Exhibit 4(a)(1)


 


AGREEMENT AND
PLAN 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., as
Representative


 

















 


Table of
Contents


 


	
   

  	
   

  	
  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

  
				



 


i

















 


	
  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

  



 


ii

















 


	
  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

  



 


iii

















 


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


 


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


 


WHEREAS, Parent has its registered office at
16 Benson Street, Toowong, Queensland 4066, Australia, and is committed to
developing and commercializing novel small molecule therapeutics for the
treatment of cancer and related conditions; and


 


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


 


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


 


WHEREAS, Parent, Sub and the Company desire
to make certain representations, warranties, covenants and agreements in
connection with the Merger and also to prescribe various conditions to the
Merger.


 


NOW, THEREFORE, in consideration of the
mutual covenants and agreements set forth in this Agreement, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:


 


ARTICLE I


 


THE MERGER


 


1.01.        The
Merger. At the Effective Time (as defined in Section 1.02), upon the terms
and subject to the conditions of this Agreement, the Sub shall be merged with
and into the Company in accordance with the DGCL. The Company shall be the
surviving corporation in the Merger (the “Surviving Corporation”) and
shall be renamed Progen Pharmaceuticals, Inc. Sub and the Company are
sometimes referred to herein as the “Constituent Corporations.” As a
result of the Merger, the outstanding shares of capital stock of the
Constituent Corporations shall be converted or canceled in the manner provided
in Article II.


 
















 


1.02.        Effective Time. At the Closing (as defined in Section 1.03), a
certificate of merger (the “Certificate of Merger”) shall be duly
prepared and executed by the Surviving Corporation and thereafter delivered to
the 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 as
practicable after, the Closing Date (as defined in Section 1.03). The
Merger shall become effective at the time of the filing of the Certificate of
Merger with the Secretary of State (such time and date being referred to herein
as the “Effective Time”).


 


1.03.        Closing. The closing of the Merger (the “Closing”) will take place
in San Francisco, California, or at such other place as the parties hereto
mutually agree, on a date and at a time to be specified by the parties, which
shall in no event be later than 10:00 a.m., local time, on the second
business day following satisfaction of the conditions set forth in Article VIII
or, if permissible, waived in accordance with this Agreement, or on such other
date 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 the
certificates and other documents and instruments required to be delivered under
Article VIII.


 


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


 


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


 


1.06.        Effects of the Merger. Subject to the foregoing, the effects of the
Merger 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 the
Merger and without any action on the part of the holder thereof:


 


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


 


2

















 


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


 


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


 


(c)           Exchange; Adjustment. (i) The consideration hereunder shall consist
of 756,199 validly issued, fully paid and nonassessable, ordinary shares of
Parent (“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 to
be canceled in accordance with Section 2.01(b)) and other than Dissenting
Shares (as defined in Section 2.01(d)), each issued and outstanding share
of the Series A Preferred Stock, US$0.001 par value (the “Series A
Preferred Stock”), of the Series B Preferred Stock, US$0.001 par value
(the “Series B Preferred Stock”) and of the Series C Preferred
Stock, US$0.001 par value (the “Series C Preferred Stock,” and
together with the Series A Preferred Stock and the Series B Preferred
Stock, collectively, the “Preferred Stock”) and each issued and
outstanding share of the Series D Preferred Stock, US$0.001 par value (the
“Series D Preferred Stock”) and of the Series E Preferred
Stock, US$0.001 par value (the “Series E Preferred Stock,” and
together with the Series D Preferred Stock, collectively, the “Senior
Preferred Stock”) shall be converted into Parent Shares in accordance with Article IV,
Section D.3. of the Fifth Amended and Restated Certificate of
Incorporation of the Company, as in effect on the date hereof and a copy of
which has been made available to Parent or its counsel, subject to adjustment
in accordance with this Section 2.01(c). The Parent Shares so issued shall
be registered and freely tradeable on the Australian Securities Exchange
without restriction no later than 45 days following the issuance thereof.


 


(i)            If, prior to the Effective Time, Parent shall pay a
dividend in (including any dividend or distribution of securities convertible
into capital stock), subdivide, combine into a smaller number of shares or
issue by reclassification of its shares, any Parent Shares, all references in
this Agreement to specified numbers of shares of Parent Shares affected
thereby, and all calculations provided for that are based upon numbers of
Parent Shares (or trading prices therefor) affected thereby, shall be equitably
adjusted to the extent necessary to provide the parties the same economic
effect as contemplated by this Agreement prior such adjustment. All such shares
of Company Common Stock, Preferred Stock and Senior Preferred Stock, other than
Dissenting Shares (as defined in Section 2.01(d)), shall no longer be
outstanding 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 to
have any rights with respect thereto, except the right of such holder to
receive


 


3

















 


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


 


(ii)           The number of Parent Shares to be paid at the
Closing Date (the “Parent Share Consideration”) is based on the
assumption that the Net Liabilities were not more than US$1,000,000 on the
business day prior to the Closing Date. The Company will cause (A) the
accounting records of the Company to be closed as of the close of business on
the business day preceding the Closing Date and (B) a balance sheet to be
prepared in accordance with GAAP (except that such balance sheet shall not
contain the footnotes required by GAAP) as of such time (the “Closing Date
Balance Sheet”). The Closing Date Balance Sheet shall reflect all events
occurring through the close of business on the business day preceding the
Closing Date, and will include the Net Liabilities as at such date. Parent
shall have full access to accounting records, trial balances and reports from
which 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 to
the Closing Date, the Parent Share Consideration shall be reduced by the amount
of such deficiencies as calculated pursuant to this Section 2.01. If, as
set forth in the Closing Date Balance Sheet, the Net Liabilities are less than
US$1,0000,000, the Parent Share Consideration shall be increased by the amount
of such excess cash and/or the amount of lesser debt as calculated pursuant to
this Section 2.01, but in no event in excess of 957,464 Parent Shares. Any
remaining difference where such Net Liabilities are less than US$1,000,000 will
be paid in cash in U.S. Dollars by the Parent. In making any reduction or
increase in the Parent Shares, the value of each Parent Share shall be
converted into U.S. Dollars using the Exchange Rate for the purposes of such
calculation.


 


(iv)          If, within 45 calendar days after the Company’s
delivery of the computation of the Net Liabilities to Parent pursuant to this
Section, Parent determines in good faith that the amount of the Net Liabilities
so computed is inaccurate, Parent shall give notice to the Representative
within such 45 calendar-day period, (A) setting forth Parent’s
determination of the amount of the Net Liabilities and (B) specifying in
reasonable detail Parent’s basis for its disagreement with the Company’s
computation. The failure by Parent so to express its disagreement within such
45 calendar-day period shall constitute acceptance of the amount of the Net
Liabilities shown on the Closing Date Balance Sheet for all purposes of this
Section. A representative of Parent and the Representative shall attempt in
good faith to resolve any such disputes. If the Representative and Parent are
unable to resolve any disagreement with respect to these computations within 30
calendar days after receipt by the Representative of notice of such
disagreement, the items in dispute shall be referred for determination to a “Big
4” independent accounting firm agreed upon by the Representative and Parent
(the “Accountants”) within such 30 calendar-day period. The Accountants
shall make a determination as to each of the items in dispute, which
determination shall be (W) in writing, (X) furnished to the
Representative and Parent as promptly as practicable after the items in dispute
have been referred to the Accountants, (Y) made in accordance with GAAP
and (Z) conclusive and binding on the Parent. The fees and expenses of the


 


4

















 


Accountants shall be paid by Parent;
provided, however, that Parent shall be reimbursed for one-half of such fees
and expenses out of the Parent Share Consideration. As soon as reasonably
practicable after the final resolution of the computation of the Net
Liabilities in accordance with this Section 2.01(c), the Parent shall
cause the Exchange Agent to issue to holders of surrendered Certificates, in
accordance with Section 2.02, holding statements reflecting the shares
registered on the books of the Parent representing that number of additional
duly and validly authorized Parent Shares which such holders have the right to
receive pursuant to the provisions of this Article II, if any, after
adjustment to reflect the final computation of the Net Liabilities and any fees
and expenses owing pursuant to this Section 2.01(c) and the Holdback
Shares, 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 the
Company’s stockholders, and without further action of any Company stockholder,
each Company stockholder entitled to receive Parent Shares under this Agreement
shall be deemed to have irrevocably constituted and appointed Sprout Capital
IX, L.P. (and by execution and delivery of this Agreement it hereby accepts
such appointment) as agent and attorney-in-fact for and on behalf of such
stockholders, with full power of substitution, to act in the name, place and
stead of each such stockholder with respect to this Section 2.01(c) in
connection with the determination of the Net Liabilities and the taking by the
Representative of any and all actions and the making of any decisions required
or permitted to be taken by the Representative under this Article II,
including the exercise of the power to: (i) give and receive notices and
communications under this Article II; (ii) prepare and deliver to
Parent the Closing Date Balance Sheet and computation of Net Liabilities and
participate on behalf of the Company’s stockholders in the resolution of any
dispute relating thereto, including to act as the representative of the Company’s
stockholders to review and authorize all adjustments proposed hereunder and
dispute or question the accuracy thereof and to compromise on their behalf with
Parent; (iii) deliver or authorize the delivery of any consideration owing
pursuant to this Agreement; and (iv) take all actions necessary or
appropriate in the good faith judgment of the Representative for the
accomplishment of the foregoing. The power of attorney granted in this Section 2.01(c) is
coupled with an interest and is irrevocable, and shall survive the death or
incapacity of any Company stockholder. The Parent shall be entitled to deal
exclusively with the Representative on all such foregoing matters, and shall be
entitled to rely conclusively (without further evidence of any kind whatsoever)
on any document executed or purported to be executed on behalf of the Company
stockholders by the Representative regarding such matters, and on any other
action taken or purported to be taken on behalf of any Company stockholder by
the Representatives regarding such matters, as fully binding upon such Company
stockholder. No bond shall be required of the Representative, and the
Representative shall receive no compensation for services. Notices or
communications to or from the Representative shall constitute notice to or from
each of the Company’s stockholders.


 


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


 


5

















 


Representative’s position as the
Representative. Each of the Company’s stockholders shall severally (based on
each such stockholder’s pro rata share of the consideration owing pursuant to
this Agreement), and not jointly, indemnify and hold harmless the
Representative from and against any loss, liability or expense incurred without
gross negligence or willful misconduct on the part of the Representative and
arising out of or in connection with the acceptance or administration of the
Representative’s duties hereunder, including any out-of-pocket costs and expenses
and legal fees and other legal costs reasonably incurred by the Representative.


 


(d)           Dissenting Shares. (i) Notwithstanding any provision of this
Agreement to the contrary, each outstanding share of Company Common Stock,
Preferred Stock and Senior Preferred Stock, the holder of which has not voted
in favor of the Merger, has perfected such holder’s right to an appraisal of
such holder’s shares in accordance with the applicable provisions of the DGCL
and has not effectively withdrawn or lost such right to appraisal or is
entitled to and properly exercises dissenters rights pursuant to, and complies
with, Chapter 13 of the CGCL (each, a “Dissenting Share”), shall not be
converted into or represent the right to receive Parent Shares and cash
pursuant to Section 2.01(c) and such number of Parent Shares and cash
shall revert to Parent, but the holder thereof shall be entitled only to such
rights 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 Effective
Time who shall, after the Effective Time, withdraw the demand for appraisal or
lose the right of appraisal, in either case pursuant to the DGCL, shall be
deemed to be converted into, as of the Effective Time, the right to receive the
appropriate number of Parent Shares and cash, as the case may be, pursuant to Section 2.01(c).


 


(ii)           The Company shall give Parent (x) prompt
notice of any written demands for appraisal, withdrawals of demands for
appraisal and any other instruments served pursuant to the applicable
provisions of the DGCL or CGCL relating to the appraisal process received by
the Company and (y) the opportunity to participate in all negotiations and
proceedings with respect to demands for appraisal under the DGCL or CGCL, as
applicable. The Company will not voluntarily make any payment with respect to
any demands for appraisal and will not, except with the prior written consent
of Parent, settle or offer to settle any such demands.


 


(e)           Company Stock Options and Warrants. On the Closing Date, each outstanding
option 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 Closing
Date, all Company Stock Options and Company Warrants not exercised before the
Closing Date shall no longer be outstanding and shall automatically be canceled
and cease to exist.


 


(f)            Holdback. At Closing 151,240 (comprising twenty
percent (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 further
instruments, deeds, assignments


 


6

















 


or assurances are reasonably necessary to
consummate the Merger or to carry out the purposes and intent of this Agreement
at or after the Effective Time, then the Company, Parent, the Surviving
Corporation and their respective officers and directors shall execute and
deliver all such proper deeds, assignments, instruments and assurances and do
all other things reasonably necessary to consummate the Merger and to carry out
the purposes and intent of this Agreement.


 


2.02.       Exchange of Certificates.


 


(a)           Exchange Agent. At Closing Parent shall make available to the Surviving
Corporation for deposit with an exchange agent reasonably acceptable to Parent,
the Company and the Representative (the “Exchange Agent”) on behalf of
Parent, holding statements issued by the Parent’s share transfer agent
representing 604,959 duly and validly authorized and issued whole Parent Shares
to be held for the benefit of holders of Company Common Stock, Preferred Stock
and Senior Preferred Stock. The Parent shall holdback 151,240 Parent Shares as “Holdback
Shares”. 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 share
transfer agent representing the remaining Parent Shares then payable shall be
deposited with the Exchange Agent for the benefit of holders of Company Common
Stock, Preferred Stock and Senior Preferred Stock. The Exchange Agent shall
agree to hold such cash and Parent Shares (such cash and Parent Shares being
referred to herein as the “Exchange Fund”) as contemplated by this Section and
upon such additional terms as may be agreed upon by the Exchange Agent, the
Company and Parent before the Effective Time.


 


(b)           Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Surviving Corporation on behalf of Parent shall cause the
Exchange Agent to mail to each holder of record of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding shares of Company Common Stock, Preferred Stock or Senior Preferred
Stock (the “Certificates”) whose shares are converted pursuant to Section 2.01(c) into
the right to receive Parent Shares (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to
the Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent and shall be in such form and have such other customary
provisions as the Surviving Corporation may reasonably specify) and (ii) instructions
for use in effecting the surrender of the Certificates in exchange for Parent
Shares and cash. Upon surrender of a Certificate for cancellation to the
Exchange Agent, together with such letter of transmittal duly executed and
completed in accordance with its terms, the holder of such Certificate shall be
entitled to receive in exchange therefore a holding statement representing
shares registered on the books of the Parent representing that number of duly
and validly authorized Parent Shares which such holder has the right to receive
at 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 a
holding statement representing the additional Parent Shares and cash, if any,
which such holder has the right to receive after final resolution of the Net
Liabilities and any increases or decreases in the Parent Share Consideration in
accordance with Section 2.01(c), as adjusted, and the Certificate so
surrendered shall forthwith be canceled. In the event of a transfer of
ownership of Company Common Stock, Preferred Stock or Senior Preferred Stock
which is not registered in the transfer records of the Company, a holding
statement representing the appropriate number of whole Parent Shares may be
issued to a transferee if the Certificate representing such Company


 


7

















 


Common Stock, Preferred Stock or Senior
Preferred Stock is presented to the Exchange Agent accompanied by all documents
required to evidence and effect such transfer and by evidence that any
applicable stock transfer taxes have been paid and that all applicable United
States and Australian federal or state securities laws have been complied with.
Until surrendered as contemplated by this Section 2.02(b), each
Certificate shall be deemed at any time after the Effective Time for all
corporate purposes of Parent, except as limited by paragraph (c) below, to
represent ownership of the number of duly and validly authorized Parent Shares
into which the number of shares of Company Common Stock, Preferred Stock or
Senior Preferred Stock, as the case may be, shown thereon have been converted
as contemplated by this Article II. In the event any Certificate shall
have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the Person claiming such Certificate to be lost, stolen or destroyed,
Parent shall, as promptly as practicable following the receipt by Parent of the
foregoing documents, issue in exchange for such lost, stolen or destroyed
Certificate that portion of the Parent Shares represented by the lost, stolen
or destroyed Certificate in exchange therefore which the Company’s stockholder
has the right to receive. The Board of Directors of Parent may in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed Certificate to provide to Parent an
indemnity agreement, but not a bond, against any claim that may be made against
Parent with respect to the Certificate alleged to have been lost, stolen or
destroyed.


 


(c)           Distributions with Respect to Unexchanged Shares. No dividends or other
distributions declared or made after the Effective Time with respect to Parent
Shares with a record date on or after the Effective Time shall be paid to the
holder of any unsurrendered Certificate with respect to the Parent Shares
represented thereby until the holder of record of such Certificate shall
surrender such Certificate in accordance with this Section. Subject to the
effect of applicable laws, following surrender of any such Certificate, there
shall be paid to the record holder of the Certificates representing whole
Parent Shares issued in exchange therefor, without interest, (i) at the
time of such surrender, the amount of dividends or other distributions, if any,
with a record date on or after the Effective Time which theretofore became
payable, but which were not paid by reason of the immediately preceding sentence,
with respect to such whole Parent Shares, and (ii) at the appropriate
payment date, the amount of dividends or other distributions with a record date
on or after the Effective Time but prior to surrender and a payment date
subsequent 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 of
Certificates in accordance with the terms hereof shall be deemed to have been
paid or issued, as the case may be, at the Effective Time in full satisfaction
of all rights pertaining to the shares of Company Common Stock, Preferred Stock
or Senior Preferred Stock, as the case may be, represented thereby. From and after
the Effective Time, the stock transfer books of the Company shall be closed and
there shall be no further registration of transfers on the stock transfer books
of the Surviving Corporation of the shares of Company Common Stock, Preferred
Stock or Senior Preferred Stock, as the case may be, which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Section.


 


8

















 


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


 


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


 


(f)            Termination of Exchange Fund. Any portion of the
Exchange Fund which remains undistributed to the holders of Company Common
Stock, Preferred Stock or Senior Preferred Stock for twelve months after the
Effective Time shall be delivered to Parent, upon demand, and any holders of
Company Common Stock, Preferred Stock or Senior Preferred Stock who have not
theretofore complied with this Article II shall thereafter look only to
Parent (subject to abandoned property, escheat and other similar laws) as
general creditors for payment of their claim for Parent Shares, cash and any
dividends or distributions with respect to Parent Shares. Parent shall be
liable to any holder of Company Common Stock, Preferred Stock or Senior
Preferred Stock, as the case may be, for Parent Shares (or dividends or
distributions with respect thereto) and cash delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.


 


ARTICLE III


 


REPRESENTATIONS AND WARRANTIES OF
THE COMPANY


 


Subject to such exceptions as are
specifically disclosed in the Disclosure Letter, the Company represents and
warrants to Parent as of the date hereof as follows:


 


3.01.        Power and Authority. This Agreement has been duly executed and delivered
by the Company. This Agreement is a valid and binding obligation of the
Company, enforceable against the Company in accordance with its respective
terms, subject to the effect of (i) applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to rights of creditors generally and (ii) rules of law and
equity governing specific performance, injunctive relief and other equitable
remedies.


 


3.02.        No Conflicts; Consents and Approvals. (a) Except as set forth in Section 3.02
of the Disclosure Letter, the execution and delivery by the Company of this
Agreement and the performance of the Company’s obligations hereunder will not
result in (i) any conflict with the certificate of incorporation or
by-laws of the Company, (ii) any breach or violation of or default under
any law, statute, regulation, judgment, order, decree, license, permit or other
Governmental Approval or any mortgage, lease, agreement, deed of trust,
indenture or any other instrument to which the Company is a party or by which
the Company or its properties or assets are bound, (iii) or give rise to
any right of termination, cancellation or acceleration or any right or
obligation of the Company or any Subsidiary or to a loss of any benefit to which
the Company


 


9

















 


or any Subsidiary is entitled under any
provision of any agreement, contract or other instrument binding upon the
Company or any Subsidiary or any license, franchise, permit or other similar
authorization held by the Company or any Subsidiary, or (iv) the creation
or imposition of any Liens other than Liens created by or resulting from the
actions of Parent or any of its Affiliates.


 


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


 


3.03.        Corporate Status and Authority of the Company. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of its Jurisdiction of Organization. The execution, delivery and
performance of this Agreement by the Company has been duly authorized by its
board of directors which, except as described in Section 7.03, constitutes
all necessary corporate action on the part of the Company for such
authorization. The Company has all requisite corporate power and authority and
all material governmental licenses, authorizations, consents and approvals
required to conduct its business and to own or lease its properties, as now
conducted, owned or leased. The Company is duly qualified to do business in
each jurisdiction in which the failure to be so qualified could reasonably be
expected to have a Material Adverse Effect.


 


3.04.        Capital Stock of the Company. (a) Section 3.04 of the
Disclosure Letter sets forth, as of the date hereof, the outstanding Company
Common Stock, Preferred Stock, Senior Preferred Stock, Company Stock Options
and Company Warrants and the holders of such Company Common Stock, Preferred
Stock, Senior Preferred Stock, Company Stock Options and Company Warrants. All
outstanding shares of Company Common Stock, Preferred Stock and Senior
Preferred Stock have been duly authorized and validly issued and are fully paid
and non-assessable. Except as set forth in this Section, there are no
outstanding (i) shares of capital stock or voting securities of the
Company, (ii) securities of the Company convertible into or exchangeable
for shares of capital stock or voting securities of the Company, or (iii) options
or other rights to acquire from the Company, and there is no obligation of the
Company to issue, any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting securities of the
Company (the items in clauses (i), (ii) and (iii) being referred to
collectively as “Company Securities”). Except as set forth in this Section or
in Section 3.04 of the Disclosure Letter, there are, and at or prior to
Closing there will be, no outstanding obligations of the Company or any
Subsidiary to issue or deliver or to repurchase, redeem or otherwise acquire
any Company Securities.


 


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


 


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


 


10

















 


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


 


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


 


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


 


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


 


(ii)           any declaration, setting aside or payment or any
dividend or other distribution with respect to any Company Security, or any
repurchase, redemption or other acquisition by the Company of any outstanding
Company Security;


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


11
















 


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


 


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


 


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


 


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


 


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


 


(c)                                Each lease (including any option to purchase
contained therein) pursuant to which the Company leases any Leased Real
Property listed in Section 3.09 of the Disclosure Letter (the “Leases”)
is in full force and effect and, to the knowledge of the Company, is
enforceable against the landlord which is party thereto in accordance with its
terms, except to the extent that any failure to be so enforceable could not
reasonably be expected to have a Material Adverse Effect. There exists no
default or event of default on the part of the Company under any Leases. The
Company has furnished or made available to Parent complete and correct copies
of all Leases including all amendments thereto. The Company has not received
any written notice of any default under any lease by which the Company leases
the Leased Real Property nor any other written termination notice with respect
thereto.


 


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


 


12

















 


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


 


3.11.                      Employment.


 


(a)                                Employment
Agreements. Section 3.11(a) of
the Disclosure Letter lists all written agreements, contracts and commitments
of the following types to which the Company is a party as of the Closing Date: (i) employment
agreements (including severance and retention agreements) and (ii) collective
bargaining agreements.


 


(b)                                Labor Disputes,
Compliance with Laws, etc. Except as
provided 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 other
similar labor activity with respect to any employees of the Company. The
Company is in compliance in all material respects with all applicable laws
pertaining to the employment or termination of employment of its employees.


 


(c)                                 Employee Benefit
Plans. The Company does not have any
Employee Benefit Plan, other than those listed in Section 3.11(c) of
the Disclosure Schedule.


 


(d)                                Retention of
Employees and Consultants. Except as set
forth on Section 3.11(d) of the Disclosure Letter, none of the
employees or consultants of the Company has indicated to the Company that he
intends to resign or retire or discontinue (by termination, non-renewal or
otherwise) his relationship with the Company as a result of the transactions
contemplated by this Agreement or otherwise within two years after the Closing
Date. No employee has a valid claim for payment of accrued salary or benefits
which was required to be paid to such employee prior to the date hereof that
will not be paid in full prior to the Closing Date.


 


3.12.                      Intellectual Property. (a) Section 3.12(a) of
the Disclosure Letter lists all material Intellectual Property Rights
specifying as to each, as applicable: (i) the nature of such Intellectual
Property Right; (ii) the owner of such Intellectual Property Right; (iii) the
jurisdictions by or in which such Intellectual Property Right is recognized
without regard to registration or has been issued or registered or in which an
application for such issuance or registration has been filed, including the
respective registration or application numbers; and (iv)


 


13

















 


material licenses, sublicenses and other
agreements as to which the Company or any of its Affiliates is a party and
pursuant to which any Person is authorized to use such Intellectual Property
Right, including the identity of all parties thereto, a description of the
nature and subject matter thereof, the applicable royalty and the term thereof.


 


(b)                               (i) The Company has not been sued or charged
in writing with or been a defendant in any claim, suit, action or proceeding
relating to its business that has not been finally terminated prior to the date
hereof and that involves a claim of infringement of any patents, trademarks,
service marks or copyrights, and (ii) the Company has no knowledge of any
other claim or infringement by the Company, and no knowledge of any continuing
infringement by any other Person of any Intellectual Property Rights. To the
knowledge of the Company, the Company has not done any act that would
invalidate any patents of the Company. To the knowledge of the Company, there
is 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 or
restricting the licensing thereof by the Company to any Person. The Company has
not entered into any agreement to indemnify any other Person against any charge
of infringement of any patent, trademark, service mark or copyright.


 


(c)                                To the knowledge of the Company, none of the
material processes and formulae, research and development results and other
know-how of the Company, the value of which to the Company is contingent upon
the maintenance of the confidentiality thereof, has been disclosed by the
Company to any Person other than employees, representatives and agents of the
Company bound by enforceable confidentiality undertakings. The Company owns or
has the right to use the material Intellectual Property Rights and, with
respect to Intellectual Property it purports to own, the Company has done all
acts necessary to secure title to the Intellectual Property Rights in all
relevant jurisdictions. To the knowledge of the Company, none of the
Intellectual Property Rights infringes the rights of any third party.


 


3.13                        Governmental Consents and Approvals. (a) Except
as set forth in Section 3.13(a) of the Disclosure Letter, no
Governmental Approval or other Consent of a Governmental Authority is required
to be obtained or made, the Company in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby or thereby.


 


(b)                               Except as set forth in Section 3.13(b) of
the Disclosure Letter, all Governmental Approvals and other Consents from
Governmental Authorities that are necessary for, or otherwise material to, the
conduct of the business of the Company substantially in the manner currently
conducted after giving effect to the transactions contemplated in this
Agreement have been duly obtained and are held by the Company. The Company is
in compliance with all Governmental Approvals and other Consents held by it,
except for such failures that could not reasonably be expected to have a
Material Adverse Effect.


 


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


 


14

















 


agency, official or authority, which (i) could
reasonably be expected to have a Material Adverse Effect, or (ii) question
the validity of this Agreement or any action taken or to be taken by the
Company in connection herewith or which in any manner seeks to prevent, enjoin,
alter or materially delay the transactions contemplated hereby, nor to the
knowledge 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, capital
stock, 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 character
whatsoever, and including any interest, additions and penalties related
thereto, whether disputed or not and including any obligations to indemnify or
otherwise assume or succeed to the tax liability of any other Person; and (ii) “Tax
Returns” shall mean all returns, declarations, reports, statements and forms, claims
for refunds, or information returns and reports relating to Taxes, including
any schedule or attachment thereto, and including any amendments thereof.


 


(b)                               The Company has filed all Tax Returns that each
corporation was required to file. All such Tax Returns of the Company were
correct and complete in all material respects when filed and were prepared in
substantial compliance with all applicable laws and regulations. All Taxes due
and payable by the Company (whether or not shown on any Tax Return) have been
paid. Except as set forth in Section 3.15 of the Disclosure Letter, the
Company is not currently the beneficiary of any extension of time within which
to file any Tax Return. No claim has ever been made in writing by an authority
in a jurisdiction where the Company does not file Tax Returns that such
non-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 any
Liens for Taxes not yet due and payable.


 


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


 


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


 


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


 


15

















 


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


 


(g)                               The Company is not a party to or bound by any Tax
allocation or sharing agreement. The Company (i) has been a member of an
affiliated group filing a consolidated federal income Tax Return (other than a
group the common parent of which was the Company) or (ii) has any
liability 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 foreign
law), as a transferee or successor, by contract or otherwise. An affiliated
group, for this purpose, means any affiliated group within the meaning of Section 1504(a) of
the Code or any similar group defined under a similar provision of state, local
or foreign law.


 


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


 


(i)                                   The Company has not engaged in any listed
transaction within the meaning of Treasury Regulation Section

1.6011-4.


 


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


 


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


 


16

















 


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


 


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


 


(b)                               The Company is in substantial compliance with the
laws applicable to the development, manufacture, labeling, testing, subjecting
to clinical evaluation and inspection of the Specified Products and with all
applicable regulations, policies and procedures promulgated by the FDA with
respect thereto. The Company has received no written notice that any recalls,
field notifications or seizures have been ordered or, to the knowledge of the
Company, threatened by any governmental body with respect to any of the
Specified Products. The Company has not received a warning letter or other
similar written notice from the FDA regarding the Specified Products or the
manufacturing facilities used to manufacture the Specified Products. The
Company has not received any written notice that the FDA or any other authority
has commenced or overtly threatened to initiate any action to enjoin production
or clinical evaluation of any Specified Products. To the knowledge of the
Company, no officer, employee or agent of the Company has made an untrue
statement of a material fact or fraudulent statement to the FDA or any other
authority, or committed an act, made a statement or failed to make a statement
that, at the time such disclosure was made, could reasonably be expected to
provide a basis for the FDA or any other authority to invoke with respect to
the 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 Disclosure
Letter sets forth a complete and correct list, as of the date hereof, of the
policies of all insurance currently maintained by the Company. Such policies
are in full force and effect and all premiums due by the Closing Date have
either been paid or adequate provisions for the payment thereof has been made.
The Company has not received any written notice of any material increase of
premiums with respect to, or cancellation or non-renewal of, any of such
insurance policies. There are no claims by the Company under any of such
policies as to which, to the Company’s knowledge, any insurance company is
denying, questioning or disputing liability or defending under a reservation of
rights or similar clause.


 


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


 


17

















 


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


 


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


 


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


 


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


 


3.22.                      Brokers and Finders. All negotiations relating to
this Agreement and the transactions contemplated hereby have been carried out
without the intervention of any Person acting on behalf of the Company in such
manner as to give rise to any valid claim against Parent or the Company for any
brokerage or finder’s commission, fee or similar compensation.


 


ARTICLE IV


 


REPRESENTATIONS AND WARRANTIES OF
PARENT


 


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


 


4.01.                      Corporate Status and Authority. (a) Parent is
a corporation duly incorporated, validly existing and in good standing under
the laws of its Jurisdiction of Organization and has full corporate power and
authority to execute and deliver this Agreement and perform its obligations
hereunder.


 


18

















 


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


 


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


 


(b)                               Except as set forth in Section 4.02(b) of
the Parent Disclosure Letter, no consent, approval, waiver or other action
under any contract, agreement, indenture, lease, instrument or other document
to which the Parent or any Subsidiary is a party or by which any of them is
bound is required or necessary for the execution, delivery and performance of
this Agreement by the Parent or the consummation of the transactions
contemplated hereby, including the issuance of the Parent Shares hereunder.


 


4.03.                     Governmental Consents and Approvals. (a) Except
as set forth in Section 4.03 of the Parent Disclosure Letter, no
Governmental Approval or other Consent is required to be obtained or made by
Parent in connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby or thereby, except to the
extent that the failure to obtain such Governmental Approval or Consent could
not reasonably be expected, individually or in the aggregate, to materially
impair the ability of Parent to fulfill its obligations hereunder.


 


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


 


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


 


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


 


19

















 


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


 


4.07.                     Public Reports. Parent has filed all required
reports, schedules, forms, statements and other documents with the Australian
Securities Exchange and the United States Securities and Exchange Commission as
part of its continuous disclosure obligations under the Australian Securities
Exchange listing rules and the Corporations Act 2001 and the Securities
Exchange Act of 1934, as amended, and each of the rules and regulations
promulgated thereunder, and such reports (including the financial statements
contained therein) that were filed with respect to the Parent’s fiscal year end
June 30, 2007 and any period thereafter (the “Parent ASE Filings”),
were accurate in all material respects when first filed or made available to
the 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 to
it, sufficient funds to consummate the transactions contemplated by this
Agreement


 


ARTICLE V


 


REPRESENTATIONS AND WARRANTIES OF
PARENT AND SUB


 


Subject to such exceptions as are
specifically disclosed in the Parent Disclosure Letter, Parent and Sub jointly
and severally represent and warrant to the Company and the Representatives as
of the date hereof as follows:


 


5.01.                     Corporate Status and Authority. (a) Sub is a
corporation duly incorporated, validly existing and in good standing under the
laws of its Jurisdiction of Organization and has full corporate power and
authority to execute and deliver this Agreement and perform its obligations
hereunder.


 


(b)                              The execution, delivery and performance by Sub of
this Agreement has been duly authorized by its board of directors which, except
as described in Section 7.03, constitutes all necessary corporate action
on the part of Sub for such authorization. Sub has duly executed and delivered
this Agreement. This Agreement constitutes Sub’s valid and binding obligation
enforceable against it in accordance with the terms thereof, except as limited
by bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or
other similar laws of general


 


20

















 


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


 


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


 


5.03.                     Governmental Consents and Approvals. (a) Except
as set forth in Section 5.03 of the Parent Disclosure Letter, no
Governmental Approval or other Consent is required to be obtained or made by
Sub in connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby or thereby, except to the
extent that the failure to obtain such Governmental Approval or Consent could
not reasonably be expected, individually or in the aggregate, to materially
impair the ability of Sub to fulfill its obligations hereunder.


 


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


 


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


 


ARTICLE VI


 


COVENANTS


 


6.01.                     Covenants of the Company. At all times from and
after the date hereof until the Effective Time, the Company covenants and
agrees that (except as expressly contemplated or permitted by this Agreement,
or to the extent that Parent shall otherwise consent in writing, such consent
not to be unreasonably withheld, delayed or conditioned):


 


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


 


21

















 


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


 


(b)                               Dividends; Changes in Share Capital. The Company
shall 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 such
Subsidiary’s parent, (ii) split, combine or reclassify any of its capital
stock or issue or authorize or propose the issuance of any other securities in
respect 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 a
wholly owned Subsidiary after consummation of such transaction, or (iii) repurchase,
redeem or otherwise acquire any shares of its capital stock or any securities
convertible into or exercisable for any shares of its capital stock.


 


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


 


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


 


(e)                                Acquisitions and Divestitures. The Company shall
acquire or agree to acquire by merging or consolidating with, or by purchasing
a substantial equity interest in or a substantial portion of the assets of, or
by any other manner, any business or any corporation, partnership, association
or other business organization or division thereof or otherwise acquire or
agree to acquire any assets (other than the acquisition of assets used in the
operations of the business of the Company in the ordinary course); provided,
however, that the foregoing shall not prohibit (x) internal
reorganizations or consolidations involving existing wholly owned Subsidiaries
of the Company or (y) the creation of new Subsidiaries of the Company
organized to conduct or continue activities otherwise permitted by this
Agreement and that in the case of clause (x) and (y) would not
otherwise be prohibited by or result in a breach of any other provision of this
Section 6.01. Other than (i) internal reorganizations or consolidations
involving existing wholly owned Subsidiaries of the Company, (ii) as may
be required by or in conformance with law or regulation in order to permit or
facilitate the consummation of the transactions contemplated hereby or (iii) as
set forth in Section 6.01(e) of the Disclosure Letter, the Company
shall 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 of
wholly owned Subsidiaries of the Company) which are material, individually or
in the aggregate, to the Company other than sales of inventory in the ordinary
course of business.


 


22
















 


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


 


(g)                                 Compensation. Other than in accordance with the
provisions of this Agreement, the Company shall not (i) increase any
employee benefits provided to, or, except in the ordinary course of business
consistent with past practices, increase the compensation or fringe benefits
payable 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 any
benefit not provided for under any benefit plan or arrangement of the Company
and its Subsidiaries; or (iv) increase in any manner the severance or
termination pay of any officer or employee.


 


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


 


(i)                                     Material Agreements. Except as set forth in Section 6.01(i) of
the 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 the
ordinary course of business.


 


(j)                                     Representations and Warranties. The Company shall
not knowingly take any actions that would make any representation or warranty
of the Company contained in this Agreement untrue or incorrect in any material
respect 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, the
foregoing actions.


 


6.02.                        Covenants of Parent. At all times from and after
the date hereof until the Effective Time, Parent covenants and agrees as to
itself and its Subsidiaries (except as expressly contemplated or permitted by
this Agreement, or to the extent that the Company shall otherwise consent in
writing):


 


(a)                                  Ordinary Course. Parent and its Subsidiaries shall
carry on their respective businesses in the usual, regular and ordinary course
in all material respects, in substantially the same manner as heretofore
conducted, and shall use all reasonable efforts to preserve intact their present
lines of business and keep available the services of their current officers and
employees


 


23

















 


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


 


(b)                                 Dividends; Changes in Share Capital. Parent shall
not, and shall not permit any of its Subsidiaries to, (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 such Subsidiary’s parent, (ii) split,
combine or reclassify any of its capital stock or issue or authorize or propose
the issuance of any other securities in respect 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 a wholly owned Subsidiary after
consummation of such transaction, or (iii) repurchase, redeem or otherwise
acquire any shares of its capital stock or any securities convertible into or
exercisable for any shares of its capital stock except to the extent required
by existing employment agreements to which the Parent is a party.


 


(c)                                  Issuance of Securities. Parent shall not, nor shall
it permit any of its Subsidiaries to, issue, deliver, sell, pledge or otherwise
encumber, any shares of its capital stock or authorize or propose the issuance,
delivery, sale, pledge or encumbrance (except for Permitted Liens), of, any
shares of its capital stock of any class, or any securities convertible into or
exercisable for, or any rights, warrants or options to acquire, any such shares
of capital stock, or enter into any agreement with respect to any of the
foregoing, other than (i) the issuance of Parent Shares upon the exercise
of stock options outstanding on the date hereof in accordance with their
present terms, (ii) issuances by a wholly owned Subsidiary of capital
stock to such Subsidiary’s parent, (iii) the issuance of Parent Shares in
connection with the Merger or (iv) the issuance of Parent Shares to
Medigen Biotechnology Corporation under the terms of an agreement entered into
on January 16, 2007, which terms have been disclosed to the Company.


 


(d)                                 Governing Documents. Except to the extent required
to comply with their respective obligations hereunder or as required by law,
Parent and its Subsidiaries shall not amend their respective certificates of
incorporation, 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 by
merging or consolidating with, or by purchasing a substantial equity interest
in or a substantial portion of the assets of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof or otherwise acquire or agree to acquire any
assets (other than the acquisition of assets used in the operations of the
business of Parent and its Subsidiaries in the ordinary course); provided,
however, that the foregoing shall not prohibit (x) internal reorganizations
or consolidations involving existing wholly owned Subsidiaries of Parent or (y) the
creation of new Subsidiaries of Parent organized to conduct or continue
activities otherwise permitted by this Agreement and that in the case of clause
(x) and (y) would not otherwise be prohibited by or result in a
breach of any other provision of this Section 6.02. Other than (i) internal
reorganizations or consolidations involving existing wholly owned Subsidiaries
of Parent and (ii) as may be required by or in conformance with law or
regulation in order to permit or facilitate the consummation of the
transactions contemplated hereby, Parent shall not, and shall not permit


 


24

















 


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 of
wholly owned Subsidiaries of Parent) which are material, individually or in the
aggregate, to Parent other than sales of inventory in the ordinary course of
business.


 


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


 


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


 


(h)                                 Necessary Finances. Parent shall use its reasonable
commercial efforts to retain the ability to issue Parent Shares (to the extent
such Parent Shares may be issued by the Parent without shareholder approval)
and sufficient cash (to the extent such Parent Shares cannot be issued by the
Parent without shareholder approval) necessary to consummate the transactions
contemplated by this Agreement, including, but not limited to, the payment of
the 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, authorize
any of, or commit or agree to take any of, the foregoing actions.


 


6.03.                        Additional Covenants of Parent. Parent additionally
covenants and agrees as follows:


 


(a)                                  First Milestone Consideration. Not later than 45
days following achievement of the First Milestone, the Parent will pay an
additional 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 Parent
without shareholder approval) and cash (to the extent such Parent Shares cannot
be issued by the Parent without shareholder approval); provided, that,
for the avoidance of doubt, Parent will issue the maximum number of Parent
Shares as can be issued by Parent without shareholder approval and will pay the
remainder of the consideration due pursuant to this Section 6.03(a) in
cash. If the Parent pays the First Milestone in whole or in part in Parent
Shares, the number of Parent Shares to be issued and delivered to
Representatives shall be determined by multiplying US$5,000,000 (or such
portion thereof as is to be paid in Parent Shares) by the Exchange Rate and
dividing the product by the Thirty-Day Average Stock Price. In the event of
payment in Parent Shares, Parent shall make available to the Representatives
holding statements issued by the Parent’s share transfer agent representing the
number of duly and validly authorized whole Parent Shares issuable in
connection with the First Milestone to be held for the benefit of the former
holders of Company Common Stock, Preferred Stock and Senior Preferred Stock to
be distributed under Section 2.01(c). Payment in cash will be made to such
account of the


 


25

















 


Representatives as shall be provided to the
Parent in writing for distribution to the former holders of Company 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 therewith
within a commercially reasonable period of time, which, in any event, shall not
exceed 20 business days.


 


(b)                                 Second Milestone Consideration. Not later than 45
days following achievement of the Second Milestone, the Parent will pay an
additional 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 Parent
without shareholder approval) and cash (to the extent such Parent Shares cannot
be issued by the Parent without shareholder approval); provided, that,
for the avoidance of doubt, Parent will issue the maximum number of Parent
Shares as can be issued by Parent without shareholder approval and will pay the
remainder of the consideration due pursuant to this Section 6.03(b) in
cash. If the Parent pays the Second Milestone in whole or in part in Parent
Shares, the number of Parent Shares to be issued and delivered to Representatives
shall be determined by multiplying US$10,000,000 (or such portion thereof as is
to be paid in Parent Shares) by the Exchange Rate on the date of achievement of
the Second Milestone and dividing the product by the Thirty-Day Average Stock
Price. In the event of payment in Parent Shares, Parent shall make available to
the Representatives holding statements issued by the Parent’s share transfer
agent representing the number of duly and validly authorized whole Parent
Shares issuable in connection with the Second Milestone to be held for the
benefit of holders of Company Common Stock, Preferred Stock and 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 be
provided to the Parent in writing for distribution to the former holders of
Company 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 therewith
within a commercially reasonable period of time, which, in any event, shall not
exceed 20 business days.


 


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


 


26

















 


in cash will be made to such account of the
Representatives as shall be provided to the Parent in writing for distribution
to the former holders of Company 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 therewith within a commercially
reasonable period of time, which, in any event, shall not exceed 20 business
days.


 


(d)                                 Fourth Milestone Consideration. Not later than 45
days following achievement of the Fourth Milestone, the Parent will pay an
additional 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 Parent
without shareholder approval) and cash (to the extent such Parent Shares cannot
be issued by the Parent without shareholder approval) ; provided, that,
for the avoidance of doubt, Parent will issue the maximum number of Parent
Shares as can be issued by Parent without shareholder approval and will pay the
remainder of the consideration due pursuant to this Section 6.03(d) in
cash. If the Parent pays the Fourth Milestone in whole or in part in Parent
Shares, the number of Parent Shares to be issued and delivered to the
Representatives shall be determined by multiplying US$2,000,000 (or such
portion thereof as is to be paid in Parent Shares) by the Exchange Rate on the
date of achievement of the Fourth Milestone and dividing the product by the
Thirty-Day Average Stock Price. In the event of payment in Parent Shares,
Parent shall make available to the Representatives holding statements issued by
the Parent’s share transfer agent representing the number of duly and validly
authorized whole Parent Shares issuable in connection with the Fourth Milestone
to be held for the benefit of holders of Company Common Stock, Preferred Stock
and 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 be
provided to the Parent in writing for distribution to the former holders of
Company 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 therewith
within a commercially reasonable period of time, which, in any event, shall not
exceed 20 business days.


 


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


 


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


 


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


 


27

















 


ARTICLE VII


 


ADDITIONAL AGREEMENTS


 


7.01.                        Access to Information; Confidentiality. (a) Each
of 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) provide
the other party and its representatives with full access, upon reasonable prior
notice and during normal business hours, to all officers, employees, agents and
accountants of the Company or Parent, as the case may be, and its Subsidiaries
and their respective assets, properties, books and records, but only to the
extent that such access does not unreasonably interfere with the business and
operations 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 requirements
applicable laws or filed with any Governmental Authority, and (y) all
other information and data (including, without limitation, copies of contracts,
Employee Benefit Plans and other books and records) concerning the business and
operations of the Company or Parent, as the case may be, and its Subsidiaries
as the other party or any of such other persons reasonably may request. No
investigation pursuant to this paragraph or otherwise shall affect any
representation or warranty contained in this Agreement or any condition to the
obligations of the parties hereto.


 


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


 


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


 


7.03.                        Approval of Stockholders. Each of the Company and
Sub either (a) shall call or shall have called a meeting of its respective
stockholders to be held as promptly as practicable after the date hereof for
purposes of voting upon this Agreement or (b) shall solicit written
consents of its respective stockholders in lieu thereof. Each of the Company
and Sub will, through their respective boards of directors, recommend to their
respective stockholders approval of this Agreement and the transactions contemplated
hereby.


 


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 otherwise
required by


 


28

















 


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


 


(b)                                 Cooperation
on Tax Matters. The parties hereto and
the Surviving Corporation shall cooperate fully, as and to the extent
reasonably requested by another party, in connection with the filing of Tax
Returns pursuant to this Section and any audit, litigation or other
proceeding with respect to Taxes. Such cooperation shall include the retention
and (upon the other party’s request) the provision of records and information
which are reasonably relevant to any such audit, litigation or other proceeding
and making employees available on a mutually convenient basis to provide
additional information and explanation of any material provided hereunder. The
parties hereto and the Surviving Corporation agree (A) to retain all books
and records with respect to Tax matters pertinent to the Company relating to
any taxable period beginning before the Closing Date until the expiration of
the statute of limitations (and, to the extent notified by Parent, any
extensions thereof) of the respective taxable periods, and to abide by all
record retention agreements entered into with any taxing authority, (B) to
give the other party reasonable written notice prior to transferring,
destroying or discarding any such books and records and, if the other party so
requests, 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) upon
request, to use their best efforts to obtain any certificate or other document
from any governmental authority or any other Person as may be necessary to
mitigate, reduce or eliminate any Tax that could be imposed (including, but not
limited to, with respect to the transactions contemplated hereby).


 


(c)                                  Certain
Taxes All transfer, documentary, sales,
use, stamp, registration and other substantially similar Taxes and fees
(including any penalties and interest) incurred in connection with this
Agreement (collectively, “Transfer Taxes”), shall be paid by the Company
when due, and such parties will, at their own expense, file all necessary Tax
Returns and other documentation with respect to all such Transfer Taxes and, if
required by applicable law, the Surviving Corporation and the Parent will, and
will cause their affiliates to, join in the execution of any such Tax Returns
and other documentation. The Representatives shall provide the Surviving
Corporation and the Parent with evidence satisfactory to the Surviving
Corporation and the Parent that such Transfer Taxes have been paid by the
Company. The Representatives shall use their commercially reasonable best
efforts to provide Parent at Closing with a clearance certificate or similar
document(s) which may be required by any state taxing authority to relieve
the Parent of any obligation to withhold any portion of the payments made
pursuant to this Agreement.


 


(d)                                 Tax
Refunds. Any Tax refunds that are
received by Parent, the Surviving Corporation or any of their Subsidiaries, and
any amounts credited against Tax to which Parent, the Surviving Corporation or
any of their Subsidiaries become entitled, that relate to Tax periods or
portions thereof ending on or before the Closing Date shall be for the account
of the Company stockholders, and the Parent shall pay over to the
Representatives 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 for
refund or a proceeding results in a payment or credit against Tax by a taxing
authority or other Government Authority to the Parent, Surviving Corporation or
any of their Subsidiaries


 


29

















 


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


 


(e)                                  Tax Claims. If, subsequent to the Closing, any of Parent, the Surviving Corporation
or the Representative receives notice of a claim by any Governmental Authority,
that, if successful, might result in an indemnity payment hereunder (a “Tax
Claim”), then within fifteen (15) days after receipt of such notice, the
party receiving such notice shall give written notice of such Tax Claim to the
other parties. The Parent shall have the right to control the conduct and
resolution of any such Tax Claim; provided, however, that if the resolution of
any such Tax Claim (or any portion thereof) may affect the Taxes of the Company
for a Tax period ending on or prior to the Closing Date or a Tax period
beginning before and ending after the Closing Date, then the Representative and
Parent shall jointly control the conduct and resolution of such Tax Claim (or
portion thereof). If the Representative elects not to participate in the
conduct and resolution of any such Tax Claim, the Representative shall notify
Parent in writing and Parent shall have the right to control the conduct and
resolution of such Tax Claim; provided, however, that Parent shall keep the
Representative informed of all developments on a timely basis and Parent shall
not resolve such Tax Claim in a manner that could reasonably be expected to
have an adverse impact on the Indemnifying Party’s indemnification obligations
under this Agreement without the written consent of the Representative, which
shall not be unreasonably withheld. Each party shall bear its own costs
incurred in participating in any proceeding relating to any Tax Claim.


 


7.05.                        Regulatory and Other Approvals. Subject to the
terms and conditions of this Agreement and without limiting the provisions of
Sections 6.01, 6.02, 6.03 and 6.04, each of the Company and Parent will proceed
diligently and in good faith and will use all commercially reasonable efforts
to do, or cause to be done, all things necessary, proper or advisable to, as
promptly as practicable, (a) obtain all required Consents, approvals or
actions of, make all filings with and give all notices to Governmental
Authorities or any other public or private third parties required of Parent,
the Company or any of their Subsidiaries to consummate the Merger and the other
matters contemplated hereby, and (b) provide such other information and communications
to such Governmental Authorities or other public or private third parties as
the other party or such Governmental Authorities or other public or private
third 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 in
connection with this Agreement and the transactions contemplated hereby shall
be paid by the party incurring such cost or expense.


 


7.07.                        Notice and Cure. Each of Parent and the Company
will notify the other promptly in writing after obtaining knowledge of, and
contemporaneously will provide the other with true and complete copies of any
and all information or documents relating to, and will use all commercially
reasonable efforts to cure before the Closing, any event, transaction or
circumstance occurring after the date of this Agreement that causes or will
cause 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 any
representation 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 of
such event, transaction or circumstance. Each of Parent and the Company also
will notify the


 


30

















 


other promptly in writing of, and will use
all commercially reasonable efforts to cure, before the Closing, any violation
or breach of any representation, warranty, covenant or agreement made by Parent
or the Company, as the case may be, in this Agreement, whether occurring or
arising prior to, on or after the date of this Agreement. No notice given
pursuant to this Section shall have any effect on the representations,
warranties, covenants or agreements contained in this Agreement for purposes of
determining satisfaction of any condition contained herein. Notwithstanding the
foregoing provisions, the delivery of any notice pursuant to this paragraph
shall not constitute an acknowledgment or admission of a breach of this
Agreement.


 


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


 


ARTICLE VIII


 


CONDITIONS


 


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


 


(a)                                  Stockholder Approval. This Agreement and the
transactions contemplated herein shall have been adopted by the requisite vote
of the stockholders of the Company and Sub under the DGCL and their respective
Certificates of Incorporation, and the approvals of such stockholders shall be
in full force and effect.


 


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


 


(c)                                  No Injunctions or Restraints. No court of competent
jurisdiction 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 making
illegal or otherwise restricting, preventing or prohibiting consummation of the
Merger or the other transactions contemplated by this Agreement.


 


(d)                                 Required Consents and Approvals. Other than the filing
provided for by Section 1.02, all required Consents, approvals and actions of,
filings with and notices to any Governmental Authority or any other public or
private third parties required of Parent, the Company or any of their
Subsidiaries to consummate the Merger and the other matters contemplated
hereby, the failure of which to be obtained or taken could be reasonably
expected to have a Material Adverse Effect or a material adverse effect on the
Surviving Corporation and


 


31

















 


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


 


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


 


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


 


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


 


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


 


(c)                                  Opinion of Counsel. Parent and Sub shall have
received 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 this
Agreement any order or law of any Governmental Authority which is then in
effect and which could be reasonably expected to result in a material
diminution of the benefits of the Merger to Parent.


 


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


 


32
















 


(f)            Employment Agreement. The Company shall have
entered into, or amended as necessary, an agreement with Larry Marton
providing, inter alia, (i) that he will devote such time as is
reasonably required by Parent or the Surviving Corporation to progress the
research objectives of Parent or the Surviving Corporation, and (ii) that
such agreements will remain in full force and effect after the Merger, and such
agreements shall be otherwise in form and substance reasonably acceptable to
Parent.


 


(g)           Material Adverse Effect. Since the date of this
Agreement, no Material Adverse Effect shall have occurred that has not been
cured.


 


(h)           Silicon Valley Bank Loan. Silicon Valley Bank shall
have delivered to Parent a letter providing that Silicon Valley Bank will release
all claims against the Company upon the payment of all principal and interest
outstanding and payable by the Company to Silicon Valley Bank under those
certain 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)            SLIL
Milestones.  The Company and SLIL shall
have entered into an agreement amending the terms of the Asset Purchase
Agreement dated as of May 19, 2004, whereby the milestones may be paid using
Parent Shares or cash, amending Section 2.5 and Schedule E and otherwise in
form and substance satisfactory to the Parent.


 


(j)            WARF License
Agreement.  The Company and WARF shall
have entered into an agreement amending the terms of the license agreement dated
as of June 8, 2004, whereby the milestone payment of US$500,000 will be paid at
such time as is mutually agreeable to WARF, the Company and Parent and
terminating the negative milestones and related schedules.


 


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


 


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


 


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


 


33

















 


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


 


(d)           Proceedings. All proceedings to be taken on the
part of Parent and Sub in connection with the transactions contemplated by this
Agreement and all documents incident thereto shall be reasonably satisfactory
in form and substance to the Company, and the Company shall have received
copies of all such documents and other evidences as the Company may reasonably
request in order to establish the consummation of such transactions and the taking
of all proceedings in connection therewith.


 


ARTICLE IX


 


TERMINATION, AMENDMENT AND WAIVER


 


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


 


(a)                                  by mutual written agreement of Parent and the
Company duly authorized by action taken by or on behalf of their respective
Boards of Directors; or


 


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


 


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


 


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


 


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


 


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


 


34

















 


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


 


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


 


9.02.                        Effect of Termination. If this Agreement is validly
terminated by either the Company or Parent pursuant to Section 9.01, this
Agreement will forthwith become null and void and there will be no liability or
obligation on the part of either the Company or Parent (or any of their
respective representatives or affiliates), except (i) that the provisions
of Sections 7.01(b) and will continue to apply following any such
termination and (ii) that nothing contained herein shall relieve any party
hereto 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 after
such 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 written
instrument duly executed by or on behalf of each party hereto.


 


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


 


35

















 


ARTICLE X


 


CERTAIN DEFINITIONS


 


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


 


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


 


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


 


“Agreement” means this Agreement and
Plan of Merger.


 


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


 


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


 


“Certificate of Merger” has the
meaning specified in Section 1.02.


 


“CGCL” means the California General
Corporation Law.


 


“Closing” has the meaning specified in
Section 1.03.


 


“Closing Date” has the meaning
specified in Section 1.03.


 


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


 


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


 


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


 


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


 


“Company Securities” has the meaning
specified in Section 3.04.


 


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


 


“Company Warrants” has the meaning
specified 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 the
meaning specified in Section 1.01.


 


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


 


36

















 


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


 


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


 


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


 


“Effective Time” has the meaning
specified in Section 1.02.


 


“Employee Benefit Plan” means each
profit sharing, pension, retirement, bonus, incentive compensation, stock
option, deferred compensation or other written material employee benefit plan,
agreement, contract or commitment for the benefit of the present and former
employees of the Company or any Subsidiary and which is maintained or
established by the Company or any Subsidiary or to which either the Company or
any Subsidiary contributes or is required to contribute or by which either the
Company or any Subsidiary is legally bound.


 


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


 


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


 


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


 


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


 


“FDA” means the United States Food and
Drug Administration.


 


“Financial Statements” has the meaning
specified in Section 3.06.


 


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


 


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


 


“GAAP” means generally accepted
accounting principles of the United States.


 


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


 


37

















 


“Governmental Authority” means any
nation or government, any state or other political subdivision thereof; any
entity, 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; and
any self-regulatory organization.


 


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


 


“IND” means an Investigation New Drug
Application for the Company’s product candidate to the FDA made by the Parent
or any Affiliate in respect of the Specified Technology that materially
complies with the requirements of the FDA, including the requirements under 21
CFR 312.


 


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


 


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


 


“Intellectual Property Right” means
any trademark, service mark, registration thereof or application for
registration thereof, trade name, invention, patent, patent application, trade
secret, know-how, copyright, copyright registration, application for copyright
registration, or any other similar type of proprietary intellectual property
right, whether or not registered, in each case which is owned or licensed and
used or held for use by the Company or any Subsidiary (excluding any
non-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 to
Parent.


 


“knowledge” means the knowledge of a
particular fact, circumstance, event or other matter in question of the
officers of an Entity. Any such officers of an Entity will be deemed to have
knowledge of a particular fact, circumstance, event or other matter if (i) such
officer has actual knowledge of the fact, circumstance or event or (ii) knowledge
of such fact, circumstance or event would be obtained by reasonable inquiry
under the circumstances.


 


“Leased Real Property” has the meaning
specified 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 meaning
specified in Section 3.10.


 


“Material Adverse Effect” means a
material adverse effect on the business, operations, prospects or financial
condition of the business of the Company taken as a whole; provided, however,
that none of the following (individually or in combination) shall be deemed to
constitute, or shall be taken into account in determining whether there has
been, a Material


 


38

















 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


“Parent ASE Filing” has the meaning
specified in Section 4.07.


 


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


 


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


 


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


 


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


 


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


 


39
















 


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


 


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


 


“Person” means any individual, Entity
or Governmental Authority.


 


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


 


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


 


“Secretary of State” has the meaning
specified in Section 1.02.


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


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


 


“Specified Regulatory Filings” means
the regulatory applications and governmental registrations identified on
Schedule 3.16.


 


“Specified Technology” means polyamine
analogues, quinones and porphyrins.


 


“Stockholders” means the holders of
Company Common Stock, Preferred Stock and Senior Preferred Stock on the Closing
Date.


 


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


 


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


 


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


 


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


 


40

















 


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


 


“Survival Period” has the meaning
specified in Section 11.01.


 


“Surviving Corporation” has the
meaning 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 specified
in Section 7.04(d).


 


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


 


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


 


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


 


“Thirty-Day Average Stock Price” means
the volume weighted average of the closing sale prices of a share of Parent
Shares as reported on the Australian Securities Exchange for the period of
thirty consecutive trading days ending on the trading day immediately preceding
the achievement of a Milestone.


 


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


 


“2007 Balance Sheet” has the meaning
specified in Section 3.07.


 


ARTICLE XI


 


GENERAL PROVISIONS


 


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


 


41

















 


committing or alleged to have committed such
fraud, the right of each party hereto to assert indemnification claims and
receive indemnification payments pursuant to Section 11.02 shall be the
sole and exclusive right and remedy exercisable by such party with respect to
any breach by the other party hereto of any representation, warranty or
covenant in this Agreement, except that, in the event of any breach or
threatened breach by any party to this Agreement of any covenant or obligation
set forth in this Agreement for the benefit of any other party to this
Agreement, such other party shall be entitled to seek a decree or order of
specific performance or mandamus to enforce the observance and performance of
such covenant, obligation or other provision, and an injunction restraining
such breach or threatened breach.


 


11.02.                  Indemnification. (a) The Stockholders
severally and not jointly shall defend, indemnify and hold harmless the Parent
and its affiliates, officers, directors, agents and representatives (“Parent
Indemnitees”) and the Surviving Corporation from, against and in respect
of, and shall pay and reimburse the Parent Indemnitees and the Surviving
Corporation for, any and all claims, losses, costs, expenses, obligations,
liabilities, damages and recoveries, including, without limitation, reasonable
attorneys’ fees, whether or not arising from third party claims (collectively, “Losses”),
that Parent Indemnitees or the Surviving Corporation may incur, sustain or
suffer as a result of (i) subject to the expiration of the Survival
Period, any breach of or inaccuracy in any representation or warranty of the
Company contained in this Agreement or in the Disclosure Letter furnished by or
on behalf of the Company under this Agreement, or (ii) except to the
extent such Taxes are reflected in the reserve for Tax Liability (rather than
any reserve for deferred Taxes established to reflect timing differences
between book and Tax income) shown on the face of the Closing Date Balance
Sheet, Taxes of the Company or any of its Subsidiaries with respect to any
taxable year or portion thereof ending on or before the Closing Date, or (iii) any
breach of the covenants or agreements of the Company or the Company contained
in this Agreement (collectively, “Parent Losses”). No claim for recovery
of any Parent Losses under Section 11.02(a)(i) may be asserted by a
Parent Indemnitee or the Surviving Corporation after the expiration of the
applicable Survival Period; provided, however, that claims in
writing made by a Parent Indemnitee or the Surviving Corporation in good faith
and with reasonable specificity prior to the expiration of the applicable
Survival Period shall not thereafter be barred by the expiration of the
applicable Survival Period. For purposes of computing the amount of any Parent
Losses incurred by Parent: (A) there shall be deducted an amount equal to
the amount of any Tax benefit actually received or receivable by Parent or any
of its affiliates in connection with such Losses or any of the circumstances
giving rise thereto; and (B) there shall be deducted an amount equal to
the amount of any insurance proceeds, indemnification payments, contribution
payments or reimbursements actually received or receivable by Parent or any of
its affiliates in connection with such Losses or any of the circumstances
giving 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 payable
for a Tax period that includes (but does not end on) the Closing Date, the
portion of such Tax which relates to the portion of such Tax period ending on
the Closing Date shall (x) in the case of any Taxes other than Taxes based
upon or related to income or receipts, be deemed to be the amount of such Tax
for the entire Tax period multiplied by a fraction the numerator of which is
the number of days in the Tax period ending on the Closing Date and the
denominator of which is the number of days in the entire Tax period, and (y) in
the case of any Tax based upon or related to income or receipts be deemed equal
to the amount which would be payable if the relevant Tax period ended on the
Closing Date. Any credits relating to a Tax period that begins


 


42

















 


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


 


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


 


(c)                                  Except with respect to any Parent Losses involving
proven fraud by the Company, the Stockholders shall not be liable to Parent
with respect to Parent Losses arising out of breaches of representations or
warranties unless and until, and then only to the extent that, the aggregate
amount of all Parent Losses shall exceed the sum of US$15,000 or equivalent
(the “Parent Basket”). The Company shall thereafter be liable for all
Parent Losses, whether or not in excess of the Parent Basket; provided, however,
that the Parent Indemnitees shall not be entitled to aggregate indemnification
under Section 11.02(a) in excess of the aggregate value of the
Holdback Shares; provided, further, however, the parties
to this Agreement agree that the Parent shall deduct from any consideration
owing pursuant to Section 2.01 (the Holdback Shares) prior to the issuance
or payment of such consideration, any indemnification amounts claimed under Section 11.02(a) and
that such deductions from the consideration owing pursuant to Section 2.01
(the Holdback Shares) shall be the sole and exclusive source of any
indemnification amounts payable to Parent pursuant to this Agreement and except
as provided in the first sentence hereof, no Stockholder of the Company shall
be personally liable for any indemnification except to the extent of having
such Stockholder’s consideration owing pursuant to this Agreement reduced by
such indemnification amounts.


 


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


 


(e)                                  All claims for indemnification by the Parent
Indemnitees, the Surviving Corporation or the Shareholder Indemnitee (in such
capacity an “Indemnified Party”) against,


 


43

















 


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


 


(i)                                     In the event that any written claim or demand for
which an Indemnifying Party would be liable to an Indemnified Party is made
against 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 Party
Claim”), the Indemnified Party shall notify the Indemnifying Party of such
Third Party Claim; provided, however, that the failure promptly
to give such notice shall not affect any Indemnified Party’s rights hereunder
except to the extent that such failure shall adversely affect any Indemnifying
Party or its rights hereunder. The Indemnified Party shall advise the
Indemnifying Party of all facts relating to such assertion within the knowledge
of the Indemnified Party, and shall afford the Indemnifying Party the
opportunity, at the Indemnifying Party’s sole cost and expense, to participate
in the defense thereof and, if it so chooses, to assume the defense of such
claims and to settle or compromise any Third Party Claim; provided, that,
except with the prior written consent of the Indemnified Party, such consent
not to be unreasonably withheld, conditioned or delayed, no Indemnifying Party
in the defense of any such claim shall consent to entry of any judgment or
order, interim or otherwise, or enter into any settlement to the extent that it
provides for injunctive or other non-monetary relief against the Indemnified
Party. Should the Indemnifying Party so elect to assume the defense of such
Third Party Claim, the Indemnifying Party will not be liable to the Indemnified
Party for legal expenses incurred by the Indemnified Party in connection with
the defense thereof, except as specifically provided below. If the Indemnifying
Party assumes such defense, the Indemnified Party shall have the right to
participate in the defense thereof, it being understood that the Indemnifying
Party shall control such defense, and in any such action or proceeding. the
Indemnified Party shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at its own expense unless (x) the
Indemnifying Party and the Indemnified Party mutually agree to the retention of
such counsel or (y) the named parties to any such suit, action or proceeding
(including any impleaded parties) include both the Indemnifying Party and the
Indemnified Party, and in the opinion of recognized outside counsel to the
Indemnified Party, representation of the Indemnifying Party and the Indemnified
Party by the same counsel would result in a conflict of interests between them.
Where the Shareholder Indemnitees are the Indemnifying or Indemnified Party
hereunder,, the Parent shall in any event be liable for the fees and expenses
of a single counsel for all such parties.


 


(ii)                                  The Indemnified Party shall not, without the prior
written consent of the Indemnifying Party, have the right to settle or
compromise any Third Party Claim subject to indemnification under this Section and
be indemnified therefor.


 


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


 


44

















 


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


 


Notwithstanding any other provision of this
Agreement, with respect to the obligation to indemnify for any Tax, (i) if
an Indemnified Party is requested to pay the Tax and sue for a refund, the
Indemnifying Party or Indemnifying Parties shall advance the full amount of the
Tax to the Indemnified Party on an interest free basis; (ii) no
Indemnifying Party shall be entitled to settle or to contest in court any claim
relating to Taxes if the settlement or an adverse court decision of the claim
would be likely, in the good faith judgment of the Indemnified Party, to cause
the Tax liability of the Indemnified Party or any affiliate to increase in any
taxable period ending after the Closing Date; and (iii) no proceedings may
be begun in any court unless the Indemnifying Party or Indemnifying Parties, if
requested by the Indemnified Party, provides a counsel’s opinion reasonably
satisfactory to the Indemnified Party that a reasonable basis exists to prevail
in those proceedings.


 


(f)                                    Any claim or demand relating to any matter for
which a party is entitled to indemnification hereunder shall be asserted by
written notice to the other party or parties from which indemnification is
sought, which notice shall specify in reasonable detail, insofar as such facts
are known to the party asserting such claim or demand, the facts and circumstances
giving rise to such claim on demand. Any amounts paid under this Article XI
will be treated as an adjustment to the aggregate consideration paid to the
holders of Company Common Stock, Preferred Stock and Senior Preferred Stock.


 


(g)                                 Notwithstanding anything in this Agreement to the
contrary, all amounts determined to be owing to Parent Indemnitees for
indemnification obligations of each of the Stockholders pursuant to this Section 11.02
shall be payable solely by offset from the Holdback Shares at the conclusion of
the procedures specified in this Section 11.02 (to the extent that the
same have not been released to the relevant Stockholder). In the event Parent
is entitled to offset against the Holdback Shares, the number of Holdback
Shares payable under Section 6.03, as the case may be, that shall be
canceled and no longer deliverable to each of the respective Stockholders shall
equal each such Stockholder’s proportional Share of Parent Losses divided by
the fair market value of the Holdback Shares with the fair market value of the
Holdback Shares being determined based on the Exchange Rate on the date of
set-off and application. On the six (6) month anniversary of the Closing
Date, Parent will transfer to the Stockholders entitled thereto (as informed by
the Representative), (i) fifty percent (50%) of the Holdback Shares (to
the extent remaining after the resolution of any claims with respect to Parent
Losses) minus (ii) the number of Holdback Shares equal to the aggregate
amount of claims by Parent pending on such date divided by the fair market
value of the Holdback Shares (determined using the Exchange Rate on the date of
determination). On the twelve (12) month anniversary of the Closing Date,
Parent will transfer to each of the Stockholders entitled thereto (as informed
by the Representative), (i) the remaining Holdback Shares of such
Stockholder (to the extent remaining after the resolution of any claims with
respect to Parent Losses and transfer pursuant to the prior sentence) minus (ii) the
number of Holdback Shares equal to the aggregate amount of claims by


 


45

















 


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


 


11.03.                  Notices. All notices, requests and other
communications hereunder must be in writing and will be deemed to have been
duly given only if delivered personally or by facsimile transmission or sent by
recognized international air courier to the parties at the following addresses
or 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 other
communications will (i) if delivered personally to the address as provided
in this Section, be deemed given upon delivery, (ii) if delivered by
facsimile


 


46

















 


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


 


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


 


11.05.                  Public Announcements. Except as otherwise required
by law or the rules of any applicable securities exchange or national
market system, so long as this Agreement is in effect, Parent and the Company
will not, and will not permit any of their respective representatives to, issue
or cause the publication of any press release or make any other public
announcement with respect to the transactions contemplated by this Agreement
without the consent of the other parties, which consent shall not be
unreasonably withheld. Parent, the Representatives and the Company will
cooperate with each other in the development and distribution of all press
releases and other public announcements with respect to this Agreement and the
transactions contemplated hereby, and will furnish the other with drafts of any
such releases and announcements as far in advance as practicable.


 


11.06.                  No Third Party Beneficiary. Except for the
provisions of Article 11, the terms and provisions of this Agreement are
intended solely for the benefit of each party hereto and their respective
successors 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 the
parties to confer third-party beneficiary rights upon any other person.


 


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


 


11.08.                  Headings. The headings used in this Agreement have
been inserted for convenience of reference only and do not define or limit the
provisions hereof.


 


11.09.                  Currency. Unless otherwise indicated, all amounts
of money referred to herein are expressed in United States dollars, and any
reference to “$” or to “U.S. Dollars” shall be deemed to be a reference to the
legal currency of the United States of America and any reference to “A$” or to “Australian
Dollars” 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 this
Agreement is held to be illegal, invalid or unenforceable under any present or
future law, and if the rights or obligations of any party hereto under this
Agreement will not be materially and adversely affected thereby, (i) such
provision will be fully severable, (ii) this Agreement will be construed
and enforced as if such illegal, invalid or unenforceable provision had never
comprised a part hereof, (iii) the remaining provisions of this Agreement
will 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) in
lieu of such illegal, invalid or unenforceable provision, there will be added
automatically as a part of this Agreement a legal, valid and enforceable
provision as similar in terms to such illegal, invalid or unenforceable
provision as may be possible.


 


11.11.                  Governing Law. (a) This Agreement shall be
governed by and construed in accordance with the laws of the State of Delaware
applicable to a contract executed and performed in such State without giving
effect to the conflicts of laws principles thereof. Each of the parties
irrevocably consents to the non-exclusive jurisdiction and venue of the state
and federal courts located within Santa Clara County, California and of
Queensland, Australia, in connection with any matter based upon or arising out
of this Agreement or the transactions contemplated hereby and agrees that
process may be served upon it in any manner authorized by the laws of the State
of California or Australia, as the case may be, for such persons and waives and
covenants not to assert or plead any objection which it might otherwise have to
such jurisdiction and such process.


 


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


 


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


 


(Signature Page Follows)


 


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IN WITNESS WHEREOF, each party hereto has
caused this Agreement to be signed by its officer thereunto duly authorized as
of 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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