**Exhibit 4(a)(1)**

 

**AGREEMENT ANDPLAN OF MERGER**

 

*dated as of February 3,2008*

 

by and among

 

PROGEN PHARMACEUTICALS LIMITED,

 

PROGEN PHARMACEUTICALS, INC.,

 

CELLGATE, INC.

 

and

 

SPROUT CAPITAL IX, L.P., asRepresentative

 

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**Table ofContents**

 
| ** **                                                      | ** **                                                            | **Page**   |
|-----------------------------------------------------------------|-----------------------------------------------------------------------|------------|
| ** **                                                      | ** **                                                            | ** ** |
| Article I THE MERGER                                       | 1                                                                     |
| 1.01.                                                           | The Merger                                                            | 1          |
| 1.02.                                                           | Effective Time                                                        | 2          |
| 1.03.                                                           | Closing                                                               | 2          |
| 1.04.                                                           | Certificate of Incorporation and Bylaws of  the Surviving Corporation | 2          |
| 1.05.                                                           | Directors and Officers of the Surviving  Corporation                  | 2          |
| 1.06.                                                           | Effects of the Merger                                                 | 2          |
|                                                            |                                                                  |       |
| Article II CONVERSION OF SHARES                            | 2                                                                     |
| 2.01.                                                           | Conversion of Capital Stock                                           | 2          |
| 2.02.                                                           | Exchange of Certificates                                              | 7          |
|                                                            |                                                                  |       |
| Article III REPRESENTATIONS AND  WARRANTIES OF THE COMPANY | 9                                                                     |
| 3.01.                                                           | Power and Authority                                                   | 9          |
| 3.02.                                                           | No Conflicts; Consents and Approvals                                  | 9          |
| 3.03.                                                           | Corporate Status and Authority of the  Company                        | 10         |
| 3.04.                                                           | Capital Stock of the Company                                          | 10         |
| 3.05.                                                           | Subsidiaries                                                          | 10         |
| 3.06.                                                           | Financial Statements                                                  | 10         |
| 3.07.                                                           | Absence of Undisclosed Liabilities                                    | 11         |
| 3.08.                                                           | Assets                                                                | 12         |
| 3.09.                                                           | Real Property                                                         | 12         |
| 3.10.                                                           | Contracts                                                             | 12         |
| 3.11.                                                           | Employment                                                            | 13         |
| 3.12.                                                           | Intellectual Property                                                 | 13         |
| 3.13.                                                           | Governmental Consents and Approvals                                   | 14         |
| 3.14.                                                           | Litigation                                                            | 14         |
| 3.15.                                                           | Taxes                                                                 | 15         |
| 3.16.                                                           | Regulatory                                                            | 17         |
| 3.17.                                                           | Insurance                                                             | 17         |
| 3.18.                                                           | Products                                                              | 17         |
| 3.19.                                                           | Intercompany Arrangements                                             | 18         |
| 3.20.                                                           | Bank and Brokerage Accounts                                           | 18         |
| 3.21.                                                           | Other Information                                                     | 18         |
| 3.22.                                                           | Brokers and Finders                                                   | 18         |
|                                                            |                                                                  |       |
| Article IV REPRESENTATIONS AND  WARRANTIES OF PARENT       | 18                                                                    |
| 4.01.                                                           | Corporate Status and Authority                                        | 18         |
| 4.02.                                                           | No Conflicts                                                          | 19         |
| 4.03.                                                           | Governmental Consents and Approvals                                   | 19         |
| 4.04.                                                           | Litigation                                                            | 19         |
| 4.05.                                                           | Brokers                                                               | 19         |
| 4.06.                                                           | Capital Stock of the Company                                          | 19         |
|                                                                 |                                                                       |            |  |

 

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| 4.07.                                                            | Public Reports                                                     | 20     |
|------------------------------------------------------------------|--------------------------------------------------------------------|--------|
| 4.08.                                                            | Absence of Material Adverse Effect                                 | 20     |
| 4.09.                                                            | Financial Capacity                                                 | 20     |
|                                                             |                                                               |   |
| Article V REPRESENTATIONS AND  WARRANTIES OF PARENT AND SUB | 20                                                                 |
| 5.01.                                                            | Corporate Status and Authority                                     | 20     |
| 5.02.                                                            | No Conflicts                                                       | 21     |
| 5.03.                                                            | Governmental Consents and Approvals                                | 21     |
| 5.04.                                                            | Litigation                                                         | 21     |
| 5.05.                                                            | Interim Operations of Sub                                          | 21     |
|                                                             |                                                               |   |
| Article VI COVENANTS                                        | 21                                                                 |
| 6.01.                                                            | Covenants of the Company                                           | 21     |
| 6.02.                                                            | Covenants of Parent                                                | 23     |
| 6.03.                                                            | Additional Covenants of Parent                                     | 25     |
| 6.04.                                                            | Covenant of the Representatives                                    | 27     |
|                                                             |                                                               |   |
| Article VII ADDITIONAL AGREEMENTS                           | 28                                                                 |
| 7.01.                                                            | Access to Information; Confidentiality                             | 28     |
| 7.02.                                                            | Offer Documents; Other Actions                                     | 28     |
| 7.03.                                                            | Approval of Stockholders                                           | 28     |
| 7.04.                                                            | Certain Tax Matters                                                | 28     |
| 7.05.                                                            | Regulatory and Other Approvals                                     | 30     |
| 7.06.                                                            | Expenses                                                           | 30     |
| 7.07.                                                            | Notice and Cure                                                    | 30     |
| 7.08.                                                            | Fulfillment of Conditions                                          | 31     |
|                                                             |                                                               |   |
| Article VIII CONDITIONS                                     | 31                                                                 |
| 8.01.                                                            | Conditions to Each Party’s Obligation to  Effect the Merger   | 31     |
| 8.02.                                                            | Conditions to Obligation of Parent and Sub  to Effect the Merger   | 32     |
| 8.03.                                                            | Conditions to Obligation of the Company to  Effect the Merger      | 33     |
|                                                             |                                                               |   |
| Article IX TERMINATION, AMENDMENT AND  WAIVER               | 34                                                                 |
| 9.01.                                                            | Termination                                                        | 34     |
| 9.02.                                                            | Effect of Termination                                              | 35     |
| 9.03.                                                            | Amendment                                                          | 35     |
| 9.04.                                                            | Waiver                                                             | 35     |
|                                                             |                                                               |   |
| Article X CERTAIN DEFINITIONS                               | 36                                                                 |
| 10.01.                                                           | Definitions                                                        | 36     |
|                                                             |                                                               |   |
| Article XI GENERAL PROVISIONS                               | 41                                                                 |
| 11.01.                                                           | Survival of Representations, Warranties,  Covenants and Agreements | 41     |
| 11.02.                                                           | Indemnification                                                    | 42     |
| 11.03.                                                           | Notices                                                            | 46     |
| 11.04.                                                           | Entire Agreement                                                   | 47     |
| 11.05.                                                           | Public Announcements                                               | 47     |

 

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| 11.06. | No Third Party Beneficiary    | 47 |
|--------|-------------------------------|----|
| 11.07. | No Assignment; Binding Effect | 47 |
| 11.08. | Headings                      | 47 |
| 11.09. | Currency                      | 47 |
| 11.10. | Invalid Provisions            | 48 |
| 11.11. | Governing Law                 | 48 |

 

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This AGREEMENT AND PLAN OF MERGER dated as ofFebruary 3, 2008 (this “Agreement”) is made and entered into by andamong Progen Pharmaceuticals Limited, a company organized under the laws ofQueensland, Australia (“Parent”), Progen Pharmaceuticals, Inc., aDelaware corporation and a wholly owned subsidiary of Parent (“Sub”),CellGate, Inc., a Delaware corporation (the “Company”), and SPROUTCAPITAL IX, L.P., a Delaware limited partnership (the *“*Representative”),solely with respect to Article II hereof and such other provisions hereofwhich specifically refer to such Representative.

 

WHEREAS, the Company has its principal placeof business at 3 Twin Dolphin Drive, Redwood City, California 94065, USA, andis a development stage biotech company whose mission is to develop and marketnovel small molecule therapeutics for the treatment of cancer and relatedconditions; and

 

WHEREAS, Parent has its registered office at16 Benson Street, Toowong, Queensland 4066, Australia, and is committed todeveloping and commercializing novel small molecule therapeutics for thetreatment of cancer and related conditions; and

 

WHEREAS, Sub was formed so that it wouldmerge with and into the Company; and

 

WHEREAS, the respective Boards of Directorsof each of Parent, Sub and the Company have determined that the merger of theSub with and into the Company (the “Merger”) in accordance with theprovisions of the Delaware General Corporation Law, as amended (the “DGCL”),and subject to the terms and conditions of this Agreement, is advisable and inthe best interests of the Parent, Sub and the Company and their respectivestockholders and have approved this Agreement and the transactions contemplatedhereby; and

 

WHEREAS, Parent, Sub and the Company desireto make certain representations, warranties, covenants and agreements inconnection with the Merger and also to prescribe various conditions to theMerger.

 

NOW, THEREFORE, in consideration of themutual covenants and agreements set forth in this Agreement, and for other goodand valuable consideration, the receipt and sufficiency of which are herebyacknowledged, the parties hereto agree as follows:

 

ARTICLE I

 

THE MERGER

 

1.01.        TheMerger. At the Effective Time (as defined in Section 1.02), upon the termsand subject to the conditions of this Agreement, the Sub shall be merged withand into the Company in accordance with the DGCL. The Company shall be thesurviving corporation in the Merger (the “Surviving Corporation”) andshall be renamed Progen Pharmaceuticals, Inc. Sub and the Company aresometimes referred to herein as the “Constituent Corporations.” As aresult of the Merger, the outstanding shares of capital stock of theConstituent Corporations shall be converted or canceled in the manner providedin Article II.

 

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1.02.        Effective Time. At the Closing (as defined in Section 1.03), acertificate of merger (the “Certificate of Merger”) shall be dulyprepared and executed by the Surviving Corporation and thereafter delivered tothe Secretary of State of the State of Delaware (the “Secretary of State”)for filing, as provided in Section 251 of the DGCL, on, or as soon aspracticable after, the Closing Date (as defined in Section 1.03). TheMerger shall become effective at the time of the filing of the Certificate ofMerger with the Secretary of State (such time and date being referred to hereinas the “Effective Time”).

 

1.03.        Closing. The closing of the Merger (the “Closing”) will take placein San Francisco, California, or at such other place as the parties heretomutually agree, on a date and at a time to be specified by the parties, whichshall in no event be later than 10:00 a.m., local time, on the secondbusiness day following satisfaction of the conditions set forth in Article VIIIor, if permissible, waived in accordance with this Agreement, or on such otherdate and time as the parties hereto may mutually agree (the “Closing Date”).At the Closing there shall be delivered to Parent, Sub and the Company thecertificates and other documents and instruments required to be delivered underArticle VIII.

 

1.04.        Certificate of Incorporation and Bylaws of the Surviving Corporation. Atthe Effective Time, (i) the Certificate of Incorporation of the SurvivingCorporation shall be amended and restated so that it shall be the same as theCertificate of Incorporation of Sub as in effect immediately prior to theEffective Time and it shall be the Certificate of Incorporation of theSurviving Corporation until thereafter amended as provided by law and suchCertificate of Incorporation and (ii) the Bylaws of Sub as in effectimmediately prior to the Effective Time shall be the Bylaws of the SurvivingCorporation until thereafter amended as provided by law, the Certificate ofIncorporation of the Surviving Corporation and such Bylaws.

 

1.05.        Directors and Officers of the Surviving Corporation. The directors of Subimmediately prior to the Effective Time shall, from and after the EffectiveTime, be the directors and officers, respectively, of the Surviving Corporationuntil their successors shall have been duly elected or appointed and qualifiedor until their earlier death, resignation or removal in accordance with theSurviving Corporation’s Certificate of Incorporation and Bylaws.

 

1.06.        Effects of the Merger. Subject to the foregoing, the effects of theMerger shall be as provided in the applicable provisions of the DGCL.

 

ARTICLE II

 

CONVERSION OF SHARES

 

2.01.        Conversion of Capital Stock. At the Effective Time, by virtue of theMerger and without any action on the part of the holder thereof:

 

(a)           Capital Stock of Sub. Each issued and outstanding share of the commonstock, par value US$0.001 per share, of Sub (“Sub Common Stock”) shallbe converted into and become one fully paid and nonassessable share of commonstock, par value US$0.001 per share, of the Surviving Corporation (“SurvivingCorporation Common Stock”). Each certificate

 

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representing outstanding shares of Sub CommonStock shall, without further action by the holder thereof at the Effective Timerepresent shares of Surviving Corporation Common Stock.

 

(b)           Cancellation of Treasury Stock and Stock Owned byParent and Subsidiaries. Allshares of common stock of the Company, par value US$0.001 per share (“CompanyCommon Stock”), that are owned by the Company as treasury stock orotherwise and any shares of Company Common Stock owned by Parent, Sub or anyother direct or indirect wholly-owned Subsidiary (as hereinafter defined) ofParent shall be canceled and retired and shall cease to exist and no capitalstock of the Surviving Corporation or any other consideration shall bedelivered in exchange therefor. As used in this Agreement, the term “Subsidiary”means, with respect to any party, any corporation or other organization, whetherincorporated or unincorporated, of which more than fifty percent (50%) ofeither the equity interests in, or the voting control of, such corporation orother organization is, directly or indirectly through Subsidiaries orotherwise, beneficially owned by such party.

 

(c)           Exchange; Adjustment. (i) The consideration hereunder shall consistof 756,199 validly issued, fully paid and nonassessable, ordinary shares ofParent (“Parent Shares”), subject to adjustment as set forth in this Section 2.01.Each issued and outstanding share of Company Common Stock (other than shares tobe canceled in accordance with Section 2.01(b)) and other than DissentingShares (as defined in Section 2.01(d)), each issued and outstanding shareof the Series A Preferred Stock, US$0.001 par value (the “Series APreferred Stock”), of the Series B Preferred Stock, US$0.001 par value(the “Series B Preferred Stock”) and of the Series C PreferredStock, US$0.001 par value (the “Series C Preferred Stock,” andtogether with the Series A Preferred Stock and the Series B PreferredStock, collectively, the “Preferred Stock”) and each issued andoutstanding share of the Series D Preferred Stock, US$0.001 par value (the“Series D Preferred Stock”) and of the Series E PreferredStock, US$0.001 par value (the “Series E Preferred Stock,” andtogether with the Series D Preferred Stock, collectively, the “SeniorPreferred Stock”) shall be converted into Parent Shares in accordance with Article IV,Section D.3. of the Fifth Amended and Restated Certificate ofIncorporation of the Company, as in effect on the date hereof and a copy ofwhich has been made available to Parent or its counsel, subject to adjustmentin accordance with this Section 2.01(c). The Parent Shares so issued shallbe registered and freely tradeable on the Australian Securities Exchangewithout restriction no later than 45 days following the issuance thereof.

 

(i)            If, prior to the Effective Time, Parent shall pay adividend in (including any dividend or distribution of securities convertibleinto capital stock), subdivide, combine into a smaller number of shares orissue by reclassification of its shares, any Parent Shares, all references inthis Agreement to specified numbers of shares of Parent Shares affectedthereby, and all calculations provided for that are based upon numbers ofParent Shares (or trading prices therefor) affected thereby, shall be equitablyadjusted to the extent necessary to provide the parties the same economiceffect as contemplated by this Agreement prior such adjustment. All such sharesof Company Common Stock, Preferred Stock and Senior Preferred Stock, other thanDissenting Shares (as defined in Section 2.01(d)), shall no longer beoutstanding and be automatically canceled and retired and shall cease to exist,and each holder of a certificate representing shares of Company Common Stock,Preferred Stock or Senior Preferred Stock, as the case may be, shall cease tohave any rights with respect thereto, except the right of such holder toreceive

 

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the applicable number of Parent Shares orcash, as the case may be, upon the surrender of such certificate in accordancewith Section 2.02, without interest, and such holder’s right to receivecash or Parent Shares upon the achievement of the Milestones.

 

(ii)           The number of Parent Shares to be paid at theClosing Date (the “Parent Share Consideration”) is based on theassumption that the Net Liabilities were not more than US$1,000,000 on thebusiness day prior to the Closing Date. The Company will cause (A) theaccounting records of the Company to be closed as of the close of business onthe business day preceding the Closing Date and (B) a balance sheet to beprepared in accordance with GAAP (except that such balance sheet shall notcontain the footnotes required by GAAP) as of such time (the “Closing DateBalance Sheet”). The Closing Date Balance Sheet shall reflect all eventsoccurring through the close of business on the business day preceding theClosing Date, and will include the Net Liabilities as at such date. Parentshall have full access to accounting records, trial balances and reports fromwhich the Net Liabilities computation was derived.

 

(iii)          If, as set forth in the Closing Date Balance Sheet,the Net Liabilities were more than US$1,000,000 on the business day prior tothe Closing Date, the Parent Share Consideration shall be reduced by the amountof such deficiencies as calculated pursuant to this Section 2.01. If, asset forth in the Closing Date Balance Sheet, the Net Liabilities are less thanUS$1,0000,000, the Parent Share Consideration shall be increased by the amountof such excess cash and/or the amount of lesser debt as calculated pursuant tothis Section 2.01, but in no event in excess of 957,464 Parent Shares. Anyremaining difference where such Net Liabilities are less than US$1,000,000 willbe paid in cash in U.S. Dollars by the Parent. In making any reduction orincrease in the Parent Shares, the value of each Parent Share shall beconverted into U.S. Dollars using the Exchange Rate for the purposes of suchcalculation.

 

(iv)          If, within 45 calendar days after the Company’sdelivery of the computation of the Net Liabilities to Parent pursuant to thisSection, Parent determines in good faith that the amount of the Net Liabilitiesso computed is inaccurate, Parent shall give notice to the Representativewithin such 45 calendar-day period, (A) setting forth Parent’sdetermination of the amount of the Net Liabilities and (B) specifying inreasonable detail Parent’s basis for its disagreement with the Company’scomputation. The failure by Parent so to express its disagreement within such45 calendar-day period shall constitute acceptance of the amount of the NetLiabilities shown on the Closing Date Balance Sheet for all purposes of thisSection. A representative of Parent and the Representative shall attempt ingood faith to resolve any such disputes. If the Representative and Parent areunable to resolve any disagreement with respect to these computations within 30calendar days after receipt by the Representative of notice of suchdisagreement, the items in dispute shall be referred for determination to a “Big4” independent accounting firm agreed upon by the Representative and Parent(the “Accountants”) within such 30 calendar-day period. The Accountantsshall make a determination as to each of the items in dispute, whichdetermination shall be (W) in writing, (X) furnished to theRepresentative and Parent as promptly as practicable after the items in disputehave been referred to the Accountants, (Y) made in accordance with GAAPand (Z) conclusive and binding on the Parent. The fees and expenses of the

 

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Accountants shall be paid by Parent;provided, however, that Parent shall be reimbursed for one-half of such feesand expenses out of the Parent Share Consideration. As soon as reasonablypracticable after the final resolution of the computation of the NetLiabilities in accordance with this Section 2.01(c), the Parent shallcause the Exchange Agent to issue to holders of surrendered Certificates, inaccordance with Section 2.02, holding statements reflecting the sharesregistered on the books of the Parent representing that number of additionalduly and validly authorized Parent Shares which such holders have the right toreceive pursuant to the provisions of this Article II, if any, afteradjustment to reflect the final computation of the Net Liabilities and any feesand expenses owing pursuant to this Section 2.01(c) and the HoldbackShares, and shall pay any amount of cash payable pursuant to Section 2.01(c)(iii).

 

(v)           By virtue of the approval of this Agreement by theCompany’s stockholders, and without further action of any Company stockholder,each Company stockholder entitled to receive Parent Shares under this Agreementshall be deemed to have irrevocably constituted and appointed Sprout CapitalIX, L.P. (and by execution and delivery of this Agreement it hereby acceptssuch appointment) as agent and attorney-in-fact for and on behalf of suchstockholders, with full power of substitution, to act in the name, place andstead of each such stockholder with respect to this Section 2.01(c) inconnection with the determination of the Net Liabilities and the taking by theRepresentative of any and all actions and the making of any decisions requiredor permitted to be taken by the Representative under this Article II,including the exercise of the power to: (i) give and receive notices andcommunications under this Article II; (ii) prepare and deliver toParent the Closing Date Balance Sheet and computation of Net Liabilities andparticipate on behalf of the Company’s stockholders in the resolution of anydispute relating thereto, including to act as the representative of the Company’sstockholders to review and authorize all adjustments proposed hereunder anddispute or question the accuracy thereof and to compromise on their behalf withParent; (iii) deliver or authorize the delivery of any consideration owingpursuant to this Agreement; and (iv) take all actions necessary orappropriate in the good faith judgment of the Representative for theaccomplishment of the foregoing. The power of attorney granted in this Section 2.01(c) iscoupled with an interest and is irrevocable, and shall survive the death orincapacity of any Company stockholder. The Parent shall be entitled to dealexclusively with the Representative on all such foregoing matters, and shall beentitled to rely conclusively (without further evidence of any kind whatsoever)on any document executed or purported to be executed on behalf of the Companystockholders by the Representative regarding such matters, and on any otheraction taken or purported to be taken on behalf of any Company stockholder bythe Representatives regarding such matters, as fully binding upon such Companystockholder. No bond shall be required of the Representative, and theRepresentative shall receive no compensation for services. Notices orcommunications to or from the Representative shall constitute notice to or fromeach of the Company’s stockholders.

 

(vi)          In performing the functions specified in thisAgreement, the Representative shall not be liable to any Company Stockholder inthe absence of gross negligence or willful misconduct on the part of theRepresentative. The Representative shall not be liable to Parent for anydamages resulting from any claim because of such

 

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Representative’s position as theRepresentative. Each of the Company’s stockholders shall severally (based oneach such stockholder’s pro rata share of the consideration owing pursuant tothis Agreement), and not jointly, indemnify and hold harmless theRepresentative from and against any loss, liability or expense incurred withoutgross negligence or willful misconduct on the part of the Representative andarising out of or in connection with the acceptance or administration of theRepresentative’s duties hereunder, including any out-of-pocket costs and expensesand legal fees and other legal costs reasonably incurred by the Representative.

 

(d)           Dissenting Shares. (i) Notwithstanding any provision of thisAgreement to the contrary, each outstanding share of Company Common Stock,Preferred Stock and Senior Preferred Stock, the holder of which has not votedin favor of the Merger, has perfected such holder’s right to an appraisal ofsuch holder’s shares in accordance with the applicable provisions of the DGCLand has not effectively withdrawn or lost such right to appraisal or isentitled to and properly exercises dissenters rights pursuant to, and complieswith, Chapter 13 of the CGCL (each, a “Dissenting Share”), shall not beconverted into or represent the right to receive Parent Shares and cashpursuant to Section 2.01(c) and such number of Parent Shares and cashshall revert to Parent, but the holder thereof shall be entitled only to suchrights as are granted by the applicable provisions of the DGCL and the CGCL; provided,however, that any Dissenting Share held by a person at the EffectiveTime who shall, after the Effective Time, withdraw the demand for appraisal orlose the right of appraisal, in either case pursuant to the DGCL, shall bedeemed to be converted into, as of the Effective Time, the right to receive theappropriate number of Parent Shares and cash, as the case may be, pursuant to Section 2.01(c).

 

(ii)           The Company shall give Parent (x) promptnotice of any written demands for appraisal, withdrawals of demands forappraisal and any other instruments served pursuant to the applicableprovisions of the DGCL or CGCL relating to the appraisal process received bythe Company and (y) the opportunity to participate in all negotiations andproceedings with respect to demands for appraisal under the DGCL or CGCL, asapplicable. The Company will not voluntarily make any payment with respect toany demands for appraisal and will not, except with the prior written consentof Parent, settle or offer to settle any such demands.

 

(e)           Company Stock Options and Warrants. On the Closing Date, each outstandingoption to purchase a share of Company Common Stock (a “Company Stock Option”)and warrant to purchase a share of Company Common Stock (a “Company Warrant”)that has been timely exercised shall be converted into Parent Shares and cash,as the case may be, in accordance with Section 2.01(c)(i). On the ClosingDate, all Company Stock Options and Company Warrants not exercised before theClosing Date shall no longer be outstanding and shall automatically be canceledand cease to exist.

 

(f)            Holdback. At Closing 151,240 (comprising twentypercent (20%)) of the Parent Shares issuable pursuant to Section 2.01(c)(collectively,the “Holdback Shares”) shall be retained by Parent pursuant to Section 11.02(c).

 

(g)           Further Assurances. If, at any time before or after the Effective Time,any of the parties hereto reasonably believes or is advised that any furtherinstruments, deeds, assignments

 

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or assurances are reasonably necessary toconsummate the Merger or to carry out the purposes and intent of this Agreementat or after the Effective Time, then the Company, Parent, the SurvivingCorporation and their respective officers and directors shall execute anddeliver all such proper deeds, assignments, instruments and assurances and doall other things reasonably necessary to consummate the Merger and to carry outthe purposes and intent of this Agreement.

 

2.02.       Exchange of Certificates.

 

(a)           Exchange Agent. At Closing Parent shall make available to the SurvivingCorporation for deposit with an exchange agent reasonably acceptable to Parent,the Company and the Representative (the “Exchange Agent”) on behalf ofParent, holding statements issued by the Parent’s share transfer agentrepresenting 604,959 duly and validly authorized and issued whole Parent Sharesto be held for the benefit of holders of Company Common Stock, Preferred Stockand Senior Preferred Stock. The Parent shall holdback 151,240 Parent Shares as “HoldbackShares”. Immediately following conclusion of the procedures contemplated by Section 2.01(c)(iv) above,cash (if then payable) and holding statements issued by the Parent’s sharetransfer agent representing the remaining Parent Shares then payable shall bedeposited with the Exchange Agent for the benefit of holders of Company CommonStock, Preferred Stock and Senior Preferred Stock. The Exchange Agent shallagree to hold such cash and Parent Shares (such cash and Parent Shares beingreferred to herein as the “Exchange Fund”) as contemplated by this Section andupon such additional terms as may be agreed upon by the Exchange Agent, theCompany and Parent before the Effective Time.

 

(b)           Exchange Procedures. As soon as reasonably practicable after theEffective Time, the Surviving Corporation on behalf of Parent shall cause theExchange Agent to mail to each holder of record of a certificate orcertificates which immediately prior to the Effective Time representedoutstanding shares of Company Common Stock, Preferred Stock or Senior PreferredStock (the “Certificates”) whose shares are converted pursuant to Section 2.01(c) intothe right to receive Parent Shares (i) a letter of transmittal (whichshall specify that delivery shall be effected, and risk of loss and title tothe Certificates shall pass, only upon delivery of the Certificates to theExchange Agent and shall be in such form and have such other customaryprovisions as the Surviving Corporation may reasonably specify) and (ii) instructionsfor use in effecting the surrender of the Certificates in exchange for ParentShares and cash. Upon surrender of a Certificate for cancellation to theExchange Agent, together with such letter of transmittal duly executed andcompleted in accordance with its terms, the holder of such Certificate shall beentitled to receive in exchange therefore a holding statement representingshares registered on the books of the Parent representing that number of dulyand validly authorized Parent Shares which such holder has the right to receiveat Closing pursuant to the provisions of this Article II. Thereafter,subject to completion of the procedures specified in Section 2.01(c)(iv),and less the Holdback Shares, such holder shall be entitled to receive aholding statement representing the additional Parent Shares and cash, if any,which such holder has the right to receive after final resolution of the NetLiabilities and any increases or decreases in the Parent Share Consideration inaccordance with Section 2.01(c), as adjusted, and the Certificate sosurrendered shall forthwith be canceled. In the event of a transfer ofownership of Company Common Stock, Preferred Stock or Senior Preferred Stockwhich is not registered in the transfer records of the Company, a holdingstatement representing the appropriate number of whole Parent Shares may beissued to a transferee if the Certificate representing such Company

 

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Common Stock, Preferred Stock or SeniorPreferred Stock is presented to the Exchange Agent accompanied by all documentsrequired to evidence and effect such transfer and by evidence that anyapplicable stock transfer taxes have been paid and that all applicable UnitedStates and Australian federal or state securities laws have been complied with.Until surrendered as contemplated by this Section 2.02(b), eachCertificate shall be deemed at any time after the Effective Time for allcorporate purposes of Parent, except as limited by paragraph (c) below, torepresent ownership of the number of duly and validly authorized Parent Sharesinto which the number of shares of Company Common Stock, Preferred Stock orSenior Preferred Stock, as the case may be, shown thereon have been convertedas contemplated by this Article II. In the event any Certificate shallhave been lost, stolen or destroyed, upon the making of an affidavit of thatfact by the Person claiming such Certificate to be lost, stolen or destroyed,Parent shall, as promptly as practicable following the receipt by Parent of theforegoing documents, issue in exchange for such lost, stolen or destroyedCertificate that portion of the Parent Shares represented by the lost, stolenor destroyed Certificate in exchange therefore which the Company’s stockholderhas the right to receive. The Board of Directors of Parent may in itsdiscretion and as a condition precedent to the issuance thereof, require theowner of such lost, stolen or destroyed Certificate to provide to Parent anindemnity agreement, but not a bond, against any claim that may be made againstParent with respect to the Certificate alleged to have been lost, stolen ordestroyed.

 

(c)           Distributions with Respect to Unexchanged Shares. No dividends or otherdistributions declared or made after the Effective Time with respect to ParentShares with a record date on or after the Effective Time shall be paid to theholder of any unsurrendered Certificate with respect to the Parent Sharesrepresented thereby until the holder of record of such Certificate shallsurrender such Certificate in accordance with this Section. Subject to theeffect of applicable laws, following surrender of any such Certificate, thereshall be paid to the record holder of the Certificates representing wholeParent Shares issued in exchange therefor, without interest, (i) at thetime of such surrender, the amount of dividends or other distributions, if any,with a record date on or after the Effective Time which theretofore becamepayable, but which were not paid by reason of the immediately preceding sentence,with respect to such whole Parent Shares, and (ii) at the appropriatepayment date, the amount of dividends or other distributions with a record dateon or after the Effective Time but prior to surrender and a payment datesubsequent to surrender payable with respect to such whole Parent Shares.

 

(d)           No Further Ownership Rights in Company Common Stock or Preferred Stock.All cash paid and Parent Shares issued upon the surrender for exchange ofCertificates in accordance with the terms hereof shall be deemed to have beenpaid or issued, as the case may be, at the Effective Time in full satisfactionof all rights pertaining to the shares of Company Common Stock, Preferred Stockor Senior Preferred Stock, as the case may be, represented thereby. From and afterthe Effective Time, the stock transfer books of the Company shall be closed andthere shall be no further registration of transfers on the stock transfer booksof the Surviving Corporation of the shares of Company Common Stock, PreferredStock or Senior Preferred Stock, as the case may be, which were outstandingimmediately prior to the Effective Time. If, after the Effective Time,Certificates are presented to the Surviving Corporation for any reason, theyshall be canceled and exchanged as provided in this Section.

 

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(e)           No Fractional Shares. (i) No certificate or scrip representingfractional Parent Shares will be issued in the Merger upon the surrender forexchange of Certificates, and such fractional share interests will not entitlethe owner thereof to vote or to any rights of a stockholder of Parent.

 

(ii)           The total number of Parent Shares issued to eachholder of shares of Company Common Stock, Preferred Stock or Senior PreferredStock exchanged pursuant to the Merger shall be rounded down to the nearestwhole number of shares of Parent Shares. No consideration shall be paid to anyholder of capital stock of the Company with respect to any fraction of a shareof Parent Shares for which such holder would otherwise be entitled.

 

(f)            Termination of Exchange Fund. Any portion of theExchange Fund which remains undistributed to the holders of Company CommonStock, Preferred Stock or Senior Preferred Stock for twelve months after theEffective Time shall be delivered to Parent, upon demand, and any holders ofCompany Common Stock, Preferred Stock or Senior Preferred Stock who have nottheretofore complied with this Article II shall thereafter look only toParent (subject to abandoned property, escheat and other similar laws) asgeneral creditors for payment of their claim for Parent Shares, cash and anydividends or distributions with respect to Parent Shares. Parent shall beliable to any holder of Company Common Stock, Preferred Stock or SeniorPreferred Stock, as the case may be, for Parent Shares (or dividends ordistributions with respect thereto) and cash delivered to a public officialpursuant to any applicable abandoned property, escheat or similar law.

 

ARTICLE III

 

REPRESENTATIONS AND WARRANTIES OFTHE COMPANY

 

Subject to such exceptions as arespecifically disclosed in the Disclosure Letter, the Company represents andwarrants to Parent as of the date hereof as follows:

 

3.01.        Power and Authority. This Agreement has been duly executed and deliveredby the Company. This Agreement is a valid and binding obligation of theCompany, enforceable against the Company in accordance with its respectiveterms, subject to the effect of (i) applicable bankruptcy, insolvency,reorganization, moratorium or other similar laws now or hereafter in effectrelating to rights of creditors generally and (ii) rules of law andequity governing specific performance, injunctive relief and other equitableremedies.

 

3.02.        No Conflicts; Consents and Approvals. (a) Except as set forth in Section 3.02of the Disclosure Letter, the execution and delivery by the Company of thisAgreement and the performance of the Company’s obligations hereunder will notresult in (i) any conflict with the certificate of incorporation orby-laws of the Company, (ii) any breach or violation of or default underany law, statute, regulation, judgment, order, decree, license, permit or otherGovernmental Approval or any mortgage, lease, agreement, deed of trust,indenture or any other instrument to which the Company is a party or by whichthe Company or its properties or assets are bound, (iii) or give rise toany right of termination, cancellation or acceleration or any right orobligation of the Company or any Subsidiary or to a loss of any benefit to whichthe Company

 

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or any Subsidiary is entitled under anyprovision of any agreement, contract or other instrument binding upon theCompany or any Subsidiary or any license, franchise, permit or other similarauthorization held by the Company or any Subsidiary, or (iv) the creationor imposition of any Liens other than Liens created by or resulting from theactions of Parent or any of its Affiliates.

 

(b)           Except as set forth in Section 3.02(b) of the DisclosureLetter, no consent, approval, waiver or other action under any contract,agreement, indenture, lease, instrument or other document to which the Companyor any Subsidiary is a party or by which any of them is bound is required ornecessary for the execution, delivery and performance of this Agreement by theCompany or the consummation of the transactions contemplated hereby.

 

3.03.        Corporate Status and Authority of the Company. The Company is acorporation duly incorporated, validly existing and in good standing under thelaws of its Jurisdiction of Organization. The execution, delivery andperformance of this Agreement by the Company has been duly authorized by itsboard of directors which, except as described in Section 7.03, constitutesall necessary corporate action on the part of the Company for suchauthorization. The Company has all requisite corporate power and authority andall material governmental licenses, authorizations, consents and approvalsrequired to conduct its business and to own or lease its properties, as nowconducted, owned or leased. The Company is duly qualified to do business ineach jurisdiction in which the failure to be so qualified could reasonably beexpected to have a Material Adverse Effect.

 

3.04.        Capital Stock of the Company. (a) Section 3.04 of theDisclosure Letter sets forth, as of the date hereof, the outstanding CompanyCommon Stock, Preferred Stock, Senior Preferred Stock, Company Stock Optionsand Company Warrants and the holders of such Company Common Stock, PreferredStock, Senior Preferred Stock, Company Stock Options and Company Warrants. Alloutstanding shares of Company Common Stock, Preferred Stock and SeniorPreferred Stock have been duly authorized and validly issued and are fully paidand non-assessable. Except as set forth in this Section, there are nooutstanding (i) shares of capital stock or voting securities of theCompany, (ii) securities of the Company convertible into or exchangeablefor shares of capital stock or voting securities of the Company, or (iii) optionsor other rights to acquire from the Company, and there is no obligation of theCompany to issue, any capital stock, voting securities or securitiesconvertible into or exchangeable for capital stock or voting securities of theCompany (the items in clauses (i), (ii) and (iii) being referred tocollectively as “Company Securities”). Except as set forth in this Section orin Section 3.04 of the Disclosure Letter, there are, and at or prior toClosing there will be, no outstanding obligations of the Company or anySubsidiary to issue or deliver or to repurchase, redeem or otherwise acquireany Company Securities.

 

3.05.        Subsidiaries. The Company does not currently own or control, directly orindirectly, any interest in any Subsidiary.

 

3.06.        Financial Statements. The Company has delivered to Parent copies of (i) theaudited balance sheets and related statements of income and cash flows of theCompany on a consolidated basis for the fiscal year ended December 31,2006, and the unaudited balance sheet of the Company on a consolidated basis asat December 31, 2007, (collectively, the “Financial Statements”).Except as set forth in Section 3.06 of the Disclosure Letter, theFinancial

 

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Statements were prepared on a consistentbasis throughout the periods presented in the Financial Statements and presentfairly in all material respects the financial condition and results ofoperations of the Company on a consolidated basis as of the dates and for theperiods indicated therein and have been prepared in accordance with GAAP,except, in the case of the unaudited Financial Statements, for the absence offootnotes and normal year-end adjustments.

 

3.07.        Absence of Undisclosed Liabilities. (a) Except for liabilities (i) reflectedor reserved against in the unaudited balance sheet of the Company on aconsolidated basis for the fiscal year ended December 31, 2007 (the “2007Balance Sheet”), (ii) reflected in Section 3.07 of the DisclosureLetter, or (iii) otherwise contemplated in this Agreement, the Companydoes not have any liabilities or obligations and will have no such liabilitieson the Closing Date.

 

(a)           Except as set forth on Schedule 3.07(b) of the Disclosure Letter oras contemplated by this Agreement, since the 2007 Balance Sheet, the Companyand has conducted their businesses in the ordinary course consistent with pastpractices and there has not been:

 

(i)            any Material Adverse Effect or any event,occurrence, development or state of circumstances or facts which couldreasonably be expected to result in a Material Adverse Effect;

 

(ii)           any declaration, setting aside or payment or anydividend or other distribution with respect to any Company Security, or anyrepurchase, redemption or other acquisition by the Company of any outstandingCompany Security;

 

(iii)          any amendment of any material term of anyoutstanding security of the Company;

 

(iv)          any incurrence, assumption or guarantee by theCompany of any indebtedness for borrowed money;

 

(v)           any creation or assumption by the Company of anyLien on any material asset other than in the ordinary course of businessconsistent with past practices;

 

(vi)          any damage, destruction or other casualty loss(whether or not covered by insurance) affecting the business or assets of theCompany which, individually or in the aggregate, has had or would reasonably beexpected to have a Material Adverse Effect;

 

(vii)         any transaction or commitment made, or any contractor agreement entered into, by the Company relating to its assets or business(including the acquisition or disposition of any assets) or any relinquishmentby the Company of any contract or other right, in either case, material to theCompany taken as a whole, other than transactions and commitments in the ordinarycourse of business consistent with past practices and those contemplated bythis Agreement;

 

(viii)       any change in any method of accounting oraccounting practice by the Company;

 

(ix)          any change in the Company’s fiscal year; or

 

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(x)                                   any material Tax election made by the Company.

 

3.08.                     Assets. (a) The Company has legal andbeneficial ownership of all of its respective tangible personal propertyincluded in the 2007 Balance Sheet, except for properties and assets listed in Section 3.08of the Disclosure Letter.

 

(b)                               Except as set forth in Section 3.08 of theDisclosure Letter, the Company owns or has the right to use all of theproperties and assets used by the Company in its business.

 

3.09.                      Real Property. (a) Section 3.09 of the DisclosureLetter lists all real property leased by the Company (the “Owned RealProperty”) or leased by the Company (the “Leased Real Property”).The Company does not own any real property. Except as set forth in Section 3.09of the Disclosure Letter, to the knowledge of the Company, the Company hasvalid leasehold interests in the Leased Real Property listed in Section 3.09of the Disclosure Letter, in each case, free and clear of all Liens, except asset forth in Section 3.09 of the Disclosure Letter and except for (i) Liensreflected in the schedules to this Agreement, (ii) Liens for Taxes andother governmental charges and assessments which are not yet due and payable orwhich are being contested in good faith by appropriate proceedings, (iii) Liensof carriers, warehousemen, mechanics and materialmen and other like Liensarising in the ordinary course of business, (iv) easements, rights of way,title imperfections and restrictions, zoning ordinances and other similarencumbrances affecting the real property, (v) statutory Liens in favor oflessors arising in connection with any property leased to the Company, (vi) Liensreflected in the Financial Statements, and (vii) any other Liens which donot materially interfere with the current use of properties affected thereby(collectively, “Permitted Liens”).

 

(b)                                To the knowledge of the Company, there exist nopending or threatened condemnation proceedings of or relating to the LeasedReal Property or any part thereof. There exist no outstanding options or rightsof first refusal to purchase the Owned Real Property or any portion thereof orany rights or interests therein. Other than the Company, there are no partiesin possession having any rights to use, occupy or possess any of the Owned RealProperty or any portion thereof or, to the knowledge of the Company, any LeasedReal Property or any portion thereof. Neither the Company is obligated topurchase any real property.

 

(c)                                Each lease (including any option to purchasecontained therein) pursuant to which the Company leases any Leased RealProperty listed in Section 3.09 of the Disclosure Letter (the “Leases”)is in full force and effect and, to the knowledge of the Company, isenforceable against the landlord which is party thereto in accordance with itsterms, except to the extent that any failure to be so enforceable could notreasonably be expected to have a Material Adverse Effect. There exists nodefault or event of default on the part of the Company under any Leases. TheCompany has furnished or made available to Parent complete and correct copiesof all Leases including all amendments thereto. The Company has not receivedany written notice of any default under any lease by which the Company leasesthe Leased Real Property nor any other written termination notice with respectthereto.

 

3.10.                      Contracts. Section 3.10 of the DisclosureLetter lists all material agreements, contracts and commitments of thefollowing types to which the Company is a party or by which the Company or anyof its respective properties is bound as of the date hereof and will be bound

 

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following the Closing: (a) joint ventureand limited partnership or other similar agreements, (b) mortgages,indentures, loan or credit agreements, security agreements and other agreementsand instruments relating to the borrowing of money or extension of credit, (c) distributionand marketing agreements, any license agreement, franchise agreement oragreement in respect of similar rights granted to or held by the Company, otherthan any nonexclusive licenses that are available to the public generally, (d) anycontract or other document that substantially limits the freedom of the Companyto compete in any line of business or with any Person or in any area or whichwould so limit the freedom of the Company after the Closing Date, (e) researchagreements, and (f) other agreements, contracts and commitments which arenot cancelable by the Company on notice of 60 days or less and which requirepayment by the Company after the date hereof of more than US$25,000(collectively, the “Material Agreements”). The Company has furnished ormade available to the Parent copies of all of the contracts listed in Section 3.10of the Disclosure Letter. The Company is not, nor to the knowledge of theCompany, any other Person, is not in default under any of the MaterialContracts to the extent that such default could reasonably be expected to havea Material Adverse Effect.

 

3.11.                      Employment.

 

(a)                                EmploymentAgreements. Section 3.11(a) ofthe Disclosure Letter lists all written agreements, contracts and commitmentsof the following types to which the Company is a party as of the Closing Date: (i) employmentagreements (including severance and retention agreements) and (ii) collectivebargaining agreements.

 

(b)                                Labor Disputes,Compliance with Laws, etc. Except asprovided in Section 3.11(b) of the Disclosure Letter, there is not,nor, to the knowledge of the Company, is there threatened, any strike,slowdown, picketing, work stoppage, concerted refusal to work overtime or othersimilar labor activity with respect to any employees of the Company. TheCompany is in compliance in all material respects with all applicable lawspertaining to the employment or termination of employment of its employees.

 

(c)                                 Employee BenefitPlans. The Company does not have anyEmployee Benefit Plan, other than those listed in Section 3.11(c) ofthe Disclosure Schedule.

 

(d)                                Retention ofEmployees and Consultants. Except as setforth on Section 3.11(d) of the Disclosure Letter, none of theemployees or consultants of the Company has indicated to the Company that heintends to resign or retire or discontinue (by termination, non-renewal orotherwise) his relationship with the Company as a result of the transactionscontemplated by this Agreement or otherwise within two years after the ClosingDate. No employee has a valid claim for payment of accrued salary or benefitswhich was required to be paid to such employee prior to the date hereof thatwill not be paid in full prior to the Closing Date.

 

3.12.                      Intellectual Property. (a) Section 3.12(a) ofthe Disclosure Letter lists all material Intellectual Property Rightsspecifying as to each, as applicable: (i) the nature of such IntellectualProperty Right; (ii) the owner of such Intellectual Property Right; (iii) thejurisdictions by or in which such Intellectual Property Right is recognizedwithout regard to registration or has been issued or registered or in which anapplication for such issuance or registration has been filed, including therespective registration or application numbers; and (iv)

 

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material licenses, sublicenses and otheragreements as to which the Company or any of its Affiliates is a party andpursuant to which any Person is authorized to use such Intellectual PropertyRight, including the identity of all parties thereto, a description of thenature and subject matter thereof, the applicable royalty and the term thereof.

 

(b)                               (i) The Company has not been sued or chargedin writing with or been a defendant in any claim, suit, action or proceedingrelating to its business that has not been finally terminated prior to the datehereof and that involves a claim of infringement of any patents, trademarks,service marks or copyrights, and (ii) the Company has no knowledge of anyother claim or infringement by the Company, and no knowledge of any continuinginfringement by any other Person of any Intellectual Property Rights. To theknowledge of the Company, the Company has not done any act that wouldinvalidate any patents of the Company. To the knowledge of the Company, thereis no prior art that would invalidate the issued patents or any part thereof.No Intellectual Property Right is subject to any outstanding order, judgment,decree, stipulation or agreement restricting the use thereof by the Company orrestricting the licensing thereof by the Company to any Person. The Company hasnot entered into any agreement to indemnify any other Person against any chargeof infringement of any patent, trademark, service mark or copyright.

 

(c)                                To the knowledge of the Company, none of thematerial processes and formulae, research and development results and otherknow-how of the Company, the value of which to the Company is contingent uponthe maintenance of the confidentiality thereof, has been disclosed by theCompany to any Person other than employees, representatives and agents of theCompany bound by enforceable confidentiality undertakings. The Company owns orhas the right to use the material Intellectual Property Rights and, withrespect to Intellectual Property it purports to own, the Company has done allacts necessary to secure title to the Intellectual Property Rights in allrelevant jurisdictions. To the knowledge of the Company, none of theIntellectual Property Rights infringes the rights of any third party.

 

3.13                        Governmental Consents and Approvals. (a) Exceptas set forth in Section 3.13(a) of the Disclosure Letter, noGovernmental Approval or other Consent of a Governmental Authority is requiredto be obtained or made, the Company in connection with the execution anddelivery of this Agreement or the consummation of the transactions contemplatedhereby or thereby.

 

(b)                               Except as set forth in Section 3.13(b) ofthe Disclosure Letter, all Governmental Approvals and other Consents fromGovernmental Authorities that are necessary for, or otherwise material to, theconduct of the business of the Company substantially in the manner currentlyconducted after giving effect to the transactions contemplated in thisAgreement have been duly obtained and are held by the Company. The Company isin compliance with all Governmental Approvals and other Consents held by it,except for such failures that could not reasonably be expected to have aMaterial Adverse Effect.

 

3.14.                     Litigation. Except as otherwise set forth in Section 3.14of the Disclosure Letter, there are no judicial or administrative actions,proceedings, suits or investigations pending against or, to the knowledge ofthe Company, threatened against or affecting the Company or any of its theirrespective properties before any court or arbitrator or any governmental body,

 

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agency, official or authority, which (i) couldreasonably be expected to have a Material Adverse Effect, or (ii) questionthe validity of this Agreement or any action taken or to be taken by theCompany in connection herewith or which in any manner seeks to prevent, enjoin,alter or materially delay the transactions contemplated hereby, nor to theknowledge of the Company is there any basis therefor.

 

3.15                        Taxes. (a) For purposes of this Agreement, (i) “Taxes”shall mean all federal, state, local and foreign income, gross receipts,profits, windfall profits, capital gains, franchise, sales, use, license,occupation, real property, personal property, transfer, ad valorem, capitalstock, premium, excise, employment, payroll, withholding, estimated, severance,stamp, customs duties, social security (or similar), unemployment, disability,registration, value added, alternative or add-on minimum and other taxes,assessments or governmental charges of any nature, kind or characterwhatsoever, and including any interest, additions and penalties relatedthereto, whether disputed or not and including any obligations to indemnify orotherwise assume or succeed to the tax liability of any other Person; and (ii) “TaxReturns” shall mean all returns, declarations, reports, statements and forms, claimsfor refunds, or information returns and reports relating to Taxes, includingany schedule or attachment thereto, and including any amendments thereof.

 

(b)                               The Company has filed all Tax Returns that eachcorporation was required to file. All such Tax Returns of the Company werecorrect and complete in all material respects when filed and were prepared insubstantial compliance with all applicable laws and regulations. All Taxes dueand payable by the Company (whether or not shown on any Tax Return) have beenpaid. Except as set forth in Section 3.15 of the Disclosure Letter, theCompany is not currently the beneficiary of any extension of time within whichto file any Tax Return. No claim has ever been made in writing by an authorityin a jurisdiction where the Company does not file Tax Returns that suchnon-filing corporation is or may be subject to taxation by that jurisdiction.There are no Liens for Taxes on any of the assets of the Company other than anyLiens for Taxes not yet due and payable.

 

(c)                                The Company has withheld and paid all Taxesrequired to have been withheld and paid by such entity in connection withamounts paid or owing to any employee, independent contractor, creditor,stockholder, or other third party.

 

(d)                               The Company has not been informed in writing thatany authority may assess any additional Taxes for any period for which TaxReturns have been filed. Except as disclosed in Section 3.15 of theDisclosure Letter, there is no dispute or claim concerning any Tax liability ofthe Company claimed or raised by any authority in writing. Section 3.15 ofthe Disclosure Letter annexed hereto lists all federal, state, local, andforeign income Tax Returns filed with respect to the Company for taxableperiods ended on or after December 31, 2002, and indicates those TaxReturns that have been audited and those Tax Returns that currently are thesubject of an audit. The Company has delivered to Parent correct and completecopies of all federal income Tax Returns, examination reports, and statementsof deficiencies assessed against or agreed to by the Company for the taxableperiods ending on or after December 31, 2002.

 

(e)                                The Company has not waived any statute oflimitations in respect of Taxes or agreed to any extension of time with respectto a Tax assessment or deficiency.

 

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(f)                                  The Company has not made any payments, is obligatedto make any payments, or is a party to any agreement, contract, arrangement orplan that has resulted or could result, separately or in the aggregate, in thepayment of any amount that (i) would constitute an “excess parachutepayment” within the meaning of Section 280G of the Code (or anycorresponding provision of state, local or foreign Tax law) and (ii) willnot be fully deductible as a result of Section 162(m) of the Code (orany corresponding provision of state, local or foreign Tax law), or (iii) wouldgive rise to any obligation to indemnify any Person for excise tax payablepursuant to Section 4999 of the Code.

 

(g)                               The Company is not a party to or bound by any Taxallocation or sharing agreement. The Company (i) has been a member of anaffiliated group filing a consolidated federal income Tax Return (other than agroup the common parent of which was the Company) or (ii) has anyliability for the Taxes of any person (other than the Company) under Treas.Reg. Section 1.1502-6 (or any similar provision of state, local or foreignlaw), as a transferee or successor, by contract or otherwise. An affiliatedgroup, for this purpose, means any affiliated group within the meaning of Section 1504(a) ofthe Code or any similar group defined under a similar provision of state, localor foreign law.

 

(h)                               The Company is not, nor during the period specifiedin Section 897(c)(1)(A)(ii) of the Code has been, a United Statesreal property holding corporation within the meaning of Section 897(c)(2) ofthe Code.

 

(i)                                   The Company has not engaged in any listedtransaction within the meaning of Treasury Regulation Section1.6011-4.

 

(j)                                  The unpaid Taxes of the Company (i) do notexceed the reserve for Tax liability (rather than any reserve for deferredTaxes established to reflect timing differences between book and Tax income)set forth on the face of the 2007 Balance Sheet (rather than in any notesthereto) and (ii) do not exceed that reserve as adjusted for the passageof time through the Closing Date in accordance with the past custom andpractice of the Company in filing their Tax Returns. Since the date of the 2007Balance Sheet, the Company has not incurred any liability for Taxes arisingfrom extraordinary gains or losses, as that term is used in GAAP, outside theordinary course of business consistent with past practice.

 

(k)                               The Company will not be required to include anyitem of income in, or exclude any item of deduction from, taxable income forany taxable period (or portion thereof) ending after the Closing Date as aresult of any (i) change in method of accounting for a taxable periodending on or prior to the Closing Date; (ii) “closing agreement” asdescribed in Section 7121 of the Code (or any corresponding or similarprovision of state, local or foreign income Tax law) executed on or prior tothe Closing Date; (iii) intercompany transaction or excess loss accountdescribed in Treasury Regulations under Section 1502 of the Code (or anycorresponding or similar provision of state, local or foreign income Tax law); (iv) installmentsale or open transaction disposition made on or prior to the Closing Date; or (v) prepaidamount received on or prior to the Closing Date.

 

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(l)                                   The Company has not distributed stock of anotherPerson, or has had its stock distributed by another Person, in a transactionthat was purported or intended to be governed in whole or in part by Sections355 or Sections 361 of the Code.

 

3.16.                     Regulatory. (a) To the knowledge of theCompany, the Specified Regulatory Filings are current and in full force andeffect and include all regulatory filings and governmental registrations madeby or issued to the Company that relate specifically to the SpecifiedTechnology. The Company has made available to Parent copies of all governmentalcorrespondence (including copies of official notices, citations or decisions) inthe Company’s files relating to the Specified Regulatory Filings. To theknowledge of the Company, in the course of the clinical development of theSpecified Technology, the Company has not used any employee, officer, agent orconsultant who (at the time such employee or consultant provided services tothe Company with respect to the Specified Technology) was disbarred by the FDAor the subject of pending disbarment proceedings by the FDA.

 

(b)                               The Company is in substantial compliance with thelaws applicable to the development, manufacture, labeling, testing, subjectingto clinical evaluation and inspection of the Specified Products and with allapplicable regulations, policies and procedures promulgated by the FDA withrespect thereto. The Company has received no written notice that any recalls,field notifications or seizures have been ordered or, to the knowledge of theCompany, threatened by any governmental body with respect to any of theSpecified Products. The Company has not received a warning letter or othersimilar written notice from the FDA regarding the Specified Products or themanufacturing facilities used to manufacture the Specified Products. TheCompany has not received any written notice that the FDA or any other authorityhas commenced or overtly threatened to initiate any action to enjoin productionor clinical evaluation of any Specified Products. To the knowledge of theCompany, no officer, employee or agent of the Company has made an untruestatement of a material fact or fraudulent statement to the FDA or any otherauthority, or committed an act, made a statement or failed to make a statementthat, at the time such disclosure was made, could reasonably be expected toprovide a basis for the FDA or any other authority to invoke with respect tothe Company its policy respecting “Fraud, Untrue Statements of Material Facts,Bribery and Illegal Gratuities”, set forth in 56 Fed. Reg. 46191 (September 10,1991) or any similar policy.

 

3.17.                     Insurance. Section 3.17 of the DisclosureLetter sets forth a complete and correct list, as of the date hereof, of thepolicies of all insurance currently maintained by the Company. Such policiesare in full force and effect and all premiums due by the Closing Date haveeither been paid or adequate provisions for the payment thereof has been made.The Company has not received any written notice of any material increase ofpremiums with respect to, or cancellation or non-renewal of, any of suchinsurance policies. There are no claims by the Company under any of suchpolicies as to which, to the Company’s knowledge, any insurance company isdenying, questioning or disputing liability or defending under a reservation ofrights or similar clause.

 

3.18.                     Products. Except as set forth in Section 3.18of the Disclosure Letter and except to the extent reflected and adequatelyreserved for in the 2007 Balance Sheet, there has not occurred any event thatmay give rise to liability on the part of the Company in respect of any claimthat any of the products produced or sold by the Company (i) is not or wasnot at the time

 

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of such occurrence in compliance in allmaterial respects with all applicable federal, state, local and foreign lawsand regulations or (ii) is not or was not at the time of such occurrencefit for the ordinary purposes for which it is or was intended to be used anddoes not or did not conform in all material respects to any promises oraffirmations of fact made on the container or label for such product or inconnection with its sale. There has not occurred any event that may give riseto liability on the part of the Company based on a claim that there is or wasat the time of such occurrence any design defect with respect to any of suchproducts or that any of such products fails or failed to contain adequatewarnings, presented in a reasonably prominent manner, in accordance withapplicable laws and current industry practice with respect to its contents anduse.

 

3.19.                      Intercompany Arrangements. Except as disclosed in Section 3.20of the Disclosure Letter, the Company does not own any note, bond, debenture orother indebtedness, or is otherwise a creditor, of any Company stockholder orany Affiliate of any Company stockholder. Since the 2007 Balance Sheet therehas not been any payment by the Company to any Company stockholder or anyAffiliate of any Company stockholder, any charge by any Shareholder or anyAffiliate of a Company stockholder to the Company or other transaction betweenthe Company and any Company stockholder or any Affiliate of a Companystockholder (except with respect to Company stockholders who are also employeesof the Company and in their capacities as such).

 

3.20.                      Bank and Brokerage Accounts. Section 3.21 ofthe Disclosure Letter contains a list of (i) the names and addresses ofall banks and brokerage firms in which the Company have accounts, safe depositboxes, lock boxes or vaults and the account numbers relating thereto and (ii) thename of each person authorized by the Company to draw on any such account or tohave access to such boxes or vaults.

 

3.21.                      Other Information. None of (i) the DisclosureLetter, (ii) this Agreement, and (iii) the Financial Statementscontains any untrue statement of a material fact or omits to state a materialfact necessary in order to make the statements contained therein no misleading.

 

3.22.                      Brokers and Finders. All negotiations relating tothis Agreement and the transactions contemplated hereby have been carried outwithout the intervention of any Person acting on behalf of the Company in suchmanner as to give rise to any valid claim against Parent or the Company for anybrokerage or finder’s commission, fee or similar compensation.

 

ARTICLE IV

 

REPRESENTATIONS AND WARRANTIES OFPARENT

 

Parent represents and warrants to the Companyand the Representatives as of the date hereof as follows:

 

4.01.                      Corporate Status and Authority. (a) Parent isa corporation duly incorporated, validly existing and in good standing underthe laws of its Jurisdiction of Organization and has full corporate power andauthority to execute and deliver this Agreement and perform its obligationshereunder.

 

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(b)                               The execution, delivery and performance by Parentof this Agreement has been duly authorized by its board of directors which,except as described in Section 7.03, constitutes all necessary corporateaction on the part of Parent for such authorization. Parent has duly executedand delivered this Agreement and may perform the obligations under thisAgreement. This Agreement constitutes Parent’s valid and binding obligationenforceable against it in accordance with the terms thereof, except as limitedby bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer orother similar laws of general applicability relating to or affecting theenforcement of creditor’s rights generally or by general equitable principles.

 

4.02.                     No Conflicts. (a) Except as set forth in Section 4.02of the Parent Disclosure Letter, the execution, delivery by Parent of thisAgreement and the performance of Parent’s obligations hereunder and thereunderwill not result in (i) any conflict with the articles of incorporation orconstitution of Parent, (ii) any breach or violation of or default underany law, statute, regulation, judgment, order, decree, license, permit or othergovernmental authorization or any mortgage, lease, agreement, deed of trust,indenture or any other instrument to which Parent is a party or by which Parentor any of its properties or assets are bound, or (iii) the creation orimposition of any Lien, except for such breaches, violations or defaults andsuch Liens which would not reasonably be expected, individually or in theaggregate, to materially impair the ability of Parent to fulfill itsobligations hereunder.

 

(b)                               Except as set forth in Section 4.02(b) ofthe Parent Disclosure Letter, no consent, approval, waiver or other actionunder any contract, agreement, indenture, lease, instrument or other documentto which the Parent or any Subsidiary is a party or by which any of them isbound is required or necessary for the execution, delivery and performance ofthis Agreement by the Parent or the consummation of the transactionscontemplated hereby, including the issuance of the Parent Shares hereunder.

 

4.03.                     Governmental Consents and Approvals. (a) Exceptas set forth in Section 4.03 of the Parent Disclosure Letter, noGovernmental Approval or other Consent is required to be obtained or made byParent in connection with the execution and delivery of this Agreement or theconsummation of the transactions contemplated hereby or thereby, except to theextent that the failure to obtain such Governmental Approval or Consent couldnot reasonably be expected, individually or in the aggregate, to materiallyimpair the ability of Parent to fulfill its obligations hereunder.

 

4.04.                     Litigation. There are no judicial or administrativeactions, proceedings or investigations pending or, to the knowledge of Parent,threatened, which (i) could reasonably be expected to have a ParentMaterial Adverse Effect, or (ii) question the validity of this Agreementor any action taken or to be taken by Parent in connection herewith ortherewith.

 

4.05.                     Brokers. All negotiations relating to this Agreementand the transactions contemplated hereby have been carried out without theintervention of any Person acting on behalf of Parent in such manner as to giverise to any valid claim against the Company or any Shareholder for anybrokerage or finder’s commission, fee or similar compensation.

 

4.06.                     Capital Stock of the Company. The capital stock ofParent consists of ordinary shares, no par value per share. As of the datehereof, (i) 59,416,427 Parent Shares were issued

 

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and outstanding, (ii) no Parent Shareswere held by the Parent in its treasury, (iii) 2,970,672 unissued ParentShares were reserved for issuance pursuant to outstanding listed options overfully paid ordinary shares, (iv) 2,829,250 unissued Parent Shares werereserved for issuance pursuant to outstanding unlisted options over fully paidordinary shares pursuant to Parent’s Employee Share Option Plan and (v) sharespayable under settlement arrangements with Medigen Biotechnology Corporation. Alloutstanding Parent Shares have been duly authorized and validly issued and arefully paid and non-assessable. Except as set forth in this Section, there areno outstanding (i) shares of capital stock or voting securities of theParent, (ii) securities of the Parent (including debt securities)convertible into or exchangeable for shares of capital stock or votingsecurities of the Parent, or (iii) options or other rights to acquire fromthe Parent, and there is no obligation of the Parent to issue, any capitalstock, voting securities or securities convertible into or exchangeable forcapital stock or voting securities of the Parent.

 

4.07.                     Public Reports. Parent has filed all requiredreports, schedules, forms, statements and other documents with the AustralianSecurities Exchange and the United States Securities and Exchange Commission aspart of its continuous disclosure obligations under the Australian SecuritiesExchange listing rules and the Corporations Act 2001 and the SecuritiesExchange Act of 1934, as amended, and each of the rules and regulationspromulgated thereunder, and such reports (including the financial statementscontained therein) that were filed with respect to the Parent’s fiscal year endJune 30, 2007 and any period thereafter (the “Parent ASE Filings”),were accurate in all material respects when first filed or made available tothe public.

 

4.08.                     Absence of Material Adverse Effect. Since December 31,2007, there has not occurred any Parent Material Adverse Effect.

 

4.09.                     Financial Capacity. Parent has, or has available toit, sufficient funds to consummate the transactions contemplated by thisAgreement

 

ARTICLE V

 

REPRESENTATIONS AND WARRANTIES OFPARENT AND SUB

 

Subject to such exceptions as arespecifically disclosed in the Parent Disclosure Letter, Parent and Sub jointlyand severally represent and warrant to the Company and the Representatives asof the date hereof as follows:

 

5.01.                     Corporate Status and Authority. (a) Sub is acorporation duly incorporated, validly existing and in good standing under thelaws of its Jurisdiction of Organization and has full corporate power andauthority to execute and deliver this Agreement and perform its obligationshereunder.

 

(b)                              The execution, delivery and performance by Sub ofthis Agreement has been duly authorized by its board of directors which, exceptas described in Section 7.03, constitutes all necessary corporate actionon the part of Sub for such authorization. Sub has duly executed and deliveredthis Agreement. This Agreement constitutes Sub’s valid and binding obligationenforceable against it in accordance with the terms thereof, except as limitedby bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer orother similar laws of general

 

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applicability relating to or affecting theenforcement of creditor’s rights generally or by general equitable principles.

 

5.02.                      No Conflicts. (a) Except as set forth in Section 5.02of the Disclosure Letter, the execution, delivery by Sub of this Agreement andthe performance of Sub’s obligations hereunder and thereunder will not resultin (i) any conflict with the certificate of incorporation or by-laws ofSub, (ii) any breach or violation of or default under any law, statute,regulation, judgment, order, decree, license, permit or other governmentalauthorization or any mortgage, lease, agreement, deed of trust, indenture orany other instrument to which Sub is a party or by which Sub or any of itsproperties or assets are bound, or (iii) the creation or imposition of anyLien, except for such breaches, violations or defaults and such Liens whichwould not reasonably be expected, individually or in the aggregate, tomaterially impair the ability of Sub to fulfill its obligations hereunder.

 

5.03.                     Governmental Consents and Approvals. (a) Exceptas set forth in Section 5.03 of the Parent Disclosure Letter, noGovernmental Approval or other Consent is required to be obtained or made bySub in connection with the execution and delivery of this Agreement or theconsummation of the transactions contemplated hereby or thereby, except to theextent that the failure to obtain such Governmental Approval or Consent couldnot reasonably be expected, individually or in the aggregate, to materiallyimpair the ability of Sub to fulfill its obligations hereunder.

 

5.04.                     Litigation. There are no judicial or administrativeactions, proceedings or investigations pending or, to the knowledge of Parent,threatened, which question the validity of this Agreement or any action takenor to be taken by Sub in connection herewith or therewith.

 

5.05.                     Interim Operations of Sub. Sub was formed by Parentsolely for the purpose of engaging in the transactions contemplated by thisAgreement, has engaged in no other business activities and has conducted itsoperations only as contemplated by this Agreement. Sub has no liabilities and,except for a subscription agreement pursuant to which all of its authorizedcapital stock was issued to Parent, is not a party to any agreement other thanthis Agreement and agreements with respect to the appointment of registeredagents and similar matters.

 

ARTICLE VI

 

COVENANTS

 

6.01.                     Covenants of the Company. At all times from andafter the date hereof until the Effective Time, the Company covenants andagrees that (except as expressly contemplated or permitted by this Agreement,or to the extent that Parent shall otherwise consent in writing, such consentnot to be unreasonably withheld, delayed or conditioned):

 

(a)                               Ordinary Course. The Company shall carry on itsbusiness in the usual, regular and ordinary course in all material respects, insubstantially the same manner as heretofore conducted, and shall use allcommercially reasonable efforts to preserve intact its present lines of businessand keep available the services of its current officers and employees andpreserve its relationships with customers, suppliers, licensors, licensees,distributors and others having

 

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business dealings with them; provided,however, that no action by the Company covered by any other provision ofthis Section 6.01 shall be deemed a breach of this Section 6.01(a) unlesssuch action would also constitute a breach of one or more of such otherprovisions.

 

(b)                               Dividends; Changes in Share Capital. The Companyshall not (i) declare or pay any dividends on or make other distributions(whether in stock, cash or property) in respect of any of its capital stock,except dividends by a wholly owned direct or indirect Subsidiary to suchSubsidiary’s parent, (ii) split, combine or reclassify any of its capitalstock or issue or authorize or propose the issuance of any other securities inrespect of, in lieu of or in substitution for, shares of its capital stock,except for any such transaction by a wholly owned Subsidiary which remains awholly owned Subsidiary after consummation of such transaction, or (iii) repurchase,redeem or otherwise acquire any shares of its capital stock or any securitiesconvertible into or exercisable for any shares of its capital stock.

 

(c)                                Issuance of Securities. Except as set forth in Section 6.01(c) ofthe Disclosure Letter, the Company shall not issue, deliver, sell, pledge orotherwise encumber, any shares of its capital stock or authorize or propose theissuance, delivery, sale, pledge or encumbrance (except for Permitted Liens),of, any shares of its capital stock of any class, or any securities convertibleinto or exercisable for, or any rights, warrants or options to acquire, any suchshares of capital stock, or enter into any agreement with respect to any of theforegoing, other than the issuance of Company Common Stock upon the exercise ofthe right to convert Preferred Stock or Senior Preferred Stock into CompanyCommon Stock.

 

(d)                               Governing Documents. Except as contemplated by Section 8.03or to the extent required to comply with their respective obligations hereunderor required by law, the Company shall not amend their respective certificatesof incorporation, bylaws or other governing documents.

 

(e)                                Acquisitions and Divestitures. The Company shallacquire or agree to acquire by merging or consolidating with, or by purchasinga substantial equity interest in or a substantial portion of the assets of, orby any other manner, any business or any corporation, partnership, associationor other business organization or division thereof or otherwise acquire oragree to acquire any assets (other than the acquisition of assets used in theoperations of the business of the Company in the ordinary course); provided,however, that the foregoing shall not prohibit (x) internalreorganizations or consolidations involving existing wholly owned Subsidiariesof the Company or (y) the creation of new Subsidiaries of the Companyorganized to conduct or continue activities otherwise permitted by thisAgreement and that in the case of clause (x) and (y) would nototherwise be prohibited by or result in a breach of any other provision of thisSection 6.01. Other than (i) internal reorganizations or consolidationsinvolving existing wholly owned Subsidiaries of the Company, (ii) as maybe required by or in conformance with law or regulation in order to permit orfacilitate the consummation of the transactions contemplated hereby or (iii) asset forth in Section 6.01(e) of the Disclosure Letter, the Companyshall not, and shall not permit any wholly owned Subsidiary of the Company to,sell, lease, encumber or otherwise dispose of, or agree to sell, lease,encumber or otherwise dispose of, any of its assets (including capital stock ofwholly owned Subsidiaries of the Company) which are material, individually orin the aggregate, to the Company other than sales of inventory in the ordinarycourse of business.

 

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(f)                                    Indebtedness. The Company shall not (i) create,assume or incur any indebtedness or issue any debt securities, warrants orother rights to acquire any debt securities of the Company except with respectto expenses incurred in connection with the transactions contemplated by thisAgreement, (ii) except in the ordinary course of business consistent withpast practice, make any loans, advances or capital contributions to, orinvestments in, any other person, other than by the Company to or in theCompany or (iii) except in the ordinary course of business consistent withpast practice, pay, discharge or satisfy any claims, liabilities or obligations(absolute, accrued, asserted or unasserted, contingent or otherwise), otherthan expenses and liabilities incurred in connection with the transactionscontemplated by this Agreement.

 

(g)                                 Compensation. Other than in accordance with theprovisions of this Agreement, the Company shall not (i) increase anyemployee benefits provided to, or, except in the ordinary course of businessconsistent with past practices, increase the compensation or fringe benefitspayable to, any employee or former employee of the Company; (ii) adopt,enter into, terminate or amend in any material respect any employment contract,collective bargaining agreement or Employee Benefit Plan; (iii) pay anybenefit not provided for under any benefit plan or arrangement of the Companyand its Subsidiaries; or (iv) increase in any manner the severance ortermination pay of any officer or employee.

 

(h)                                 Accounting Methods; Income Tax Elections. Except asrequired by a Governmental Authority, the Company shall not change its methodsof accounting in effect at December 31, 2006, except as required bychanges in GAAP as concurred in by the Company’s independent auditors. TheCompany shall not (i) change its fiscal year or (ii) make anymaterial tax election, without consultation with Parent.

 

(i)                                     Material Agreements. Except as set forth in Section 6.01(i) ofthe Disclosure Letter the Company shall not enter into any material agreement,other than contracts for the sale of the Company’s products or services in theordinary course of business.

 

(j)                                     Representations and Warranties. The Company shallnot knowingly take any actions that would make any representation or warrantyof the Company contained in this Agreement untrue or incorrect in any materialrespect as of the date when made or as of the Closing Date.

 

(k)                                  Agreements or Commitments. Except as required by Section 6.01(a),the Company shall not authorize any of, or commit or agree to take any of, theforegoing actions.

 

6.02.                        Covenants of Parent. At all times from and afterthe date hereof until the Effective Time, Parent covenants and agrees as toitself and its Subsidiaries (except as expressly contemplated or permitted bythis Agreement, or to the extent that the Company shall otherwise consent inwriting):

 

(a)                                  Ordinary Course. Parent and its Subsidiaries shallcarry on their respective businesses in the usual, regular and ordinary coursein all material respects, in substantially the same manner as heretoforeconducted, and shall use all reasonable efforts to preserve intact their presentlines of business and keep available the services of their current officers andemployees

 

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and preserve their relationships withcustomers, suppliers, licensors, licensees, distributors and others havingbusiness dealings with them; provided, however, that no action byParent or its Subsidiaries covered by any other provision of this Section 6.02shall be deemed a breach of this Section 6.02(a) unless such actionwould also constitute a breach of one or more of such other provisions.

 

(b)                                 Dividends; Changes in Share Capital. Parent shallnot, and shall not permit any of its Subsidiaries to, (i) declare or payany dividends on or make other distributions (whether in stock, cash orproperty) in respect of any of its capital stock, except dividends by a whollyowned direct or indirect Subsidiary to such Subsidiary’s parent, (ii) split,combine or reclassify any of its capital stock or issue or authorize or proposethe issuance of any other securities in respect of, in lieu of or insubstitution for, shares of its capital stock, except for any such transactionby a wholly owned Subsidiary which remains a wholly owned Subsidiary afterconsummation of such transaction, or (iii) repurchase, redeem or otherwiseacquire any shares of its capital stock or any securities convertible into orexercisable for any shares of its capital stock except to the extent requiredby existing employment agreements to which the Parent is a party.

 

(c)                                  Issuance of Securities. Parent shall not, nor shallit permit any of its Subsidiaries to, issue, deliver, sell, pledge or otherwiseencumber, any shares of its capital stock or authorize or propose the issuance,delivery, sale, pledge or encumbrance (except for Permitted Liens), of, anyshares of its capital stock of any class, or any securities convertible into orexercisable for, or any rights, warrants or options to acquire, any such sharesof capital stock, or enter into any agreement with respect to any of theforegoing, other than (i) the issuance of Parent Shares upon the exerciseof stock options outstanding on the date hereof in accordance with theirpresent terms, (ii) issuances by a wholly owned Subsidiary of capitalstock to such Subsidiary’s parent, (iii) the issuance of Parent Shares inconnection with the Merger or (iv) the issuance of Parent Shares toMedigen Biotechnology Corporation under the terms of an agreement entered intoon January 16, 2007, which terms have been disclosed to the Company.

 

(d)                                 Governing Documents. Except to the extent requiredto comply with their respective obligations hereunder or as required by law,Parent and its Subsidiaries shall not amend their respective certificates ofincorporation, bylaws or other governing documents.

 

(e)                                  Acquisitions and Divestitures. Parent shall not,and shall not permit any of its Subsidiaries to, acquire or agree to acquire bymerging or consolidating with, or by purchasing a substantial equity interestin or a substantial portion of the assets of, or by any other manner, anybusiness or any corporation, partnership, association or other businessorganization or division thereof or otherwise acquire or agree to acquire anyassets (other than the acquisition of assets used in the operations of thebusiness of Parent and its Subsidiaries in the ordinary course); provided,however, that the foregoing shall not prohibit (x) internal reorganizationsor consolidations involving existing wholly owned Subsidiaries of Parent or (y) thecreation of new Subsidiaries of Parent organized to conduct or continueactivities otherwise permitted by this Agreement and that in the case of clause(x) and (y) would not otherwise be prohibited by or result in abreach of any other provision of this Section 6.02. Other than (i) internalreorganizations or consolidations involving existing wholly owned Subsidiariesof Parent and (ii) as may be required by or in conformance with law orregulation in order to permit or facilitate the consummation of thetransactions contemplated hereby, Parent shall not, and shall not permit

 

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any wholly owned Subsidiary of Parent to,sell, lease, encumber or otherwise dispose of, or agree to sell, lease,encumber or otherwise dispose of, any of its assets (including capital stock ofwholly owned Subsidiaries of Parent) which are material, individually or in theaggregate, to Parent other than sales of inventory in the ordinary course ofbusiness.

 

(f)                                    Accounting Methods; Income Tax Elections. Except asrequired by a Governmental Authority, Parent shall not change its methods ofaccounting in effect at June 30, 2003, except as required by changes inAustralian GAAP as concurred in by Parent’s independent auditors. Parent shallnot (i) change its fiscal year or (ii) make any material taxelection, other than in the ordinary course of business consistent with pastpractice, without consultation with the Company.

 

(g)                                 Representations and Warranties. Parent shall notknowingly take, and shall not permit any of its Subsidiaries knowingly to take,any actions that would make any representation or warranty of Parent containedin this Agreement untrue or incorrect in any material respect as of the datewhen made or as of the Closing Date.

 

(h)                                 Necessary Finances. Parent shall use its reasonablecommercial efforts to retain the ability to issue Parent Shares (to the extentsuch Parent Shares may be issued by the Parent without shareholder approval)and sufficient cash (to the extent such Parent Shares cannot be issued by theParent without shareholder approval) necessary to consummate the transactionscontemplated by this Agreement, including, but not limited to, the payment ofthe Milestones.

 

(i)                                     Agreements or Commitments. Except as required by Section 6.02(a),Parent shall not, and shall not permit any of its Subsidiaries to, authorizeany of, or commit or agree to take any of, the foregoing actions.

 

6.03.                        Additional Covenants of Parent. Parent additionallycovenants and agrees as follows:

 

(a)                                  First Milestone Consideration. Not later than 45days following achievement of the First Milestone, the Parent will pay anadditional US$5,000,000 to the former holders of Company Common Stock,Preferred Stock and Senior Preferred Stock in accordance with Section 2.01(c),in Parent Shares (to the extent such Parent Shares may be issued by the Parentwithout shareholder approval) and cash (to the extent such Parent Shares cannotbe issued by the Parent without shareholder approval); provided, that,for the avoidance of doubt, Parent will issue the maximum number of ParentShares as can be issued by Parent without shareholder approval and will pay theremainder of the consideration due pursuant to this Section 6.03(a) incash. If the Parent pays the First Milestone in whole or in part in ParentShares, the number of Parent Shares to be issued and delivered toRepresentatives shall be determined by multiplying US$5,000,000 (or suchportion thereof as is to be paid in Parent Shares) by the Exchange Rate anddividing the product by the Thirty-Day Average Stock Price. In the event ofpayment in Parent Shares, Parent shall make available to the Representativesholding statements issued by the Parent’s share transfer agent representing thenumber of duly and validly authorized whole Parent Shares issuable inconnection with the First Milestone to be held for the benefit of the formerholders of Company Common Stock, Preferred Stock and Senior Preferred Stock tobe distributed under Section 2.01(c). Payment in cash will be made to suchaccount of the

 

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Representatives as shall be provided to theParent in writing for distribution to the former holders of Company CommonStock, Preferred Stock and Senior Preferred Stock pursuant to Section 2.01(c),and the Representatives shall cause the former holders of Company Common Stock,Preferred Stock and Senior Preferred Stock to be paid in accordance therewithwithin a commercially reasonable period of time, which, in any event, shall notexceed 20 business days.

 

(b)                                 Second Milestone Consideration. Not later than 45days following achievement of the Second Milestone, the Parent will pay anadditional US$10,000,000 to the former holders of Company Common Stock,Preferred Stock and Senior Preferred Stock in accordance with Section 2.01(c),in Parent Shares (to the extent such Parent Shares may be issued by the Parentwithout shareholder approval) and cash (to the extent such Parent Shares cannotbe issued by the Parent without shareholder approval); provided, that,for the avoidance of doubt, Parent will issue the maximum number of ParentShares as can be issued by Parent without shareholder approval and will pay theremainder of the consideration due pursuant to this Section 6.03(b) incash. If the Parent pays the Second Milestone in whole or in part in ParentShares, the number of Parent Shares to be issued and delivered to Representativesshall be determined by multiplying US$10,000,000 (or such portion thereof as isto be paid in Parent Shares) by the Exchange Rate on the date of achievement ofthe Second Milestone and dividing the product by the Thirty-Day Average StockPrice. In the event of payment in Parent Shares, Parent shall make available tothe Representatives holding statements issued by the Parent’s share transferagent representing the number of duly and validly authorized whole ParentShares issuable in connection with the Second Milestone to be held for thebenefit of holders of Company Common Stock, Preferred Stock and SeniorPreferred Stock to be distributed in accordance with Section 2.01(c).Payment in cash will be made to such account of the Representatives as shall beprovided to the Parent in writing for distribution to the former holders ofCompany Common Stock, Preferred Stock and Senior Preferred Stock pursuant to Section 2.01(c),and the Representatives shall cause the former holders of Company Common Stock,Preferred Stock and Senior Preferred Stock to be paid in accordance therewithwithin a commercially reasonable period of time, which, in any event, shall notexceed 20 business days.

 

(c)                                  Third Milestone Consideration. Not later than 45days following achievement of the Third Milestone, the Parent will pay anadditional US$2,500,000 to the former holders of Company Common Stock,Preferred Stock and Senior Preferred Stock in accordance with Section 2.01(c),in Parent Shares (to the extent such Parent Shares may be issued by the Parentwithout shareholder approval) and cash (to the extent such Parent Shares cannotbe issued by the Parent without shareholder approval); provided, that,for the avoidance of doubt, Parent will issue the maximum number of ParentShares as can be issued by Parent without shareholder approval and will pay theremainder of the consideration due pursuant to this Section 6.03(c) incash. If the Parent pays the Third Milestone in whole or in part in ParentShares, the number of Parent Shares to be issued and delivered toRepresentatives shall be determined by multiplying US$2,500,000 (or suchportion thereof as is to be paid in Parent Shares) by the Exchange Rate on thedate of achievement of the Third Milestone and dividing the product by theThirty-Day Average Stock Price. In the event of payment in Parent Shares,Parent shall make available to the Representatives holding statements issued bythe Parent’s share transfer agent representing the number of duly and validlyauthorized whole Parent Shares issuable in connection with the Third Milestoneto be held for the benefit of holders of Company Common Stock, Preferred Stockand Senior Preferred Stock, to be distributed in accordance with Section 2.01(c).Payment

 

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in cash will be made to such account of theRepresentatives as shall be provided to the Parent in writing for distributionto the former holders of Company Common Stock, Preferred Stock and SeniorPreferred Stock pursuant to Section 2.01(c), and the Representatives shallcause the former holders of Company Common Stock, Preferred Stock and SeniorPreferred Stock to be paid in accordance therewith within a commerciallyreasonable period of time, which, in any event, shall not exceed 20 businessdays.

 

(d)                                 Fourth Milestone Consideration. Not later than 45days following achievement of the Fourth Milestone, the Parent will pay anadditional US$2,000,000 to the former holders of Company Common Stock,Preferred Stock and Senior Preferred Stock in accordance with Section 2.01(c),in Parent Shares (to the extent such Parent Shares may be issued by the Parentwithout shareholder approval) and cash (to the extent such Parent Shares cannotbe issued by the Parent without shareholder approval) ; provided, that,for the avoidance of doubt, Parent will issue the maximum number of ParentShares as can be issued by Parent without shareholder approval and will pay theremainder of the consideration due pursuant to this Section 6.03(d) incash. If the Parent pays the Fourth Milestone in whole or in part in ParentShares, the number of Parent Shares to be issued and delivered to theRepresentatives shall be determined by multiplying US$2,000,000 (or suchportion thereof as is to be paid in Parent Shares) by the Exchange Rate on thedate of achievement of the Fourth Milestone and dividing the product by theThirty-Day Average Stock Price. In the event of payment in Parent Shares,Parent shall make available to the Representatives holding statements issued bythe Parent’s share transfer agent representing the number of duly and validlyauthorized whole Parent Shares issuable in connection with the Fourth Milestoneto be held for the benefit of holders of Company Common Stock, Preferred Stockand Senior Preferred Stock to be distributed in accordance with Section 2.01(c).Payment in cash will be made to such account of the Representatives as shall beprovided to the Parent in writing for distribution to the former holders ofCompany Common Stock, Preferred Stock and Senior Preferred Stock pursuant to Section 2.01(c),and the Representatives shall cause the former holders of Company Common Stock,Preferred Stock and Senior Preferred Stock to be paid in accordance therewithwithin a commercially reasonable period of time, which, in any event, shall notexceed 20 business days.

 

(e)                                  Registration of Milestone Shares. The Parent Sharesissued pursuant to this Section 6 upon the achievement of any of theMilestones shall be registered and freely tradeable on the AustralianSecurities Exchange without restriction no later than 45 days following thedate of issuance by Parent.

 

(f)                                    Efforts to Achieve Milestones. Parent shall use itsreasonable commercial efforts to achieve the Milestones within a commerciallyreasonable period of time.

 

6.04.                        Covenant of the Representative. The Representativecovenants and agrees to vote all its shares of Senior Preferred Stock in favorof the Merger at the meeting of stockholders of the Company, or in response toa solicitation of written consents of stockholders of the Company, convened oreffected in accordance with Section 7.03.

 

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ARTICLE VII

 

ADDITIONAL AGREEMENTS

 

7.01.                        Access to Information; Confidentiality. (a) Eachof the Company and Parent shall, and shall cause each of its Subsidiaries to,throughout the period from the date hereof to the Effective Time, (i) providethe other party and its representatives with full access, upon reasonable priornotice and during normal business hours, to all officers, employees, agents andaccountants of the Company or Parent, as the case may be, and its Subsidiariesand their respective assets, properties, books and records, but only to theextent that such access does not unreasonably interfere with the business andoperations of the Company or Parent, as the case may be, and its Subsidiaries,and (ii) furnish promptly to such persons (x) a copy of each report,statement, schedule and other document filed or received by the Company or Parent,as the case may be, or any of its Subsidiaries pursuant to the requirementsapplicable laws or filed with any Governmental Authority, and (y) allother information and data (including, without limitation, copies of contracts,Employee Benefit Plans and other books and records) concerning the business andoperations of the Company or Parent, as the case may be, and its Subsidiariesas the other party or any of such other persons reasonably may request. Noinvestigation pursuant to this paragraph or otherwise shall affect anyrepresentation or warranty contained in this Agreement or any condition to theobligations of the parties hereto.

 

(b)                                 Each of the parties hereto hereby agrees that theinformation obtained in any investigation pursuant to this Section orpursuant to the negotiation and execution of this Agreement or the effectuationof the transactions contemplated hereby, shall be governed by the terms of theMutual Non-Disclosure Agreement effective as of August 21, 2007 (the “Non-DisclosureAgreement”) between the Company and Parent.

 

7.02.                        Offer Documents; Other Actions. As promptly aspracticable after the date hereof, Parent and the Company shall prepare theOffer Documents to be sent to the Company’s stockholders. Parent shall alsotake any and all actions (other than qualifying to do business in anyjurisdiction in which Parent is now not so qualified) as may be required to betaken under any United States or Australian federal or state securities lawsand the Blue Sky Laws in connection with the issuance of Parent Shares in theMerger. The Company and Parent shall furnish all information concerning theirrespective companies and the holders of the Company and Parent capital stock asmay be reasonably requested in connection with any of the foregoing.

 

7.03.                        Approval of Stockholders. Each of the Company andSub either (a) shall call or shall have called a meeting of its respectivestockholders to be held as promptly as practicable after the date hereof forpurposes of voting upon this Agreement or (b) shall solicit writtenconsents of its respective stockholders in lieu thereof. Each of the Companyand Sub will, through their respective boards of directors, recommend to theirrespective stockholders approval of this Agreement and the transactions contemplatedhereby.

 

7.04.                        Certain Tax Matters.

 

(a)                                  Tax Returns. Parent shall prepare or cause to be prepared and file or cause to be filed,in a manner consistent with the Company’s past practice (unless otherwiserequired by

 

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law), all Tax Returns for the Company (i) forall Tax periods ending on or prior to the Closing Date which are filed afterthe Closing Date and (ii) for all Tax periods beginning before and endingafter the Closing Date. Parent shall permit the Representatives to review andcomment on each such Tax Return described in the preceding sentence at least 15days prior to filing.

 

(b)                                 Cooperationon Tax Matters. The parties hereto andthe Surviving Corporation shall cooperate fully, as and to the extentreasonably requested by another party, in connection with the filing of TaxReturns pursuant to this Section and any audit, litigation or otherproceeding with respect to Taxes. Such cooperation shall include the retentionand (upon the other party’s request) the provision of records and informationwhich are reasonably relevant to any such audit, litigation or other proceedingand making employees available on a mutually convenient basis to provideadditional information and explanation of any material provided hereunder. Theparties hereto and the Surviving Corporation agree (A) to retain all booksand records with respect to Tax matters pertinent to the Company relating toany taxable period beginning before the Closing Date until the expiration ofthe statute of limitations (and, to the extent notified by Parent, anyextensions thereof) of the respective taxable periods, and to abide by allrecord retention agreements entered into with any taxing authority, (B) togive the other party reasonable written notice prior to transferring,destroying or discarding any such books and records and, if the other party sorequests, any party hereto or the Surviving Corporation, as the case may be,shall allow the other party to take possession of such books and records, and (C) uponrequest, to use their best efforts to obtain any certificate or other documentfrom any governmental authority or any other Person as may be necessary tomitigate, reduce or eliminate any Tax that could be imposed (including, but notlimited to, with respect to the transactions contemplated hereby).

 

(c)                                  CertainTaxes All transfer, documentary, sales,use, stamp, registration and other substantially similar Taxes and fees(including any penalties and interest) incurred in connection with thisAgreement (collectively, “Transfer Taxes”), shall be paid by the Companywhen due, and such parties will, at their own expense, file all necessary TaxReturns and other documentation with respect to all such Transfer Taxes and, ifrequired by applicable law, the Surviving Corporation and the Parent will, andwill cause their affiliates to, join in the execution of any such Tax Returnsand other documentation. The Representatives shall provide the SurvivingCorporation and the Parent with evidence satisfactory to the SurvivingCorporation and the Parent that such Transfer Taxes have been paid by theCompany. The Representatives shall use their commercially reasonable bestefforts to provide Parent at Closing with a clearance certificate or similardocument(s) which may be required by any state taxing authority to relievethe Parent of any obligation to withhold any portion of the payments madepursuant to this Agreement.

 

(d)                                 TaxRefunds. Any Tax refunds that arereceived by Parent, the Surviving Corporation or any of their Subsidiaries, andany amounts credited against Tax to which Parent, the Surviving Corporation orany of their Subsidiaries become entitled, that relate to Tax periods orportions thereof ending on or before the Closing Date shall be for the accountof the Company stockholders, and the Parent shall pay over to theRepresentatives any such refund or the amount of any such credit within thirty(30) days after receipt thereto. In addition, to the extent that a claim forrefund or a proceeding results in a payment or credit against Tax by a taxingauthority or other Government Authority to the Parent, Surviving Corporation orany of their Subsidiaries

 

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of any amount that is both (i) accruedon the Closing Date Balance Sheet and (ii) included in the calculation ofNet Liabilities, Parent shall pay such amount to the Representatives withinthirty (30) days after receipt thereto.

 

(e)                                  Tax Claims. If, subsequent to the Closing, any of Parent, the Surviving Corporationor the Representative receives notice of a claim by any Governmental Authority,that, if successful, might result in an indemnity payment hereunder (a “TaxClaim”), then within fifteen (15) days after receipt of such notice, theparty receiving such notice shall give written notice of such Tax Claim to theother parties. The Parent shall have the right to control the conduct andresolution of any such Tax Claim; provided, however, that if the resolution ofany such Tax Claim (or any portion thereof) may affect the Taxes of the Companyfor a Tax period ending on or prior to the Closing Date or a Tax periodbeginning before and ending after the Closing Date, then the Representative andParent shall jointly control the conduct and resolution of such Tax Claim (orportion thereof). If the Representative elects not to participate in theconduct and resolution of any such Tax Claim, the Representative shall notifyParent in writing and Parent shall have the right to control the conduct andresolution of such Tax Claim; provided, however, that Parent shall keep theRepresentative informed of all developments on a timely basis and Parent shallnot resolve such Tax Claim in a manner that could reasonably be expected tohave an adverse impact on the Indemnifying Party’s indemnification obligationsunder this Agreement without the written consent of the Representative, whichshall not be unreasonably withheld. Each party shall bear its own costsincurred in participating in any proceeding relating to any Tax Claim.

 

7.05.                        Regulatory and Other Approvals. Subject to theterms and conditions of this Agreement and without limiting the provisions ofSections 6.01, 6.02, 6.03 and 6.04, each of the Company and Parent will proceeddiligently and in good faith and will use all commercially reasonable effortsto do, or cause to be done, all things necessary, proper or advisable to, aspromptly as practicable, (a) obtain all required Consents, approvals oractions of, make all filings with and give all notices to GovernmentalAuthorities or any other public or private third parties required of Parent,the Company or any of their Subsidiaries to consummate the Merger and the othermatters contemplated hereby, and (b) provide such other information and communicationsto such Governmental Authorities or other public or private third parties asthe other party or such Governmental Authorities or other public or privatethird parties may reasonably request.

 

7.06.                        Expenses. Except as set forth in Section 9.02,whether or not the Merger is consummated, all costs and expenses incurred inconnection with this Agreement and the transactions contemplated hereby shallbe paid by the party incurring such cost or expense.

 

7.07.                        Notice and Cure. Each of Parent and the Companywill notify the other promptly in writing after obtaining knowledge of, andcontemporaneously will provide the other with true and complete copies of anyand all information or documents relating to, and will use all commerciallyreasonable efforts to cure before the Closing, any event, transaction orcircumstance occurring after the date of this Agreement that causes or willcause any covenant or agreement of Parent or the Company, as the case may be,under this Agreement to be breached or that renders or will render untrue anyrepresentation or warranty of Parent or the Company, as the case may be,contained in this Agreement as if the same were made on or as of the date ofsuch event, transaction or circumstance. Each of Parent and the Company alsowill notify the

 

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other promptly in writing of, and will useall commercially reasonable efforts to cure, before the Closing, any violationor breach of any representation, warranty, covenant or agreement made by Parentor the Company, as the case may be, in this Agreement, whether occurring orarising prior to, on or after the date of this Agreement. No notice givenpursuant to this Section shall have any effect on the representations,warranties, covenants or agreements contained in this Agreement for purposes ofdetermining satisfaction of any condition contained herein. Notwithstanding theforegoing provisions, the delivery of any notice pursuant to this paragraphshall not constitute an acknowledgment or admission of a breach of thisAgreement.

 

7.08.                        Fulfillment of Conditions.  Subject tothe terms and conditions of this Agreement, each of Parent and the Company willtake or cause to be taken all commercially reasonable steps necessary ordesirable and proceed diligently and in good faith to satisfy each condition tothe other’s obligations contained in this Agreement and to consummate and makeeffective the transactions contemplated by this Agreement, and except asotherwise contemplated or permitted in this Agreement, neither Parent nor theCompany will, nor will it permit any of its Subsidiaries to, take or fail totake any action that could be reasonably expected to result in thenon-fulfillment of any such condition.

 

ARTICLE VIII

 

CONDITIONS

 

8.01.                        Conditions to Each Party’s Obligation to Effect theMerger. The respective obligation of each party to effect the Merger is subjectto the fulfillment, at or prior to the Closing, of each of the followingconditions:

 

(a)                                  Stockholder Approval. This Agreement and thetransactions contemplated herein shall have been adopted by the requisite voteof the stockholders of the Company and Sub under the DGCL and their respectiveCertificates of Incorporation, and the approvals of such stockholders shall bein full force and effect.

 

(b)                                 Securities Laws. Parent shall have received allUnited States or Australian federal or state securities and “Blue Sky” permitsand other authorizations, and shall have taken all actions, necessary to issuethe Parent Shares pursuant to this Agreement.

 

(c)                                  No Injunctions or Restraints. No court of competentjurisdiction or other competent Governmental Authority shall have enacted,issued, promulgated, enforced or entered any law or order (whether temporary,preliminary or permanent) which is then in effect and has the effect of makingillegal or otherwise restricting, preventing or prohibiting consummation of theMerger or the other transactions contemplated by this Agreement.

 

(d)                                 Required Consents and Approvals. Other than the filingprovided for by Section 1.02, all required Consents, approvals and actions of,filings with and notices to any Governmental Authority or any other public orprivate third parties required of Parent, the Company or any of theirSubsidiaries to consummate the Merger and the other matters contemplatedhereby, the failure of which to be obtained or taken could be reasonablyexpected to have a Material Adverse Effect or a material adverse effect on theSurviving Corporation and

 

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its Subsidiaries, taken as a whole, or on theability of Parent and the Company to consummate the transactions contemplatedhereby shall have been obtained.

 

(e)                                  Accredited Investors. As of the Closing Date, thereshall be no more than thirty-five (35) holders of shares of Company CommonStock, Preferred Stock or Senior Preferred Stock entitled to Parent Sharespursuant to this Agreement who are not “accredited investors” as such term isdefined in Regulation D under the Securities Act of 1933, as amended, and theissuance of Parent Shares to holders of Company Common Stock, Preferred Stockand Senior Preferred Stock shall be exempt from registration under theSecurities Act of 1933, as amended, pursuant to Rule 506 thereunder.

 

8.02.                        Conditions to Obligation of Parent and Sub toEffect the Merger. The obligation of Parent and Sub to effect the Merger isfurther subject to the fulfillment, at or prior to the Closing, of each of thefollowing additional conditions (all or any of which may be waived in whole orin part by Parent and Sub in their sole discretion):

 

(a)                                  Representations and Warranties. Each of therepresentations and warranties made by the Company in this Agreement to theextent qualified by materiality shall be true and correct and each of therepresentations and warranties to the extent not so qualified by materialityshall be true and correct in all material respects, in each case, as of theClosing Date as though made on and as of the Closing Date or, in the case of representationsand warranties made as of a specified date earlier than the Closing Date, onand as of such earlier date, and the Company shall have delivered to Parent acertificate, dated the Closing Date and executed by the Company by its ChiefExecutive Officer, to such effect.

 

(b)                                 Performance of Obligations. The Company shall haveperformed and complied with, in all material respects, each agreement, covenantand obligation required by this Agreement to be so performed or complied withby the Company at or prior to the Closing, and the Company shall have deliveredto Parent a certificate, dated the Closing Date and executed by on behalf ofthe Company by its Chief Executive Officer, to such effect.

 

(c)                                  Opinion of Counsel. Parent and Sub shall havereceived the opinion of Latham & Watkins, LLP, counsel to the Company,dated the Closing Date, in a form reasonably acceptable to Parent and Sub.

 

(d)                                 Orders and Laws. There shall not have been issued,enacted, promulgated or deemed applicable to Parent, the Surviving Corporation,any of their respective Subsidiaries or the transactions contemplated by thisAgreement any order or law of any Governmental Authority which is then ineffect and which could be reasonably expected to result in a materialdiminution of the benefits of the Merger to Parent.

 

(e)                                  Proceedings. All proceedings to be taken on thepart of the Company in connection with the transactions contemplated by thisAgreement and all documents incident thereto shall be reasonably satisfactoryin form and substance to Parent, and Parent shall have received copies of allsuch documents and other evidences as Parent may reasonably request in order toestablish the consummation of such transactions and the taking of allproceedings in connection therewith.

 

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(f)            Employment Agreement. The Company shall haveentered into, or amended as necessary, an agreement with Larry Martonproviding,*inter alia*, (i) that he will devote such time as isreasonably required by Parent or the Surviving Corporation to progress theresearch objectives of Parent or the Surviving Corporation, and (ii) thatsuch agreements will remain in full force and effect after the Merger, and suchagreements shall be otherwise in form and substance reasonably acceptable toParent.

 

(g)           Material Adverse Effect. Since the date of thisAgreement, no Material Adverse Effect shall have occurred that has not beencured.

 

(h)           Silicon Valley Bank Loan. Silicon Valley Bank shallhave delivered to Parent a letter providing that Silicon Valley Bank will releaseall claims against the Company upon the payment of all principal and interestoutstanding and payable by the Company to Silicon Valley Bank under thosecertain Loan and Security Agreements dated as of December 22, 2005 and November 20,2007, respectively, which shall be paid on or soon after the Closing.

 

(i)            SLILMilestones.  The Company and SLIL shallhave entered into an agreement amending the terms of the Asset PurchaseAgreement dated as of May 19, 2004, whereby the milestones may be paid usingParent Shares or cash, amending Section 2.5 and Schedule E and otherwise inform and substance satisfactory to the Parent.

 

(j)            WARF LicenseAgreement.  The Company and WARF shallhave entered into an agreement amending the terms of the license agreement datedas of June 8, 2004, whereby the milestone payment of US$500,000 will be paid atsuch time as is mutually agreeable to WARF, the Company and Parent andterminating the negative milestones and related schedules.

 

8.03.                        Conditions to Obligation of the Company to Effectthe Merger. The obligation of the Company to effect the Merger is furthersubject to the fulfillment, at or prior to the Closing, of each of thefollowing additional conditions (all or any of which may be waived in whole orin part by the Company in its sole discretion):

 

(a)           Representations and Warranties. Each of therepresentations and warranties made by Parent and Sub in this Agreement to theextent qualified by materiality shall be true and correct and each of therepresentations and warranties to the extent not so qualified by materialityshall be true and correct in all material respects, in each case, as of theClosing Date as though made on and as of the Closing Date or, in the case ofrepresentations and warranties made as of a specified date earlier than theClosing Date, on and as of such earlier date, and Parent and Sub shall eachhave delivered to the Company a certificate, dated the Closing Date andexecuted on behalf of Parent by its Company Secretary, Managing Director or anyexecutive officer and on behalf of Sub by a director to such effect.

 

(b)           Performance of Obligations. Parent and Sub shallhave performed and complied with, in all material respects, each agreement,covenant and obligation required by this Agreement to be so performed orcomplied with by Parent or Sub at or prior to the Closing, and Parent and Subshall each have delivered to the Company a certificate, dated the Closing Dateand executed on behalf of Parent by its Company Secretary, Managing Director orany executive officer and on behalf of Sub by a director, to such effect.

 

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(c)           Opinion of Counsel. The Company shall have receivedthe opinion of Greenberg Traurig, LLP, U.S. counsel to Parent and Sub, datedthe Closing Date, in a form reasonably acceptable to the Company.

 

(d)           Proceedings. All proceedings to be taken on thepart of Parent and Sub in connection with the transactions contemplated by thisAgreement and all documents incident thereto shall be reasonably satisfactoryin form and substance to the Company, and the Company shall have receivedcopies of all such documents and other evidences as the Company may reasonablyrequest in order to establish the consummation of such transactions and the takingof all proceedings in connection therewith.

 

ARTICLE IX

 

TERMINATION, AMENDMENT AND WAIVER

 

9.01.                        Termination. This Agreement may be terminated, andthe transactions contemplated hereby may be abandoned, at any time prior to theEffective Time, whether prior to or after the approval and adoption of thisAgreement and the transactions contemplated hereby by the stockholders of theCompany, Sub and Parent:

 

(a)                                  by mutual written agreement of Parent and theCompany duly authorized by action taken by or on behalf of their respectiveBoards of Directors; or

 

(b)                                 by either Parent or the Company upon notificationto the non-terminating party by the terminating party:

 

(i)                                     at any time after March 31, 2008 if the Mergershall not have been consummated on or prior to such date and such failure toconsummate the Merger is not caused by a breach of this Agreement by theterminating party;

 

(ii)                                  if the Company shall not have obtained approval ofthe Merger by its stockholders by reason of the failure to obtain the requisitevote of such stockholders;

 

(iii)                               if any Governmental Authority, the taking of actionby which is a condition to the obligations of either the Company or Parent toconsummate the transactions contemplated hereby, shall have determined not totake such action and all appeals of such determination shall have been takenand have been unsuccessful;

 

(iv)                              if, on or prior to March 31, 2008, there hasbeen a material breach of any representation, warranty, covenant or agreementon the part of the non-terminating party set forth in this Agreement whichbreach has not been cured within 15 business days following receipt by thenon-terminating party of notice of such breach from the terminating party orassurance of such cure reasonably satisfactory to the terminating party shallnot have been given by or on behalf of the non-terminating party within suchfive business day period;

 

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(v)                                 if any court of competent jurisdiction or othercompetent Governmental Authority shall have issued an order making illegal orotherwise restricting, preventing or prohibiting the Merger and such ordershall have become final and nonappealable; or

 

(vi)                              if there shall have occurred (A) any generalsuspension of, limitation on prices for or trading in securities of Parent onany recognized stock exchange where the shares of the Parent are listed (otherthan as a result of the triggering of “circuit-breakers” or other similar stockexchange protection devices), (B) a declaration of a banking moratorium byany federal or state Governmental Authority or any suspension of payments inrespect of banks in the United States or Australia, and (C) any limitation(whether or not mandatory) by any federal or state Governmental Authority onthe extension of credit by banks or other lending institutions.

 

9.02.                        Effect of Termination. If this Agreement is validlyterminated by either the Company or Parent pursuant to Section 9.01, thisAgreement will forthwith become null and void and there will be no liability orobligation on the part of either the Company or Parent (or any of theirrespective representatives or affiliates), except (i) that the provisionsof Sections 7.01(b) and will continue to apply following any suchtermination and (ii) that nothing contained herein shall relieve any partyhereto from liability for willful breach of its representations, warranties,covenants or agreements contained in this Agreement.

 

9.03.                        Amendment. This Agreement may be amended,supplemented or modified in a written instrument duly executed by the Parent,the Company and Representatives at any time prior to the Effective Time,whether prior to or after adoption and approval of this Agreement, but aftersuch adoption and approval only to the extent permitted by applicable law and,if applicable, the charter documents of the parties. No such amendment,supplement or modification shall be effective unless set forth in a writteninstrument duly executed by or on behalf of each party hereto.

 

9.04.                        Waiver. At any time prior to the Effective Time anyparty hereto may to the extent permitted by applicable law (i) extend the timefor the performance of any of the obligations or other acts of the otherparties hereto, (ii) waive (either generally or in a particular instanceand either retroactively or prospectively) any inaccuracies in therepresentations and warranties of the other parties hereto contained herein orin any document delivered pursuant hereto or (iii) waive (either generallyor in a particular instance and either retroactively or prospectively)compliance with any of the covenants, agreements or conditions of the otherparties hereto contained herein. No such extension or waiver shall be effectiveunless set forth in a written instrument duly executed by or on behalf of theparty extending the time of performance or waiving any such inaccuracy ornon-compliance. No waiver by any party of any term or condition of thisAgreement, in any one or more instances, shall be deemed to be or construed asa waiver of the same or any other term or condition of this Agreement on anyfuture occasion.

 

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ARTICLE X

 

CERTAIN DEFINITIONS

 

10.01.                Definitions. As used in this Agreement, thefollowing terms have the following meanings unless the context otherwiserequires:

 

“Accountants” has the meaningspecified in Section 2.01(c).

 

“Affiliates” means, with respect toany Person, any Person directly or indirectly controlling, controlled by orunder common control with such other Person.

 

“Agreement” means this Agreement andPlan of Merger.

 

“Blue Sky Laws” means any applicablestate securities or “blue sky” laws.

 

“Certificates” has the meaningspecified in Section 2.02(b).

 

“Certificate of Merger” has themeaning specified in Section 1.02.

 

“CGCL” means the California GeneralCorporation Law.

 

“Closing” has the meaning specified inSection 1.03.

 

“Closing Date” has the meaningspecified in Section 1.03.

 

“Closing Date Balance Sheet” has themeaning specified in Section 2.01(c).

 

“Code” means the Internal Revenue Codeof 1986, as amended.

 

“Company” has the meaning specified inthe first paragraph of this Agreement.

 

“Company Common Stock” has the meaningspecified in Section 2.01(b).

 

“Company Securities” has the meaningspecified in Section 3.04.

 

“Company Stock Options” has themeaning specified in Section 2.01(e).

 

“Company Warrants” has the meaningspecified in Section 2.01(e).

 

“Consents” means any consent,approval, authorization, waiver, permit, grant, franchise, concession, agreement,license, certificate, exemption, order, registration, declaration, filing,report or notice.

 

“Constituent Corporations” has themeaning specified in Section 1.01.

 

“Deferred Payment” has the meaningspecified in Section 11.02(f).

 

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“DGCL” has the meaning specified inthe fourth Whereas clause of this Agreement.

 

“Disclosure Letter” means thedisclosure letter delivered by the Company prior to or concurrently with theexecution and delivery of this Agreement.

 

“Dissenting Share” has the meaningspecified in Section 2.01(d).

 

“Effective Time” has the meaningspecified in Section 1.02.

 

“Employee Benefit Plan” means eachprofit sharing, pension, retirement, bonus, incentive compensation, stockoption, deferred compensation or other written material employee benefit plan,agreement, contract or commitment for the benefit of the present and formeremployees of the Company or any Subsidiary and which is maintained orestablished by the Company or any Subsidiary or to which either the Company orany Subsidiary contributes or is required to contribute or by which either theCompany or any Subsidiary is legally bound.

 

“Entity” means any corporation(including any non-profit corporation), general partnership, limitedpartnership, limited liability partnership, joint venture, estate, trust,company (including any limited liability company or joint stock company), firmor other enterprise, association, organization or entity.

 

“Exchange Agent” has the meaning specifiedin Section 2.02(a).

 

“Exchange Fund” has the meaningspecified in Section 2.02(a).

 

“Exchange Rate” means for any date ofdetermination hereunder the Australian Dollar to U.S. Dollar exchange ratepublished by the Reserve Bank of Australia on such date.

 

“FDA” means the United States Food andDrug Administration.

 

“Financial Statements” has the meaningspecified in Section 3.06.

 

“First Milestone” means the initiation of any Phase III clinicaltrial relating to or involving the Specified Technology (initiation being thedate upon which the first human subject is enrolled into the clinical trial).

 

“Fourth Milestone” means the date of submission to the FDA bythe Parent or any Affiliate of the first IND in respect of a compound comprisedin the Specified Technology developed in the pre-clinical program (vascularhyperplasia, LSD1 inhibitor, HDAC inhibitors, Quinones, anti-infectives).

 

“GAAP” means generally acceptedaccounting principles of the United States.

 

“Governmental Approval” means anypermit, license, certificate, franchise, permission, clearance, registration,qualification or authorization issued, granted, given or otherwise madeavailable by or under the authority of any Governmental Authority.

 

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“Governmental Authority” means anynation or government, any state or other political subdivision thereof; anyentity, authority or body exercising executive, legislative, judicial,regulatory or administrative functions of or pertaining to government,including, without limitation, any government authority, agency, department,board, commission or instrumentality; any court, tribunal or arbitrator; andany self-regulatory organization.

 

“Holdback Shares” has the meaningspecified in Section 2.01(f).

 

“IND” means an Investigation New DrugApplication for the Company’s product candidate to the FDA made by the Parentor any Affiliate in respect of the Specified Technology that materiallycomplies with the requirements of the FDA, including the requirements under 21CFR 312.

 

“Indemnified Party” has the meaningspecified in Section 11.02(e).

 

“Indemnifying Party” has the meaningspecified in Section 11.02(e).

 

“Intellectual Property Right” meansany trademark, service mark, registration thereof or application forregistration thereof, trade name, invention, patent, patent application, tradesecret, know-how, copyright, copyright registration, application for copyrightregistration, or any other similar type of proprietary intellectual propertyright, whether or not registered, in each case which is owned or licensed andused or held for use by the Company or any Subsidiary (excluding anynon-exclusive licenses that are available to the public generally).

 

“Jurisdiction of Organization” means (i) Delaware,with respect to the Company and Sub, and (ii) Australia, with respect toParent.

 

“knowledge” means the knowledge of aparticular fact, circumstance, event or other matter in question of theofficers of an Entity. Any such officers of an Entity will be deemed to haveknowledge of a particular fact, circumstance, event or other matter if (i) suchofficer has actual knowledge of the fact, circumstance or event or (ii) knowledgeof such fact, circumstance or event would be obtained by reasonable inquiryunder the circumstances.

 

“Leased Real Property” has the meaningspecified in Section 3.09(a).

 

“Leases” has the meaning specified in Section 3.09(c).

 

“Lien” means liens, claims, mortgages,encumbrances, pledges, security interests, equities and charges of any kind.

 

“Losses” has the meaning specified in Section 11.02(a).

 

“Material Agreements” has the meaningspecified in Section 3.10.

 

“Material Adverse Effect” means amaterial adverse effect on the business, operations, prospects or financialcondition of the business of the Company taken as a whole; provided, however,that none of the following (individually or in combination) shall be deemed toconstitute, or shall be taken into account in determining whether there hasbeen, a Material

 

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Adverse Effect: (a) any change or effectrelating to the United States or international economy in general or changes ordevelopments in the Company’s industry generally; or (b) any adverseeffect resulting directly or indirectly from the announcement, execution ordelivery of this Agreement or the pendency or consummation of the Merger.

 

“Merger” has the meaning specified inthe fourth Whereas clause of this Agreement.

 

“Milestones” means the fulfillment ofany one of the First Milestone, the Second Milestone, the Third Milestone orthe Fourth Milestone, or any or all of such Milestones.

 

“Most Recent Parent ASE Filings” hasthe meaning specified in Section 5.06.

 

“NDA” means a New Drug Application forthe Company’s product candidate that is in substantial compliance with the FDA’snew drug application guidance as then in effect.

 

“Net Liabilities” means the sum ofcash and cash equivalents held by the Company less liabilities of the Company(excluding deferred revenue, deferred rent) and unrecorded liabilities setforth in Section 3.07 of the Disclosure Letter.

 

“Non-Disclosure Agreement” has themeaning specified in Section 7.01(b).

 

“Offer Documents” means theInformation Statement/Private Offering Memorandum prepared by Parent and theCompany pursuant to the DGCL and the Securities Act of 1933, as amended.

 

“Owned Real Property” has the meaningspecified in Section 3.09(a).

 

“Parent” has the meaning specified inthe first paragraph of this Agreement.

 

“Parent ASE Filing” has the meaningspecified in Section 4.07.

 

“Parent Basket” has the meaningspecified in Section 11.02(c).

 

“Parent Indemnitees” has the meaningspecified in Section 11.02(a).

 

“Parent Losses” has the meaningspecified in Section 11.02(a).

 

“Parent Material Adverse Effect” meansa material adverse effect on the business, operations or financial condition ofthe business of the Parent and its Subsidiaries taken as a whole, provided,however, that none of the following (individually or in combination) shall bedeemed to constitute, or shall be taken into account in determining whetherthere has been, a Parent Material Adverse Effect: (a) any change or effectrelating to the Australian or international economy in general changes ordevelopments in Parent’s industry generally; or (b) any adverse effectresulting directly or indirectly from the announcement, execution or deliveryof the Agreement or the pendency or consummation of the Merger.

 

“Parent Share Consideration” has themeaning specified in Section 2.01(c)(iii)

 

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“Parent Shares” has the meaningspecified in Section 2.01(c).

 

“Permitted Liens” has the meaningspecified in Section 3.09(a).

 

“Person” means any individual, Entityor Governmental Authority.

 

“Representatives” has the meaningspecified in the first paragraph of this Agreement.

 

“Second Milestone” means the date ofsubmission to the FDA (or the Medicines & Healthcare Products RegulatoryAuthority in the United Kingdom or the European Medicines Evaluation Authority)by the Parent or any Affiliate of the first NDA in respect of the SpecifiedTechnology.

 

“Secretary of State” has the meaningspecified in Section 1.02.

 

“Series A Preferred Stock” hasthe meaning specified in Section 2.01(c)(ii).

 

“Series B Preferred Stock” hasthe meaning specified in Section 2.01(c)(ii).

 

“Series C Preferred Stock” hasthe meaning specified in Section 2.01(c)(ii).

 

“Series D Preferred Stock” hasthe meaning specified in Section 2.01(c)(iii).

 

“Series E Preferred Stock” hasthe meaning specified in Section 2.01(c)(iii).

 

“Shareholder Basket” has the meaningspecified in Section 11.02(c).

 

“Shareholder Indemnitee” has themeaning specified in Section 11.02(b).

 

“Shareholder Losses” has the meaningspecified in Section 11.02(b).

 

“Specified Regulatory Filings” meansthe regulatory applications and governmental registrations identified onSchedule 3.16.

 

“Specified Technology” means polyamineanalogues, quinones and porphyrins.

 

“Stockholders” means the holders ofCompany Common Stock, Preferred Stock and Senior Preferred Stock on the ClosingDate.

 

“Sub” has the meaning specified in thefirst paragraph of this Agreement.

 

“Sub Common Stock” has the meaningspecified in Section 2.01(a).

 

“Subsidiary” has the meaning specifiedin Section 2.01(b).

 

“Subsidiary Security” means (i) sharesof capital stock or voting securities of a Subsidiary of a Company, (ii) securitiesof a Subsidiary of the Company convertible into or exchangeable for shares ofcapital stock or voting securities of such Subsidiary, or (iii) options or

 

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other rights to acquire from a Subsidiary ofthe Company any capital stock, voting securities or securities convertible intoor exchangeable for capital stock or voting securities of such Subsidiary.

 

“Survival Period” has the meaningspecified in Section 11.01.

 

“Surviving Corporation” has themeaning specified in Section 1.01.

 

“Surviving Corporation Common Stock”has the meaning specified in Section 2.01(a).

 

“Taxes” has the meaning specified in Section 3.15(a).

 

“Tax Claim” has the meaning specifiedin Section 7.04(d).

 

“Tax Returns” has the meaningspecified in Section 3.15(a).

 

“Third Milestone” means the initiation of a second Phase IIclinical trial relating to or involving the Specified Technology (initiation beingthe date upon which the first human subject is enrolled into an FDA approvedprotocol for a clinical trial that is designed to provide Phase II dose, safetyand efficacy data for the Specified Technology).

 

“Third Party Claim” has the meaningspecified in Section 11.02(e).

 

“Thirty-Day Average Stock Price” meansthe volume weighted average of the closing sale prices of a share of ParentShares as reported on the Australian Securities Exchange for the period ofthirty consecutive trading days ending on the trading day immediately precedingthe achievement of a Milestone.

 

“Transfer Taxes” has the meaningspecified in Section 7.04(c).

 

“2007 Balance Sheet” has the meaningspecified in Section 3.07.

 

ARTICLE XI

 

GENERAL PROVISIONS

 

11.01.                  Survival of Representations, Warranties, Covenantsand Agreements. The representations, warranties, covenants and agreementscontained in this Agreement shall survive for one year after the Closing Date, providedthat the representations and warranties made in Sections 3.04 shall survive fortwo years after the Closing Date, the representations and warranties made in Section 3.15shall survive for 90 days after the applicable statute of limitations and therepresentation and warranty made in Section 3.11(d) shall survive forthe applicable statute of limitations for assertion of any employment claim(the designated survival period for each representation and warranty, the “SurvivalPeriod”); provided, however, that notwithstanding the foregoing, thecovenants and agreements of the Parent contained in Section 6.03 shallsurvive for period coextensive with the term patent protection for the relevantSpecified Technology. Except for claims with respect to fraud solely againstthe Person

 

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committing or alleged to have committed suchfraud, the right of each party hereto to assert indemnification claims andreceive indemnification payments pursuant to Section 11.02 shall be thesole and exclusive right and remedy exercisable by such party with respect toany breach by the other party hereto of any representation, warranty orcovenant in this Agreement, except that, in the event of any breach orthreatened breach by any party to this Agreement of any covenant or obligationset forth in this Agreement for the benefit of any other party to thisAgreement, such other party shall be entitled to seek a decree or order ofspecific performance or mandamus to enforce the observance and performance ofsuch covenant, obligation or other provision, and an injunction restrainingsuch breach or threatened breach.

 

11.02.                  Indemnification. (a) The Stockholdersseverally and not jointly shall defend, indemnify and hold harmless the Parentand its affiliates, officers, directors, agents and representatives (“ParentIndemnitees”) and the Surviving Corporation from, against and in respectof, and shall pay and reimburse the Parent Indemnitees and the SurvivingCorporation for, any and all claims, losses, costs, expenses, obligations,liabilities, damages and recoveries, including, without limitation, reasonableattorneys’ fees, whether or not arising from third party claims (collectively, “Losses”),that Parent Indemnitees or the Surviving Corporation may incur, sustain orsuffer as a result of (i) subject to the expiration of the SurvivalPeriod, any breach of or inaccuracy in any representation or warranty of theCompany contained in this Agreement or in the Disclosure Letter furnished by oron behalf of the Company under this Agreement, or (ii) except to theextent such Taxes are reflected in the reserve for Tax Liability (rather thanany reserve for deferred Taxes established to reflect timing differencesbetween book and Tax income) shown on the face of the Closing Date BalanceSheet, Taxes of the Company or any of its Subsidiaries with respect to anytaxable year or portion thereof ending on or before the Closing Date, or (iii) anybreach of the covenants or agreements of the Company or the Company containedin this Agreement (collectively, “Parent Losses”). No claim for recoveryof any Parent Losses under Section 11.02(a)(i) may be asserted by aParent Indemnitee or the Surviving Corporation after the expiration of theapplicable Survival Period; provided, however, that claims inwriting made by a Parent Indemnitee or the Surviving Corporation in good faithand with reasonable specificity prior to the expiration of the applicableSurvival Period shall not thereafter be barred by the expiration of theapplicable Survival Period. For purposes of computing the amount of any ParentLosses incurred by Parent: (A) there shall be deducted an amount equal tothe amount of any Tax benefit actually received or receivable by Parent or anyof its affiliates in connection with such Losses or any of the circumstancesgiving rise thereto; and (B) there shall be deducted an amount equal tothe amount of any insurance proceeds, indemnification payments, contributionpayments or reimbursements actually received or receivable by Parent or any ofits affiliates in connection with such Losses or any of the circumstancesgiving rise thereto. For purposes of calculating an amount described under Section 11.02(a)(ii),in the case of any Taxes that are imposed on a periodic basis and are payablefor a Tax period that includes (but does not end on) the Closing Date, theportion of such Tax which relates to the portion of such Tax period ending onthe Closing Date shall (x) in the case of any Taxes other than Taxes basedupon or related to income or receipts, be deemed to be the amount of such Taxfor the entire Tax period multiplied by a fraction the numerator of which isthe number of days in the Tax period ending on the Closing Date and thedenominator of which is the number of days in the entire Tax period, and (y) inthe case of any Tax based upon or related to income or receipts be deemed equalto the amount which would be payable if the relevant Tax period ended on theClosing Date. Any credits relating to a Tax period that begins

 

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before and ends after the Closing Date shallbe taken into account as though the relevant Tax period ended on the ClosingDate. All determinations necessary to give effect to the foregoing allocationsshall be made in a manner consistent with prior practice of the Company.

 

(b)                                 The Parent shall defend, indemnify and holdharmless the Stockholders of the Company entitled to consideration pursuant tothis Agreement (the “Shareholder Indemnitees”) from, against and inrespect of any and all Losses that the Shareholder Indemnitees may incur,sustain, or suffer as a result of (i) subject to the expiration of theSurvival Period, any breach of or inaccuracy in any representation or warrantyof the Parent contained in this Agreement or in the Parent Disclosure Letterfurnished by or on behalf of the Parent under this Agreement, (ii) anybreach of the covenants or agreements of the Parent contained in this Agreement(collectively, the “Shareholder Losses”). No claim for recovery of anyShareholder Losses under Section 11.02(b)(i) may be asserted by anyShareholder Indemnitee after the expiration of the applicable Survival Period; provided,however, that claims in writing made by the Shareholder Indemnitee ingood faith and with reasonable specificity prior to the expiration of theapplicable Survival Period shall not thereafter be barred by the expiration ofthe applicable Survival Period.

 

(c)                                  Except with respect to any Parent Losses involvingproven fraud by the Company, the Stockholders shall not be liable to Parentwith respect to Parent Losses arising out of breaches of representations orwarranties unless and until, and then only to the extent that, the aggregateamount of all Parent Losses shall exceed the sum of US$15,000 or equivalent(the “Parent Basket”). The Company shall thereafter be liable for allParent Losses, whether or not in excess of the Parent Basket; provided, however,that the Parent Indemnitees shall not be entitled to aggregate indemnificationunder Section 11.02(a) in excess of the aggregate value of theHoldback Shares; provided, further, however, the partiesto this Agreement agree that the Parent shall deduct from any considerationowing pursuant to Section 2.01 (the Holdback Shares) prior to the issuanceor payment of such consideration, any indemnification amounts claimed under Section 11.02(a) andthat such deductions from the consideration owing pursuant to Section 2.01(the Holdback Shares) shall be the sole and exclusive source of anyindemnification amounts payable to Parent pursuant to this Agreement and exceptas provided in the first sentence hereof, no Stockholder of the Company shallbe personally liable for any indemnification except to the extent of havingsuch Stockholder’s consideration owing pursuant to this Agreement reduced bysuch indemnification amounts.

 

(d)                                 Except with respect to any Shareholder Lossesinvolving proven fraud by the Parent, the Parent shall not be liable to theShareholder Indemnitees with respect to Shareholder Losses arising out ofbreaches of representations and warranties unless or until, and then only tothe extent that, that aggregate amount of Shareholder Losses shall exceed thesum of US$15,000 or equivalent (the “Shareholder Basket”). Parent shallthereafter be liable for all Shareholder Losses whether or not in excess of theShareholder Basket; provided, however, that the ShareholderIndemnitees shall not be entitled to aggregate indemnification under Section 11.02(b)(i) inexcess of US$300,000; provided, that such limitation shall not apply to anyShareholder Losses that result because of Parent’s breach of the covenants andagreements contained in Section 2.01, 2.02 or 6.03.

 

(e)                                  All claims for indemnification by the ParentIndemnitees, the Surviving Corporation or the Shareholder Indemnitee (in suchcapacity an “Indemnified Party”) against,

 

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respectively, the Stockholders or the Parent(in such capacity, an “Indemnifying Party”) relating to a Third PartyClaim (as defined below) shall be asserted and resolved as set forth in thisSection:

 

(i)                                     In the event that any written claim or demand forwhich an Indemnifying Party would be liable to an Indemnified Party is madeagainst or sought to be collected from any Indemnified Party by a third party,promptly after the assertion of any such claim or demand (a “Third PartyClaim”), the Indemnified Party shall notify the Indemnifying Party of suchThird Party Claim; provided, however, that the failure promptlyto give such notice shall not affect any Indemnified Party’s rights hereunderexcept to the extent that such failure shall adversely affect any IndemnifyingParty or its rights hereunder. The Indemnified Party shall advise theIndemnifying Party of all facts relating to such assertion within the knowledgeof the Indemnified Party, and shall afford the Indemnifying Party theopportunity, at the Indemnifying Party’s sole cost and expense, to participatein the defense thereof and, if it so chooses, to assume the defense of suchclaims and to settle or compromise any Third Party Claim; provided, that,except with the prior written consent of the Indemnified Party, such consentnot to be unreasonably withheld, conditioned or delayed, no Indemnifying Partyin the defense of any such claim shall consent to entry of any judgment ororder, interim or otherwise, or enter into any settlement to the extent that itprovides for injunctive or other non-monetary relief against the IndemnifiedParty. Should the Indemnifying Party so elect to assume the defense of suchThird Party Claim, the Indemnifying Party will not be liable to the IndemnifiedParty for legal expenses incurred by the Indemnified Party in connection withthe defense thereof, except as specifically provided below. If the IndemnifyingParty assumes such defense, the Indemnified Party shall have the right toparticipate in the defense thereof, it being understood that the IndemnifyingParty shall control such defense, and in any such action or proceeding. theIndemnified Party shall have the right to retain its own counsel, but the feesand expenses of such counsel shall be at its own expense unless (x) theIndemnifying Party and the Indemnified Party mutually agree to the retention ofsuch counsel or (y) the named parties to any such suit, action or proceeding(including any impleaded parties) include both the Indemnifying Party and theIndemnified Party, and in the opinion of recognized outside counsel to theIndemnified Party, representation of the Indemnifying Party and the IndemnifiedParty by the same counsel would result in a conflict of interests between them.Where the Shareholder Indemnitees are the Indemnifying or Indemnified Partyhereunder,, the Parent shall in any event be liable for the fees and expensesof a single counsel for all such parties.

 

(ii)                                  The Indemnified Party shall not, without the priorwritten consent of the Indemnifying Party, have the right to settle orcompromise any Third Party Claim subject to indemnification under this Section andbe indemnified therefor.

 

(iii)                               An Indemnifying Party shall not be liable underthis Section for any settlement effected without its prior written consentof any Third Party Claim for which indemnity may be sought hereunder, whichconsent shall not be unreasonably withheld. The Indemnifying Party may settleany Third Party Claim without the consent of the Indemnified Party providedthat such settlement or release constitutes monetary damages

 

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only that are paid in full by theIndemnifying Party. Each party shall cooperate in the defense or prosecution ofany Third Party Claim. Such cooperation shall include the retention and, uponthe request of the party defending such claim, the provision to such defendingparty or records and information which are reasonably relevant to such claimand making of employees available on a mutually convenient basis to provideadditional information and explanation of any matters relating to such claim.

 

Notwithstanding any other provision of thisAgreement, with respect to the obligation to indemnify for any Tax, (i) ifan Indemnified Party is requested to pay the Tax and sue for a refund, theIndemnifying Party or Indemnifying Parties shall advance the full amount of theTax to the Indemnified Party on an interest free basis; (ii) noIndemnifying Party shall be entitled to settle or to contest in court any claimrelating to Taxes if the settlement or an adverse court decision of the claimwould be likely, in the good faith judgment of the Indemnified Party, to causethe Tax liability of the Indemnified Party or any affiliate to increase in anytaxable period ending after the Closing Date; and (iii) no proceedings maybe begun in any court unless the Indemnifying Party or Indemnifying Parties, ifrequested by the Indemnified Party, provides a counsel’s opinion reasonablysatisfactory to the Indemnified Party that a reasonable basis exists to prevailin those proceedings.

 

(f)                                    Any claim or demand relating to any matter forwhich a party is entitled to indemnification hereunder shall be asserted bywritten notice to the other party or parties from which indemnification issought, which notice shall specify in reasonable detail, insofar as such factsare known to the party asserting such claim or demand, the facts and circumstancesgiving rise to such claim on demand. Any amounts paid under this Article XIwill be treated as an adjustment to the aggregate consideration paid to theholders of Company Common Stock, Preferred Stock and Senior Preferred Stock.

 

(g)                                 Notwithstanding anything in this Agreement to thecontrary, all amounts determined to be owing to Parent Indemnitees forindemnification obligations of each of the Stockholders pursuant to this Section 11.02shall be payable solely by offset from the Holdback Shares at the conclusion ofthe procedures specified in this Section 11.02 (to the extent that thesame have not been released to the relevant Stockholder). In the event Parentis entitled to offset against the Holdback Shares, the number of HoldbackShares payable under Section 6.03, as the case may be, that shall becanceled and no longer deliverable to each of the respective Stockholders shallequal each such Stockholder’s proportional Share of Parent Losses divided bythe fair market value of the Holdback Shares with the fair market value of theHoldback Shares being determined based on the Exchange Rate on the date ofset-off and application. On the six (6) month anniversary of the ClosingDate, Parent will transfer to the Stockholders entitled thereto (as informed bythe Representative), (i) fifty percent (50%) of the Holdback Shares (tothe extent remaining after the resolution of any claims with respect to ParentLosses) minus (ii) the number of Holdback Shares equal to the aggregateamount of claims by Parent pending on such date divided by the fair marketvalue of the Holdback Shares (determined using the Exchange Rate on the date ofdetermination). On the twelve (12) month anniversary of the Closing Date,Parent will transfer to each of the Stockholders entitled thereto (as informedby the Representative), (i) the remaining Holdback Shares of suchStockholder (to the extent remaining after the resolution of any claims withrespect to Parent Losses and transfer pursuant to the prior sentence) minus (ii) thenumber of Holdback Shares equal to the aggregate amount of claims by

 

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Parent pending on such date divided by thefair market value of the Holdback Shares (determined based on the Exchange Rateon the date of determination)). With respect to any pending claims referred toin the preceding two sentences, promptly following resolution of any suchclaims, the Holdback Shares, if any, which have not been offset by Parent inconnection with such resolution, and which would have been offset by Parent ifthe claim had been resolved prior to the date set forth in the applicablesentence of this Section 11.02(g), will be transferred to the Stockholdersratably in accordance with the Ordinary Shares issuable to each Stockholder.

 

11.03.                  Notices. All notices, requests and othercommunications hereunder must be in writing and will be deemed to have beenduly given only if delivered personally or by facsimile transmission or sent byrecognized international air courier to the parties at the following addressesor facsimile numbers:

 

If to Parent or Sub, to:

 

16 Benson St, Toowong

Queensland 4066 Australia

Facsimile No.: +61.7.3720.9624

Attention: Linton Burns

 

with a copy to:

 

Greenberg Traurig, LLP

200 Park Avenue

New York, New York 10166

Facsimile No.: (212) 805-9380

Attention: Ross Kaufman, Esq.

 

If to the Company, to:

 

3 Twin Dolphin Drive, Suite 100

Redwood City, California 94065

USA

Facsimile No.: +1.650.610.7801

Attention: Robert F. Williamson

 

with a copy to:

 

Latham & Watkins LLP

140 Scott Drive

Menlo Park, CA 94025

USA

Facsimile No.: +1.650.463.2600

Attention: Mark V. Roeder, Esq.

 

All such notices, requests and othercommunications will (i) if delivered personally to the address as providedin this Section, be deemed given upon delivery, (ii) if delivered byfacsimile

 

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transmission to the facsimile number asprovided in this Section, be deemed given upon receipt, and (iii) ifdelivered by air courier in the manner described above to the address asprovided in this Section, be deemed given upon receipt (in each case regardlessof whether such notice, request or other communication is received by any otherperson to whom a copy of such notice is to be delivered pursuant to thisSection). Any party from time to time may change its address, facsimile numberor other information for the purpose of notices to that party by giving noticespecifying such change to the other parties hereto.

 

11.04.                  Entire Agreement. This Agreement supersedes allprior discussions and agreements (other than the Non-Disclosure Agreement)among the parties hereto with respect to the subject matter hereof, and thisAgreement, the exhibits hereto, the Disclosure Letter, the Parent Disclosure Letterand the Non-Disclosure Agreement constitute the entire agreement among theparties hereto with respect to the subject matter hereof.

 

11.05.                  Public Announcements. Except as otherwise requiredby law or the rules of any applicable securities exchange or nationalmarket system, so long as this Agreement is in effect, Parent and the Companywill not, and will not permit any of their respective representatives to, issueor cause the publication of any press release or make any other publicannouncement with respect to the transactions contemplated by this Agreementwithout the consent of the other parties, which consent shall not beunreasonably withheld. Parent, the Representatives and the Company willcooperate with each other in the development and distribution of all pressreleases and other public announcements with respect to this Agreement and thetransactions contemplated hereby, and will furnish the other with drafts of anysuch releases and announcements as far in advance as practicable.

 

11.06.                  No Third Party Beneficiary. Except for theprovisions of Article 11, the terms and provisions of this Agreement areintended solely for the benefit of each party hereto and their respectivesuccessors or permitted assigns, and except as provided in Section 7.06(which is intended to be for the benefit of the persons entitled to therein,and may be enforced by any of such persons), it is not the intention of theparties to confer third-party beneficiary rights upon any other person.

 

11.07.                  No Assignment; Binding Effect. Neither thisAgreement nor any right, interest or obligation hereunder may be assigned byany party hereto without the prior written consent of the other parties heretoand any attempt to do so will be void. Subject to the preceding sentence, thisAgreement is binding upon, inures to the benefit of and is enforceable by theparties hereto and their respective successors and assigns.

 

11.08.                  Headings. The headings used in this Agreement havebeen inserted for convenience of reference only and do not define or limit theprovisions hereof.

 

11.09.                  Currency. Unless otherwise indicated, all amountsof money referred to herein are expressed in United States dollars, and anyreference to “$” or to “U.S. Dollars” shall be deemed to be a reference to thelegal currency of the United States of America and any reference to “A$” or to “AustralianDollars” shall be deemed to be a reference to the legal currency of Australia.

 

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11.10.                  Invalid Provisions. If any provision of thisAgreement is held to be illegal, invalid or unenforceable under any present orfuture law, and if the rights or obligations of any party hereto under thisAgreement will not be materially and adversely affected thereby, (i) suchprovision will be fully severable, (ii) this Agreement will be construedand enforced as if such illegal, invalid or unenforceable provision had nevercomprised a part hereof, (iii) the remaining provisions of this Agreementwill remain in full force and effect and will not be affected by the legal,invalid or unenforceable provision or by its severance herefrom and (iv) inlieu of such illegal, invalid or unenforceable provision, there will be addedautomatically as a part of this Agreement a legal, valid and enforceableprovision as similar in terms to such illegal, invalid or unenforceableprovision as may be possible.

 

11.11.                  Governing Law. (a) This Agreement shall begoverned by and construed in accordance with the laws of the State of Delawareapplicable to a contract executed and performed in such State without givingeffect to the conflicts of laws principles thereof. Each of the partiesirrevocably consents to the non-exclusive jurisdiction and venue of the stateand federal courts located within Santa Clara County, California and ofQueensland, Australia, in connection with any matter based upon or arising outof this Agreement or the transactions contemplated hereby and agrees thatprocess may be served upon it in any manner authorized by the laws of the Stateof California or Australia, as the case may be, for such persons and waives andcovenants not to assert or plead any objection which it might otherwise have tosuch jurisdiction and such process.

 

(b)                            EACH OF THE PARTIES HERETO HEREBY WAIVES THE RIGHTTO TRIAL BY JURY IN ANY PROCEEDING ARISING FROM THIS AGREEMENT OR THETRANSACTIONS CONTEMPLATED HEREBY.

 

(c)                             Counterparts. This Agreement may be executed in any number of counterparts, each ofwhich will be deemed an original, but all of which together will constitute oneand the same instrument.

 

(Signature Page Follows)

 

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IN WITNESS WHEREOF, each party hereto hascaused this Agreement to be signed by its officer thereunto duly authorized asof the date first above written.

 
|   |   | PROGEN PHARMACEUTICALS LIMITED                  |
|--------|--------|-------------------------------------------------|
|   |   |                                            |
|   |   |                                            |
|   | By:    |                                            |
|   |   | Name:                                           |
|   |   | Title:                                          |
|   |   |                                            |
|   |   |                                            |
|   |   | PROGEN PHARMACEUTICALS, INC.                    |
|   |   |                                            |
|   |   |                                            |
|   | By:    |                                            |
|   |   | Name:                                           |
|   |   | Title:                                          |
|   |   |                                            |
|   |   |                                            |
|   |   | CELLGATE, INC.                                  |
|   |   |                                            |
|   |   |                                            |
|   | By:    |                                            |
|   |   | Name:                                           |
|   |   | Title:                                          |
|   |   |                                            |
|   |   | REPRESENTATIVE                                  |
|   |   | SPROUT CAPITAL IX, L.P.                         |
|   |   | By:   DLJ Capital  Corporation   |
|   |   | Its:   Managing General  Partner |
|   |   |                                            |
|   |   | By:                                             |   |
|   |   |                                            | Name:   Kathleen D. LaPorte |
|   |   |                                            | Its:   Managing Director |

 

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