Potts, Jr., M.D................ 18,792,907 1,862,853
Leon E. Rosenberg, M.D................. 18,798,657 1,857,103
Thomas E. Shenk, Ph.D.................. 18,798,457 1,857,303
Inder M. Verma, Ph.D................... 18,702,199 1,953,561
Samuel D. Waksal, Ph.D................. 18,839,457 1,816,303
</TABLE>

B. The ratification of Ernst & Young, LLP as independent auditors of the
Company for fiscal year ending June 30, 1997.

The results are as follows:

<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN NO VOTE
--- ------- ------- -------
<S> <C> <C> <C>
20,606,132 34,962 14,666 0
</TABLE>

ITEM 5. OTHER INFORMATION. NONE.

17
<PAGE>

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits

The following documents are referenced or included in this report:

<TABLE>
<CAPTION>
EXHIBIT
NO.
-------
<C> <S>
10.87 Addendum to Employment Agreement, dated November 18, 1996, by and
between the Company and David W. Carter.
10.88 Addendum to Employment Agreement, dated November 18, 1996, by and
between the Company and Edward O. Lanphier II.
10.89 Addendum to Employment Agreement, dated November 18, 1996, by and
between the Company and Lawrence K. Cohen.
10.90 Addendum to Employment Agreement, dated November 18, 1996, by and
between the Company and Joseph A. Rokovich.
27 Financial Data Schedule.
</TABLE>

(b) Reports on Form 8-K. No reports on Form 8-K were filed in the quarter
ended December 31, 1996.

18
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed in its behalf
by the undersigned thereunto duly authorized.

SOMATIX THERAPY CORPORATION

DATED: February 10, 1997 By: /s/ David W. Carter
---------------------------------
President, Chief Executive
Officer and Chairman of the Board

DATED: February 10, 1997 By: /s/ Edward O. Lanphier II
---------------------------------
Executive Vice President,
Commercial Development and Chief
Financial Officer (Principal
Financial and Accounting Officer)

19
<PAGE>

EXHIBIT INDEX

20
<PAGE>

0522-10Q-97

<PAGE>

EXHIBIT 23.4

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" in the
Registration Statement on Form S-4 and related Joint Proxy
Statement/Prospectus of Cell Genesys, Inc. for the registration of shares of
its common stock and to the incorporation by reference therein of our report
dated January 27, 1997 with respect to the consolidated financial statements
of Cell Genesys, Inc. in its Annual Report on Form 10-K for the year ended
December 31, 1996 filed with the Securities and Exchange Commission.

/s/ Ernst & Young LLP

Palo Alto, California
April 25, 1997

<PAGE>

EXHIBIT 23.5

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" in the
Registration Statement on Form S-4 and related Joint Proxy
Statement/Prospectus of Cell Genesys, Inc. for the registration of shares of
its common stock and to the (i) use of our report dated July 25, 1996 (except
for Note 9, as to which the date is September 25, 1996) with respect to the
consolidated financial statements of Somatix Therapy Corporation and (ii)
incorporation by reference of our report dated January 31, 1997 with respect
to the consolidated financial statements of Somatix Therapy Corporation
included in its Current Report on Form 8-K filed with the Securities and
Exchange Commission.

/s/ Ernst & Young LLP

Palo Alto, California
April 25, 1997

<PAGE>

EXHIBIT 23.6

CONSENT OF LEHMAN BROTHERS INC.

We hereby consent to the use of our opinion letter dated January 12, 1996 to
the Board of Directors of Cell Genesys, Inc. included as Appendix B to the
Registration Statement on Form S-4 and related Joint Proxy
Statement/Prospectus of Cell Genesys, Inc. and Somatix Therapy Corporation
relating to the proposed merger between Cell Genesys, Inc. and Somatix Therapy
Corporation and to the references to such opinion in such Joint Proxy
Statement/Prospectus under the captions "Summary--Opinion of Cell Genesys'
Financial Advisor" and "The Merger--Opinion of Cell Genesys' Financial
Advisor." In giving such consent, we do not admit that we come within the
category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder, nor do we thereby admit that we
are experts with respect to any part of such Registration Statement within the
meaning of the term "experts" as used in the Securities Act of 1933, as
amended, or the rules and regulations of the Securities and Exchange
Commission thereunder.

LEHMAN BROTHERS INC.

By: _/s/ Kevin R. Genirs_
Kevin R. Genirs
Associate General Counsel

April 25, 1997

<PAGE>

EXHIBIT 23.7

CONSENT OF DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION

We hereby consent to (i) the inclusion of our opinion letter, dated January
12, 1997, to the Board of Directors of Somatix Therapy Corporation as Annex C
to the Joint Proxy Statement/Prospectus of Somatix Therapy Corporation
relating to the Merger referred to therein and (ii) all references to
Donaldson, Lufkin & Jenrette in the sections captioned "Summary--Opinion of
Somatix' Financial Advisor" and "The Merger--Opinion of Somatix' Financial
Advisor" of the Joint Proxy Statement/Prospectus of Cell Genesys, Inc. and
Somatix Therapy Corporation which forms a part of this Registration Statement
on Form S-4. In giving such consent, we do not admit that we come within the
category of persons whose consent is required under, and we do not admit that
we are "experts" for purposes of, the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.

DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION

By: /s/ Lawrence N. Lavine
___________________________________
Lawrence N. Lavine
Managing Director

New York, New York
April 28, 1997

<PAGE>

EXHIBIT 23.8

CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR

I, David W. Carter, hereby consent to being named in the Registration
Statement on Form S-4 of Cell Genesys, Inc. as a person designated as a
director of Cell Genesys, Inc.

/s/ David W. Carter
Dated: April 19, 1997

<PAGE>

EXHIBIT 23.9

CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR

I, John T. Potts, Jr., hereby consent to being named in the Registration
Statement on Form S-4 of Cell Genesys, Inc. as a person designated as a
director of Cell Genesys, Inc.

/s/ John T. Potts, Jr.
Dated: April 19, 1997

<PAGE>

EXHIBIT 23.10

CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR

I, Inder M. Verma, hereby consent to being named in the Registration
Statement on Form S-4 of Cell Genesys, Inc. as a person designated as a
director of Cell Genesys, Inc.

/s/ Inder M. Verma
Dated: April 19, 1997

<PAGE>

EXHIBIT 23.11

CONSENT OF PERSON ABOUT TO BECOME A DIRECTOR

I, Thomas E. Shenk, hereby consent to being named in the Registration
Statement on Form S-4 of Cell Genesys, Inc. as a person designated as a
director of Cell Genesys, Inc.

________/s/ Thomas E. Shen__________ k

Dated: April 20, 1997

<PAGE>

EXHIBIT 99.1

CELL GENESYS, INC.

PROXY FOR ANNUAL MEETING OF STOCKHOLDERS--MAY ., 1997

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF CELL GENESYS,
INC.

The undersigned hereby appoints Stephen A. Sherwin, M.D. and Kathleen
Sereda Glaub, and each of them, as proxy or proxies of the undersigned (the
"Proxies"), each with full power of substitution, to represent the undersigned
and to vote all the shares of common stock, par value $.001 per share, of Cell
Genesys, Inc., a corporation organized under the laws of the State of Delaware
("Cell Genesys"), which the undersigned is entitled in any capacity to vote if
personally present at the annual meeting (the "Annual Meeting") of stockholders
of Cell Genesys to be held at Holiday Inn, 1221 Chess Drive, Foster City,
California 94404, at 9:00 a.m., local time, on Friday, May 30, 1997, and at any
and all adjournments or postponements thereof, with respect to all matters set
forth in the Joint Proxy Statement/Prospectus dated April 30, 1997, and all
supplements and amendments thereto and, in their discretion, upon all matters
incident to the conduct of such Annual Meeting and all matters presented at the
Annual Meeting but which are not known to the board of directors of Cell Genesys
at the time of the solicitation of this proxy. The undersigned hereby revokes
any proxy or proxies heretofore given by the undersigned to vote at the Annual
Meeting or any adjournment or postponement thereof.

If properly executed, this proxy will be voted in accordance with
instructions appearing hereon and, at the discretion of the Proxies, as to any
other matter that may properly come before the Annual Meeting. IN THE ABSENCE
OF SPECIFIC INSTRUCTIONS, THIS PROXY WILL BE VOTED FOR EACH OF THE FOREGOING
PROPOSALS, INCLUDING FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND
THE APPROVAL OF THE MERGER AND THE ISSUANCE OF SHARES OF CELL GENESYS COMMON
STOCK PURSUANT TO THE MERGER, AND, AT THE DISCRETION OF THE PROXIES, AS TO ANY
OTHER MATTER THAT MAY PROPERLY COME BEFORE THE ANNUAL MEETING, INCLUDING,
WITHOUT LIMITATION, CONSIDERATION OF ANY MOTION TO ADJOURN OR POSTPONE THE
ANNUAL MEETING TO ANOTHER TIME AND/OR PLACE.

The undersigned hereby acknowledges receipt of the Notice of Annual Meeting
of Stockholders and Joint Proxy Statement/ Prospectus (with all enclosures and
attachments) dated April 30, 1997, relating to the Annual Meeting.

PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE AS SOON AS POSSIBLE, EVEN IF YOU PLAN TO ATTEND THE ANNUAL MEETING.

THE BOARD RECOMMENDS A VOTE FOR PROPOSAL 1.

1. Proposal to approve and adopt the amended and restated agreement and plan
of merger and reorganization, dated as of January 12, 1997 (as amended and
restated as of March 27, 1997, the "Merger Agreement"), among Cell
Genesys, Somatix Therapy Corporation, a corporation organized under the
laws of the State of Delaware ("Somatix"), and S Merger Corp., a
corporation organized under the laws of the State of Delaware ("Merger
Sub") and a direct wholly owned subsidiary of Cell Genesys, and to approve
the merger (the "Merger") of Merger Sub with and into Somatix pursuant to
the Merger Agreement and the issuance of common stock, par value $.001 per
share, of Cell Genesys (the "Cell Genesys Common Stock") pursuant to the
Merger.

FOR [ ] ABSTAIN [ ] AGAINST [ ]

THE BOARD RECOMMENDS A VOTE FOR PROPOSAL 2.

2. Proposal to approve and adopt an amendment to the certificate of
incorporation of Cell Genesys to increase the number of shares authorized
for issuance to 80,000,000.

FOR [ ] ABSTAIN [ ] AGAINST [ ]

THE BOARD RECOMMENDS A VOTE FOR PROPOSAL 3.

3. Proposal to approve a special grant, effective as of the effective time of
the Merger (the "Effective Time"), to each of the eight independent
directors of Cell Genesys as of the Effective Time, of an option to
purchase 30,000 shares of Cell Genesys Common Stock.

FOR [ ] ABSTAIN [ ] AGAINST [ ]

THE BOARD RECOMMENDS A VOTE FOR PROPOSAL 4.

4. Proposal to elect Stephen A. Sherwin, M.D., James M. Gower, Peter Barton
Hutt, Raju S. Kucherlapati, Ph.D., Joseph E. Maroun and Eugene L. Step to
serve as directors of Cell Genesys until the next annual meeting of
stockholders or until their successors are elected.*

FOR [ ] WITHHOLD [ ] FOR ALL EXCEPT [ ]

- ----------------
* To vote FOR all of the director nominees named above except a particular
individual or individuals, check the box opposite "FOR ALL EXCEPT" above and
strike through the name(s) of the individual(s). Your shares will be voted for
the remaining nominee(s).

[CONTINUED, AND TO BE SIGNED AND DATED, ON THE OTHER SIDE]
<PAGE>

[CONTINUED FROM OTHER SIDE]

THE BOARD RECOMMENDS A VOTE FOR PROPOSAL 5.

5. Proposal to approve an amendment to Cell Genesys' 1989 Incentive Stock Plan
to increase the number of shares of Cell Genesys Common Stock reserved for
issuance by 1,750,000 shares to a total of 5,445,000 shares.

FOR [ ] ABSTAIN [ ] AGAINST [ ]

THE BOARD RECOMMENDS A VOTE FOR PROPOSAL 6.

6. Proposal to ratify the appointment of Ernst & Young LLP as independent
auditors of Cell Genesys for the fiscal year ending December 31, 1997.

FOR [ ] ABSTAIN [ ] AGAINST [ ]

Mark box at right if an address change has been noted to the left. [ ]

Name(s) of
Dated: Holder(s):
---------------------------- ----------------------------

----------------------------
(Please Print)

----------------------------

----------------------------
(Signature(s))*
(By:)
----------------------------
(Please Print)
(Name:)
--------------------
(Title:)
-------------------

- ----------------
* Please sign this proxy exactly as your name(s) appears hereon. Joint owners
should each sign personally. An attorney, administrator, trustee, executor,
guardian or other person signing in a representative capacity should indicate
such capacity. An authorized officer signing on behalf of a corporation should
indicate the name of the corporation and such officer's capacity.

<PAGE>

EXHIBIT 99.2

SOMATIX THERAPY CORPORATION

PROXY FOR SPECIAL MEETING OF STOCKHOLDERS--MAY 30, 1997

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF SOMATIX THERAPY
CORPORATION

The undersigned hereby appoints David W. Carter and Edward O. Lanphier II,
and each of them, as proxy or proxies of the undersigned (the "Proxies"), each
with full power of substitution, to represent the undersigned and to vote all
the shares of common stock, par value $.01 per share, of Somatix Therapy
Corporation, a corporation organized under the laws of the State of Delaware
("Somatix"), which the undersigned is entitled in any capacity to vote if
personally present at the special meeting (the "Special Meeting") of
stockholders of Somatix to be held at 850 Marina Village Parkway, Alameda,
California 94501, at 9:00 a.m., local time, on Friday, May 30, 1997, and at any
and all adjournments or postponements thereof, with respect to all matters set
forth in the Joint Proxy Statement/Prospectus dated April 30, 1997, and all
supplements and amendments thereto and, in their discretion, upon all matters
incident to the conduct of such Special Meeting and all matters presented at the
Special Meeting but which are not known to the board of directors of Somatix at
the time of the solicitation of this proxy. The undersigned hereby revokes any
proxy or proxies heretofore given by the undersigned to vote at the Special
Meeting or any adjournment or postponement thereof.

If properly executed, this proxy will be voted in accordance with
instructions appearing hereon and, at the discretion of the Proxies, as to any
other matter that may properly come before the Special Meeting. IN THE ABSENCE
OF SPECIFIC INSTRUCTIONS, THIS PROXY WILL BE VOTED FOR EACH OF THE FOREGOING
PROPOSALS, INCLUDING FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND
THE APPROVAL OF THE MERGER AND, AT THE DISCRETION OF THE PROXIES, AS TO ANY
OTHER MATTER THAT MAY PROPERLY COME BEFORE THE SPECIAL MEETING, INCLUDING,
WITHOUT LIMITATION, CONSIDERATION OF ANY MOTION TO ADJOURN OR POSTPONE THE
ANNUAL MEETING TO ANOTHER TIME AND/OR PLACE.

The undersigned hereby acknowledges receipt of the Notice of Special
Meeting of Stockholders and Joint Proxy Statement/ Prospectus (with all
enclosures and attachments) dated April 30, 1997, relating to the Special
Meeting.

PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE AS SOON AS POSSIBLE, EVEN IF YOU PLAN TO ATTEND THE SPECIAL MEETING.

THE BOARD RECOMMENDS A VOTE FOR PROPOSAL 1.

1. Proposal to approve and adopt the amended and restated agreement and plan
of merger and reorganization, dated as of January 12, 1997 (as amended and
restated as of March 27, 1997, the "Merger Agreement"), among Somatix,
Cell Genesys, Inc., a corporation organized under the laws of the State of
Delaware ("Cell Genesys"), and S Merger Corp., a corporation organized
under the laws of the State of Delaware ("Merger Sub") and a direct wholly
owned subsidiary of Cell Genesys, and to approve the merger (the "Merger")
of Merger Sub with and into Somatix pursuant to the Merger Agreement.

FOR [ ] ABSTAIN [ ] AGAINST [ ]

THE BOARD RECOMMENDS A VOTE FOR PROPOSAL 2.

2. Proposal to approve and adopt an amendment to the certificate of
incorporation of Somatix to provide that the Somatix Series A Preferred
Stock will be converted into common stock, par value $.001 per share, of
Cell Genesys pursuant to the Merger.

FOR [ ] ABSTAIN [ ] AGAINST [ ]

[CONTINUED, AND TO BE SIGNED AND DATED, ON THE OTHER SIDE]
<PAGE>

[CONTINUED FROM OTHER SIDE]

Mark box at right if an address change has been noted to the left. [ ]

Name(s) of
Dated: Holder(s):
--------------------------- ---------------------------

---------------------------
(Please Print)

---------------------------

---------------------------
(Signature(s))*
(By:)
---------------------------
(Please Print)
(Name:)
-------------------
(Title:)
------------------